U.S. rail companies are desperate to keep some very important — and in some cases, deadly — information from you…
In May of last year, the Department of Transportation made a rule requiring railroads that send large shipments of crude oil to inform states when they were doing so.
Although the rule isn’t all that helpful (I mean, what’s the difference if you know a huge oil train is headed to a town near you?), it still provides people concerned about a potential derailment with information they could use to keep themselves at a distance from disaster.
Of course, in what’s become an all-too-secretive bent in American business, some rail companies have refused to comply.
Earlier this year, headlines were made when six fiery crude oil train derailments shocked people from North Dakota to West Virginia and throughout Canada.
Even still, companies like CSX and Norfolk Southern are willing to fight tooth and nail to keep these reports out of your hands.
A few days ago, a judge in Baltimore rejected the arguments of CSX and Norfolk Southern that the release of train reports would hurt the business and security of each.
For one, I think the safety and security of people living in small towns and big cities throughout North America is much more important than the security of a company or its profits.
I also just don’t see how providing states with a schedule of giant crude oil shipments, with a harrowing recent history of derailments, can do any harm to business or security for these two firms.
Sure, there have been protests against crude oil trains before, but if these companies were to provide more transparency, then there probably wouldn’t be so much anger directed towards them.
The companies can still appeal the decision by September 4th, but the chances of them winning another trial are slim. There are just too many good reasons to make the information public.
Of course, these rail companies are probably more worried than ever…
Crude Oil Trains are Dwindling
As the United States boosted its crude oil production in the last decade, thanks to new hydraulic fracturing and horizontal drilling efficiencies, the need for more oil infrastructure quickly became apparent.
In the Bakken, where hardly any critical oil and gas infrastructure existed, producers relied on massive trains overloaded with crude oil.
As you can see in the graphic below, in 2014, more than 800,000 barrels per day left the Bakken in railcars headed for refineries in major cities throughout the U.S.
A lot of oil has also been shipped out of West Texas, the Niobrara in Colorado, and the oil sands in Alberta, Canada.
Unfortunately, it doesn’t surprise me that rail companies want to keep information about daily oil shipments hidden. After all, people that live near refineries or major railways may panic.
Even without these vital train reports, people are still aware and have been fighting rail shipments of crude oil that come near their communities.
And the fight seems to be working.
In the first quarter of 2015, rail shipments of oil declined by about 12% compared to the fourth quarter in 2014.
In the Bakken, more than half of the oil produced is trucked to pipelines and shipped. Not too long ago, more than two-thirds of this oil was shipped via rail.
Even as early as 2013, the slowing trend in oil-by-rail shipments could be seen, as the image below shows:
It’s clear that pipelines are taking over the shipment of oil, as I have mused numerous times in these columns.
If anything, the rail companies trying to cover up train reports are fighting the inevitable bad press of losing revenue to the cheaper, more efficient, and usually safer pipelines that are being built and expanded throughout the continental U.S.
However, even though crude-by-rail is cooling off a bit — probably helped by low oil prices — people are still afraid of a massive derailment.
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Fear Persists; Buy Pipelines
In Pennsylvania, Governor Tom Wolf ordered a study to determine ways the state can help prevent a disastrous derailment and explosion like the one in 2013 in Lac-Mégantic, Canada that killed 47 people and leveled the small town.
The study yielded 27 recommendations that states and rail companies could use to make shipments safer. But as I’ve described throughout this piece, rail companies don’t care about anything other than profit and secrecy.
So I guess for now, it’s up to states and cities to do what they can to improve railroads and hope for the best.
Soon enough, though, pipelines are simply going to take over. With low oil hurting production and low demand slowing shipments, pipeline companies are better able to catch up with construction projects.
For investors, the pipeline build-outs taking place are going to be huge moneymakers. Any major infrastructure project is a big deal financially, and it’s important that investors make the right moves.
Once the pipelines are built, the companies that build them will pay solid, consistent dividends with the steady stream of income provided by regular oil shipments.
But these huge projects take a long time to build, test, and negotiate contracts. Because of this, I don’t suggest you go out and buy a major pipeline company.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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