US crude by rail traffic rebounds in 1Q

Every US railroad reported an increase in crude carloads during the first quarter, as the total number reported by all seven Class I carriers rose to its highest level since late 2016.

The major North American railroads combined for 88,571 crude carloads in the US, according to the latest data available from the Surface Transportation Board. That is up from 79,891 in the last quarter of 2017 but still well shy of the record 242,149 in the third quarter of 2014.

Crude-by-rail leader BNSF, which dominates Bakken crude movements out of the Williston basin centered in North Dakota, reported 39,799 crude carloads in the first three months of 2018, down from 39,937 in the year-prior period and 106,534 in the fall of 2014.

BNSF crude carloads plunged to 23,981 in the third quarter of 2017 upon the inauguration of the 525,000 b/d Dakota Access pipeline to Patoka, Illinois, and Nederland, Texas. But growing production in the Williston basin along with continued profitable rail movements to some destinations — mostly the west coast but increasingly the east coast — helped boost volumes in the ensuing quarters.

BNSF, along with fellow western US railroad Union Pacific (UP), also can pick up crude from Canada and deliver it to the increasingly busy USD Group terminal at Stroud, Oklahoma. Last week it was a BNSF train hauling Canadian crude that derailed in Iowa, causing 32 cars to topple and leak oil into the Little Rock river.

UP reported 7,710 crude carloads in the first quarter, its highest-volume quarter since the third quarter of 2016. UP, a Bakken crude-by-rail pioneer earlier this decade, had seen volumes decline as the US Gulf coast became a less viable destination as pipeline capacity rose.

KCS uptick

The other western railroad, Kansas City Southern (KCS), reported 7,175 crude carloads, nearly tripled from the year-prior period and up by 49pc from the previous quarter. The railroad, whose crude franchise traditionally has relied on picking up Canadian volumes in the midcontinent and moving them to the US Gulf coast, approached its record 7,992 crude carloads set in the last quarter of 2015.

"The crude business saw a slight resurgence due to the increased production in Canada with decreased pipeline capacity," KCS chief marketing officer Brian Hancock said this spring, referring to a 118,000 b/d reduction in capacity of TransCanada's 590,000 b/d Keystone pipeline imposed by US regulators through early May after a November leak.

Even with Keystone back at nameplate capacity, KCS said it expects crude volumes to keep rising as western Canadian production outpaces pipeline capacity and originating railroads Canadian National (CN) and Canadian Pacific (CP) take more volumes.

But the Canadian carriers, which have promised shareholders repeatedly that they would not invest resources in crude movements without the backing of take-or-pay shipper contracts, did not see volumes respond in kind during the first quarter.

CN, which dealt with rampant congestion issues this winter, reported 6,592 crude carloads in the US, its lowest level since the spring of 2016 and down by 38pc from the same period of 2017. Canadian Pacific, which operates both in western Canada and the Williston basin, reported 10,504 US crude carloads in the first quarter, up slightly from 9,827 in the same period of 2017 and 10,397 in the last quarter of 2017.

"We remain very committed to growing responsibly with our crude-by-rail shippers to make sure that we can provide reliable service to all of our shippers and commodities," CP chief marketing officer John Brooks said in April.

Eastern US railroads Norfolk Southern (NS) and CSX, which can take crude shipments from other carriers at interchanges like Chicago, reported year-over-year drops in carloads in the first quarter, indicating east coast refineries had not yet begun increasing their rail intake.

NS reported 11,125 crude carloads in the first quarter, down from 15,160 in the same period of 2017. CSX reported 5,666 crude carloads in the first quarter, down from 8,034 in January-March 2017.