North America - Oil Transport By Rail

Time to scratch the thought that the railroad industry has a "Friend in the White House":

http://nytimes.com/2017/01/24/us/politi ... trump.html" onclick="window.open(this.href);return false;

Fair Use:

...WASHINGTON — President Trump moved assertively on Tuesday to further dismantle his predecessor’s policies as he revived the Keystone XL pipeline that stirred years of debate over the balance between the nation’s energy needs and efforts to stem climate change.

Former President Barack Obama rejected the proposed 1,179-mile pipeline in 2015, arguing that it would undercut American leadership in curbing the reliance on carbon energy. Mr. Trump signed a document clearing the way to government approval of the pipeline as well as for the Dakota Access pipeline in North Dakota..

The action was expected, and Obama's opposition to these pipelines was more for environmental interests than railroad. But if somehow anyone thought that the President would be responsive to railroad interests, time to stow that thought away for the next four or eight years.

MCL1981 wrote:Not every decision about everything in this country revolves around you and your train.

Mr. MCL, possibly I am guilty of stirring up something where nothing was intended, but I like to think we gather at this site to promote the industry to which we all have our "attachments" - be they hobbyist, investor, shipper, traveler, or employee. But I hold that to promote the building of a pipeline to transport petroleum products displacing rail transport is contrary to railroad interests. So have other initiatives proposed by the Administration, such as withdrawing from several trade agreements and the imposition of tariffs on imported goods.

Coming to mind are thoughts on how each of the seven Class I roads will be adversely affect by Administration proposals one week into office. Let's just go "round the room":

BNSF - Warren cast his chips with another candidate, and the incumbent is going to "make him pay". Excepting the short term benefit from handling pipe and construction equipment, running the two pipelines - XL and Dakota Access - through the Bakken region will take direct aim at BNSF's "king of the hill" standing handling petroleum products. BNSF also serves the Powder River coal reserves and handles such both East and West. Withdrawal from existing trade agreements can only hurt traffic at major West Coast and Gulf ports served by BNSF.

CSX - Chessie's fur will be badly ruffled as well. Aside from handling oil and coal in interchange, it is evident already that its on-line coal Appalachian traffic is being "mauled". While, I have been skeptical about the wisdom of the East Coast maritime ports expecting the "bonanza" of Neo-PANAMAX traffic (I'll be in Miami next week; hope to see a few less cranes pointing skyward), the trade initiatives will only make such "doubled in Spades" (bridge players around here; note I avoided "doubled in NT").

GT (CN USA lines) - Much the same as outlined for KCS, except that "neighbor to the North does not appear to be in the X-hair as that to the South.

KCS - Here is the road that is going to be "clobbered" (merger, anyone?); their entire business plan has been built around increased trade between the US and Mexico. Think of all the high-rated goods (autos, appliances) as well as agriculture that stand to be affected under the trade "newthink". There goes any hope of developing Lazaro Cardenas into a world class West Coast port offering lower wage costs to maritime shippers - and to KCS(M) as the only road serving such.

NS - "ditto" CSX

SOO - (CP USA lines) They are just behind BNSF in being "whacked" by XL and Dakota Access pipeline initiatives. Also less agriculture imported from Canada.

UP - While not as vested in the handling of oil as in BNSF and CP, they too made investments in the Mexican rail system. UP is equally, if not more, vested in Powder River coal, and, while not having the "high speed" (as freight goes) Transcon, they do handle much traffic from the West Coast ports. They are more vested in the Gulf ports than BNSF.

I guess I should close with the necessary disclaimer: author holds long position UNP

As I'm sure was expected by the railroad community, President Trump has to 'salvage something" from likely his worst day in office to date (Health Care reform going down for the count) by approving the Keystone XL pipeline project. That he could do by EXO just as he did earlier with Dakota Access.

Short term of course will be a "pickup" for rail business as it will be for good paying construction jobs; immediately preceding I set forth my thoughts as who will be the most adversely affected. Anyone else care to "step up to the plate"?

Quite an optimistic article appearing today in The Journal:

http://www.wsj.com/articles/how-america ... 1495618203" onclick="window.open(this.href);return false;

Paywall comes down after a few days, but in meantime, Fair Use quotation:

...VIENNA—OPEC’s back is against the wall and U.S. oil producers put it there.

The Organization of the Petroleum Exporting Countries and a coalition of other countries including Russia are poised to curtail oil production for at least another nine months when they meet here Thursday.

The truth is, OPEC has little choice but to extend the cuts initially approved in November to ease a global glut. It bet U.S. shale drillers would be too weak to step in and fill the void.

It was wrong.

Even though Keystone XL and Dakota Access have been cleared by "T-45", they are not yet up and running. Railroads still have a chance to show the petroleum producing community that they "can get the act together" regarding safety issues and that, factoring capital costs of a pipeline, they can do the job economically and minimize further pipeline projects.

disclaimer: author is Long UNP; likely has less of their traffic "mix" dependent upon crude than the other Class I 's

Mr. O'Keefe, if the roads intend to be competitive in the market, best get that act together. DOT-111's won't cut it in this environmentally conscious age.

I would like to see the roads become a primary and permanent player in handling this traffic, and not just some kind of interim until the pipelines are laid. Even though I know your primary focus towards the industry is passenger, I hope you will join me in this thought.

Two articles appear in the Journal today that to some extent, conflict with one another:

http://wsj.com/articles/u-s-will-be-the ... 1520236810" onclick="window.open(this.href);return false;

Fair Use:

The U.S. is likely to overtake Russia to become the world’s largest oil producer by 2023, accounting for most of the global growth in petroleum supplies, a top industry monitor said Monday.

U.S. crude production is expected to reach a record of 12.1 million barrels a day in 2023, up from 10.6 million a day this year, said the International Energy Agency, which advises governments and corporations on industry trends. American oil output will surge past Russia, currently the world’s largest crude producer at roughly 11 million barrels a day

The pipeline industry cannot build pipelines everywhere, but anywhere there are rails already laid, railroads are there to handle the crude.

Now the second article is pessimistic.

http://wsj.com/articles/shale-trailblaz ... 1520257595" onclick="window.open(this.href);return false;

Fair Use:

One of the pioneers of the U.S. shale boom plans to deliver a surprising message at a major energy conference here this week: U.S. oil production won’t keep growing as fast as the market seems to think.

Mark Papa, the former chief executive of industry bellwether EOG Resources Inc, said in an interview he is eager to tell the assemblage of oil chieftains that a widely held view that shale-oil producers can quickly ramp up production, and sustain those levels if needed, is wrong

But again the same argument I noted above could be applicable n in this scenario.

disclaimer: author is long UNP - a road that will benefit if development occurs within the West Texas Permian Basin.

Mr. O'Keefe, even with the Keystone XL now under construction, and even after its completion, railroads can still be "in the game" to handle Bakken and Permian (West TX) crude. The XL will primarily handle Alberta crude to the Gulf mainly affecting N-S shipments, that will put CN (IC) and KCS on the "wrong end".

Now I can only hope that this "hiatus" has given the Class I's time to "regroup" and learn how they will handle this stuff safely. If they do so, then I believe, considering our full employment economy at present, the impetus to build pipelines will be off the table.

Even if this article appearing in Today's Journal is not totally optimistic, they note that the lack of such on the part of some producers arises from being on the wrong side of some hedging bets they placed. Those "bad bets" are not forever - and $70bbl can't be all that bad.

From my observations, the BNSF is moving at least one more crude train by my house than, say, last year. Can't speak for the SOO, or for that matter, "my" Union Pacific (author Long UNP).