Oil Shipped by Rail, Truck as Pipelines Play Catch-Up

Along with the U.S. shale oil boom came a surge in shipments of crude sent by rail, truck and barge, while sufficient pipeline capacity remains on the horizon.

The Energy Information Agency said in a report Wednesday that while refinery receipts of crude sent by those three methods remain a small percentage of total receipts, refineries across the nation took in more than 1 million barrels a day by rail, truck and barge last year, up 57% over 2011.

Total receipts of crude oil check in at about 15.2 million barrels a day, more than half of which is received by pipeline.

Truck and rail serve as alternative methods of sending oil to refineries when pipelines are operating at capacity or when a certain production region doesn’t have access to pipeline infrastructure. Both methods also offer more flexibility since they make use of existing road and rail infrastructure near producing basins.

The EIA explained that the increase in barge receipts could partially be a result of crude oil being transferred to barges from rail cars to travel the final stretch to refineries, particularly on the East Coast and along the Mississippi River.

Crude oil will continue to be moved by rail and truck as economics dictate, the EIA added, even as pipelines infrastructure catches up.

Earlier this month, a train derailed and exploded in a small Canadian town, causing at least 38 deaths and calling attention to the difficulty in transporting large amounts of crude oil using trains often more than 100 cars long.

In the wake of the explosion, the pending U.S. government decision on TransCanada’s (NYSE:TRP) Keystone XL pipeline once again came into focus. Pipelines are widely considered to provide a safer and more cost-efficient way of moving oil and gas, with the Manhattan Institute for Policy Research noting in a report last month that a person is more likely to be struck by lightning than die in a pipeline-related accident.

Some production areas in the U.S. currently have limited or no access to pipelines and rely heavily on rail and trucks to send crude to refineries. As many as 10 trains each day carry about 675,000 barrels of crude out of North Dakota, where pipeline capacity lags behind supplies. Railroads are responsible for moving about 75% of oil produced in North Dakota, which now trails just Texas among oil-producing states thanks to advanced drilling technology that has unlocked oil in the Bakken Shale formation.

According to the EIA, the Rocky Mountain region, or PADD 4, which includes refineries in Wyoming, Montana, Colorado, Utah and Idaho, has seen domestic truck and pipeline imports of Canadian oil continue to rise as domestic pipeline receipts have remained flat.

The Gulf Coast region, or PADD 3, accounts for most U.S. refinery receipts by rail, truck and barge. PADD 3 refineries have become increasingly dependent on rail and truck given insufficient pipeline capacity to handle surging production at the Eagle Ford and Permian basins. Receipts of crude that was moved using rail, truck and barge nearly doubled there in 2012.