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Updated: October 16, 2017
A recent National Bureau of Economic Research (NBER) whitepaper from the University of Chicago indicates that crude oil transported by rail could provide a strong economic role in the long-term substitute for pipeline transportation.
Prior to 2010, there was little crude-by-rail volumes. The numbers grew from 40,000 barrels per day (bpd) in 2010 to close to 1 million bpd in 2014. One explanation for the growth was attributed to rail being a ‘stopgap’ measure to move oil out of the Midwest while waiting for pipeline permitting and construction to catch up. If this was the sole explanation, this mode of transportation would be considered a transitory phenomenon, fading off as the Dakota Access Pipeline and the Keystone XL pipeline come into use.
A second explanation of the increased rail transport of crude could be that it is an attractive option in spite of higher transport costs due to flexibility in increasing or decreasing volumes shipped in response to pricing and to allow shipping of crude oil to multiple destinations along the rail.
The paper’s results indicate transporting crude oil by rail can be economically important versus pipeline transport in some situations. The paper may be found in its entirety on the NBER website.