Court’s Decision to Close Pipeline Could Put More Crude on the Rails

Railfan & RailroadBy Justin Franz

WASHINGTON D.C. — The decision by a federal judge to shut down one of the largest pipelines out of North Dakota could put large amounts of crude oil back on the rails. On Monday, a U.S. District Court Judge ordered the Dakota Access pipeline shut down within 30 days so that additional environmental analysis could be completed. The lead plaintiff, the Standing Rock Sioux Tribe, is concerned that an oil spill will contaminate the water on their land. The pipeline’s owner, Energy Transfer, said it plans on appealing the decision. 

But analysts have said while the pipeline will be closed, crude still has to go somewhere and it more than likely will get there by rail. “There is ample rail capacity and therefore crude oil will still find its way out of the basin, albeit at a higher cost if this ruling stands,” Nicholas O’Grady, chief executive of Bakken-focused producer Northern Oil and Gas Inc, told Reuters this week

Crude-by-rail hit its peak in 2014 when oil production out of North Dakota’s Bakken Region boomed and there simply was not enough pipeline capacity. According to the Association of American Railroads, in 2008, U.S. Class One railroads moved 9,500 carloads of crude. Six years later, that grew to more than 493,000 carloads. As pipeline capacity grew, carloads began to decline. In 2017, U.S. Class Ones moved just 128,967 carloads. Crude traffic increased in 2018 and 2019, but it has never returned to the peak seen back in 2014. 

The ongoing coronavirus will undoubtedly prevent the traffic boom railroads saw back in 2014, however, it is likely that railroads could benefit from the court decision (The Dakota Access pipeline moved about 557,000 barrels-per-day. At the end of 2014, railroads were moving about 800,000 barrels-per-day out of North Dakota). Even a small boost in traffic would be welcome news for Class One railroads that predicted earlier this year that nearly all crude traffic would dry up because of the pandemic. 

This article was posted on: July 8, 2020