Competition for freight trains from Bakken oil shipments continue to frustrate Midwestern farmers who need to ship their crop from the farm to the marketplace. The rail-jam could have been avoided all together if the Keystone XL Pipeline, with its Bakken oil onramp, moved ahead on time.
Now farmers are paying the price.
Freight rail is the primary shipper of U.S. agriculture products, moving tons and tons of grain each year. In 2013, freight trains moved 124.5 million tons of grain, primarily from the Midwest. Freight trains are also increasingly used to move crude oil. In North Dakota about 965,000 barrels per day are shipped by freight train, nearly double the amount from last year, from the Bakken formation to refineries on the East and West Coast.
The number of rail carloads of crude oil began rising in 2012, as production in the Bakken Shale and other shale plays grew. According to the North Dakota Pipeline Authority, Bakken rail outflow capacity totaled 965,000 barrels per day (bbl/d) at the end of 2013, compared to 515,000 bbl/d of pipeline capacity. (Today in Energy, June 10, 2014)
Farmers are feeling the pinch. Farmers are already experiencing delays in getting their crops to market because there is not enough rail capacity to meet demand for both agriculture and oil. Crops are being stockpiled, in some cases overflowing their storage and piling up on the ground, because there are not enough trains to move them to market.
The delays cost farmers, as reported in the Des Moines Register this week:
The co-op’s average cost to lease a single rail car nearly doubled in January to more than $12,500 from the same time a year earlier, significantly squeezing profits at the warehouse, which are usually a mere 8 to 13 cents a bushel.
This problem didn’t have to happen.
The Keystone XL Pipeline was first proposed in 2008. The last leg includes a not often mentioned onramp for shipments of North Dakota crude oil. The onramp would safely deliver 100,000 barrels of North Dakota crude oil to Gulf Coast refiners – a day.
That is 100,000 barrels not being shipped by rail, and not competing with American farmers who are trying to move their crop to market.
The ripple affect doesn’t stop with farmers. Food companies are stopping production because they are not getting the ingredients they need fast enough.
Food companies say they are feeling the effects of the delayed shipments. General Mills, the Minnesota-based maker of Cheerios, told investors in March that it had lost 62 days of production — as much as 4 percent of its output — in the quarter that ended in February because of winter logistics problems, including rail-car congestion. In its earnings report this month, Cargill, another Minnesota-based food giant, reported a drop in net earnings that it attributed in part to “higher costs related to rail-car shortages.