Railroads and the Bakken

Good news from Burlington Northern -- they are going to increase their shipping capacity for oil from the Bakken. As we have noted before, there is a shortage of pipeline in the Bakken fields at present, especially on the Montana side of the border, so train transport of crude oil is vital to getting the product to market.

As we have noted before, this is a good thing, since increased traffic increases railroad revenue and gives them more profits to reinvest in the infrastructure of their tracks and equipment -- and anyone shipping products in or out of Montana by rail will benefit.

The railroad said it has also formed a dedicated Unit Energy Desk that works directly with customers to help coordinate and plan unit train movements to and from the Williston Basin.

These efficiencies plus increased numbers of oil cars on the BNSF trains will account for most of the increased volume.

According to the Chicago Tribune:

(BNSF)had previously said it would spend $1.1 billion to buy locomotives, freight cars and other equipment, much of which would serve North Dakota.

Furthermore:

The railroad is investing $197 million on projects like track surfacing, building two inspection tracks and replacing 121 miles of rail line, among others, in North Dakota and Montana.

Again, that's private infrastructure -- and we're all supposed to like spending on infrastructure, correct? And this is infrastructure that doesn't get paid for out of the public coffers.

Other good news is that increased rail capacity is helping drive recent improvements in the "Bakken discount" (i.e. the lower prices paid for Bakken oil due to more limited transportation capacity and thus higher transportation costs.)

Of course, one can't help but wonder this: rail transportation of oil is much more expensive than pipeline transport, and it furthermore pollutes the air more (those diesel engines) and arguably carries more risk for spills that can damage the environment.

Democratic Party icon Warren Buffett's Berkshire Hathaway owns BNSF -- does he know something the rest of us don't when it comes to the prospects of more pipeline being built? Is he gambling on what he suspects will happen, or will sympathetic players in the government put up more roadblocks to pipelines in order to keep his railroad's costs competitive? Or was cancelling the Keystone pipeline enough to ensure profitability?

We'd like to think not -- level playing field and all of that sort of thing -- although rent-seeking is hardly unknown in the often tidy relationships between big business and big government. We can be sure that Buffett's liberal fans won't call him on the carpet for profiting from carbon-based fuels that will cause the oceans to rise (unless Obama ever gets around to raising his staff and commanding the raging seas to calm themselves), profiting from fracking and drilling and burning fuel and all of that sort of thing.

Regardless, this increased capacity is a good thing for Montana and North Dakota oil producers if it gets them better prices for their crude oil.

We would parenthetically note that a good reason to vote for Republicans for statewide offices this fall is to make things run a little more smoothly for granting easements for pipelines. We note that our Democratic Superintendent of Public Instruction, Denise Juneau, recently cast a vote against granting an easement for a pipeline that already exists! (Her reason was that she didn't think the state was charing enough.) Exxon Mobil was wanting to replace existing pipeline -- what's not to like about that -- replace older pipe with newer and presumably safer pipe? The easement passed, but one is confident that Republican Sandy Welch would not have cast her vote against that pipeline.