Economist: Transport causing ‘serious logistical challenge’ for shale boom

HOUSTON — Despite major accidents in the past year, U.S. oil companies must keep using the nation’s railroads to move crude to markets while they build a much more extensive pipeline network, an energy economics professor said Tuesday.

Oil refineries on the East Coast have virtually no access to the light, sweet crude extracted in Texas’ surging oil fields because there are no pipelines to carry the oil there. It is generally too expensive to ship the crude from the Gulf Coast to buyers in the northeastern U.S. because of quirks in century-old laws, forcing refineries in New Jersey to buy oil from the Middle East and elsewhere, said Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University.

“This is a serious logistical challenge,” Weinstein said in a panel opening the 10th annual Pipeline Opportunities Conference at the George R. Brown Convention Center in downtown Houston. “We need all the infrastructure that we can rally.”

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Energy storage and transportation companies have made progress in their multibillion-dollar bid to build pipelines between U.S. shale plays that became active in the past five years and domestic markets. But they’re still decades away from fixing infrastructure gaps like the one between Texas oil fields  and New Jersey refineries.

While the oil industry waits for the Obama Administration’s decision on the controversial northern segment of the Keystone XL pipeline, billionaire Harold Hamm’s $300 million Pony Express pipeline and other infrastructure projects are expected to connect gushing oil wells in North Dakota to the major U.S. pipeline hub in Cushing, Okla.

But more expensive and more dangerous crude-by-rail shipments are expected to remain the primary mode of transportation out of the Bakken Shale for at least another two years, Weinstein said.

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That projection still stands even as crude-by-rail shipments draw heavy regulatory scrutiny after several major disasters involving exploding rail cars in the past year, including an accident in Quebec that killed 47 people when a crude-carrying train ran off its tracks and exploded.

“The fact is, if you look at the data over the last 20 years, it’s a lot safer and also a lot cheaper to move a oil through a pipeline than a rail car,” Weinstein said. “The spill rate for pipelines is less than half that for rail when you adjust for volume.”

Still, about 70 percent of the oil extracted from North Dakota’s major shale play moves to refineries by rail cars. And crude-by-rail shipments have grown from just 30 million barrels in the last half decade to more than 280 million barrels last year, he said, citing industry data.

“Rail is here to stay,” he said. “It’s going to continue to increase.”