US Companies Opt to Ship Crude Oil By Rail Not Pipeline

US oil companies are increasingly opting for shipping crude oil by rail, rather than pipeline.

Bloomberg, the business and financial analyst, reports that oil and gas extraction companies plan to spend around $1bn on rail depot projects to support transport of crude oil to coastal refineries from inland fields.

US companies are using shale gas and oil extraction (or “frakking”) to increase domestic production and reduce dependence on oil imports.

More than 200,000 train cars of oil was shipped by rail in 2012.

While the industry claims opting for rail distribution means drilling can be extended into urban areas where constructing pipelines is not feasible, some analysts think there may be another reason. Could it be that companies are less confident of the long term yield and profitability of reserves than they publicly admit, and are therefore opting for the apparently more expensive, short term option of sending crude oil deliveries by rail instead?

While building pipelines is expensive up front, over the long term there is little ongoing overhead, and massive profits are being taken from pipelines currently in operation. It costs approximately three times as much to transport oil by rail than by pipeline, and therefore only makes sense as the preferred option over the short term.