Crude by Rail Will Increase if Pipeline Remains Stalled

As the standoff over the Dakota Access Pipeline drags on, producers will have to use rail to get their product to market.

Related: Protests over Pipeline Spread Across U.S.

Last week, the U.S. Army Corps of Engineers reversed its position and denied Energy Transfer Partners the permit needed to complete the pipeline.

Oil and gas operators were counting on the pipeline's capacity to ship 570,000 barrels a day in 2017.  This latest set-backs means they will be looking to alternatives and many will be forced to rely on rail to ship product.

Controversy over the safety of moving crude by rail has skyrocketed as several high-profile accidents have recently made headlines. This combined with a sharp increase in crude by rail since the start of the oil boom has many concerned.

Decreased volumes and more pipeline construction in 2016 meant there were fewer safety incidents, with only nine reported this year. But this trend may change if major pipelines cannot be completed and operators rely on rail. 

In 2015, the National Transportation Safety Board (NTSB) gave the following recommendations that would require:

  1. All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with thermal protection systems that meet or exceed the thermal performance standards
  2. All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with appropriately sized pressure relief devices that allow the release of pressure under fire conditions and that minimizes the likelihood of energetic thermal ruptures
  3. An aggressive, intermediate progress milestone schedule, such as a 20 percent yearly completion metric over a 5-year implementation period, for the replacement or retrofitting of legacy DOT-111 and CPC-1232 tank cars to appropriate tank car performance standards
  4. Establishment of a publicly available reporting mechanism that reports at least annually

Construction on the pipeline was almost complete when protest erupted in October. Demonstrators are concerned about the environmental impact of the pipeline, including contamination of the Missouri River, which is the primary water source for the Standing Rock Sioux Tribe. Tribal leaders are also upset that the pipeline will disturb sacred burial grounds.

Energy Transfer Partners and Sunoco Logistics Partners own a majority stake in the Dakota Access Pipeline project. Energy Transfer Partners and Sunoco Logistics have lost ~17% and ~27% of their market value since the beginning of the protests. Energy Transfer Equity, which depends on Energy Transfer Equity and Sunoco Logistics for distribution income, fell~15%.