The Bakken Rail Industry

The U.S. shale boom has allowed for so much domestic petroleum production that natural gas prices have hit a 10-year low.

Companies have more petroleum than they can store. Pipelines are the major mode of transportation for the petroleum fuels, but between land permits, border permits, and construction time, this is starting to become difficult to rely on in the short term.

The Keystone XL Pipeline, for example, a TransCanada (TSE: TRP) venture that would stretch from Alberta, Canada to Nebraska, was denied a Presidential Permit and told to reapply.

There are currently no pipelines running internationally between the U.S. and Canada. Any transportation of oil to or from U.S. refineries must be done by rail.

Which is exactly why, in the midst of the shale boom, the railway business could prosper.

Canadian Pacific Railway Ltd. (TSE: CP) ships crude oil from North Dakota’s Bakken shale formation, and it brings in sands used in the fracking process.

And a report by RBC Dominion Securities showed that so far this year, Canadian Pacific’s crude shipments have increased 90% from the same period last year.

BNSF, a Berkshire Hathaway (NYSEL BRK.A) company, also ships crude oil from the Bakken.

And Investor Place reported that Phillips 66 (NYSE: PSX), a subsidiary of ConocoPhillips (NYSE: COP), is planning to purchase 2,000 tank cars for shipments from the North Dakota.

Railroads are an established form of transportation in the United States. While pipelines are timely to construct, railroads are already there.

Of course, pipelines still account for a large portion of oil shipments. In the Bakken in November, 62% of shipments were from pipelines.

But railways, which had carried 18% of shipments in October, carried 25% in November.

The number of rail cars carrying crude oil has grown by 36% this year, according to the RBC report.

And crude isn’t all they carry, either.

Shale deposits like the Bakken require large amounts of sand and other resources to make fracking possible. And rails are the perfect way to transport that.

Just recently, Canadian Pacific Railway and U.S. Silica Holdings, Inc. signed a deal for the shipment of sand to the Bakken from Wisconsin.

From Bloomberg:

CP, which ships sand used in the hydraulic fracturing process to the North Dakota shale formation and crude oil out of the Bakken, said it will become the exclusive rail service provider at the Wisconsin mine.

U.S. Silica is one of the biggest silica producers in the U.S., and it produces Northern White sand, which is ideal for fracking.

The company also signed an agreement with BNSF Railway Co., a Berkshire Hathaway (NYSE: BRK.A, BRK.B) company, to ship sand to the Eagle Ford shale in Texas.

Railroads also ship gravel, lumber, and even the pipes needed to build pipelines to these shale-dense locations.

The railway industry is just one more that has begun to profit from the shale boom. While sands, infrastructure, and even another mode of crude transportation are needed, these rail shipments will be too.

That’s all for now,

Brianna