Editorial comment
In a report issued by Douglas Westwood at the beginning of the year, experts predict that shale-driven pipeline expenditure in the US will reach US$ 22 billion before 2020.1 The US shale revolution has been recognised as such a game changer that even this high figure seems to be a perfectly acceptable estimate of upcoming spend. The US leads the world in producing natural gas from shale formations and natural gas is already making a dent in the amount of domestic electricity provided by coal-fired power plants. Between 1993 and 2011, the contribution of natural gas nearly doubled, from 13 - 25%. This contribution is projected to rise to 30% by 2040. US natural gas production is expected to increase some 44% by 2040, with almost all growth attributed to shale gas.
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The US Commerce Department announced in January that US exports hit a record high in November 2013, owing in large part to oil and gas and, more specifically, to shale products. In a turnaround that has seen the US go from a net importer of petroleum products in 2005, the nation is now a net exporter: it exported US$ 13.3 billion worth in November 2013 alone. Shale is a big part of this change. Whilst it is difficult for US companies to gain permission to export crude oil, they can export finished products from refineries (gasoline, diesel fuel, jet fuel and so on). Exports from Texas, where there is a concentration of shale activity, have been growing twice as fast as the rest of the USA. In its World Energy Outlook 2035, BP expects the USA to switch from a net importer to a net exporter of energy around 2018. Shale has made American energy self-sufficiency possible.
The Eagle Ford, Barnett, Bakken, Marcellus, Permian, Utica and other shale plays merit new transportation infrastructure, as shale needs to be taken to market across the USA. The Douglas-Westwood report claims that some 23 000 miles of pipeline will be constructed for shale gas and shale oil. However, shale oil is often transported via train, as an extensive network of rail infrastructure exists where some pipelines don’t.
Kinder Morgan’s Chief Executive Officer Rich Kinder recently said that there is a lot of money to be made from rail transport: “we’re primarily a pipeline company of course…but there are reasons why pipelines don’t satisfy everybody’s needs. An outgrowth of that is obviously crude by rail”, he told analysts. He argues that the surge in new shale oil, added to that of new volumes from Albertan oilsands, make rail transport a profitable addition for a pipeline company to add to the mix.
As shale production grows, the increasing potential for shale oil transportation by rail, truck and barge brings issues of safety and quality to the fore. The oil industry itself is pushing for new regulations on safety standards and they want them yesterday. If there are to be stricter specifications and improvements on rail cars, track maintenance and brake standards, then these changes must be implemented as soon as possible. Recent train explosions such as the Lac-Mégantique tragedy mean that the spotlight is on the railway operators to move fast in reaction to any new legislation. Rail transport has been growing quickly alongside the shale boom: last year some 800 000 bpd of oil was moved by rail in the US (up from 20 000 bpd in 2008).
However, it has been suggested that Bakken Crude in particular is more dangerous to ship by train, as it may be more flammable than other shale oils due to it containing higher quantities of hydrogen sulphide. Other issues to consider are: safety, as record volumes are taken by rail; potential for dangerously long trains of rail cars; and dangers at the point of unloading. Over 1000 miles of pipelines transporting Bakken Crude are planned for construction by 2016 but about 70% of Bakken oil is transported by train. Although rail can be cheaper and faster, can travel in both directions and generally costs less to operate, it carries a huge question mark in terms of safety. With pipeline companies investing in rail – not only Kinder Morgan but also Enbridge and others – the pipeline vs. rail debate trundles on.
1. Douglas Westwood, ‘North American Pipeline Database’, http://www.douglas-westwood.com/shop/shop-infopage.php?longref=1231~0#.Ut-3W-A4kl4
