Crude oil joins rail industry staples as key revenue producer

Repost from Reuters

Crude oil joins rail industry staples as key revenue producer

By Jarrett Renshaw, Mar 16, 2015 2:05pm EDT

(Reuters) – U.S. railroads generated almost as much money last year hauling crude oil and sand, largely used in hydraulic fracturing, as they did moving industry staples like field crops and motor vehicles, according to a Reuters’ analysis of newly released federal data.

The previously unreported company data submitted to the U.S. Department of Transportation provides the latest piece of evidence of the blossoming marriage between the energy and rail industries, forged on the back of the U.S. shale oil boom.

Led by Berkshire Hathaway-owned BNSF Railways, the seven largest railroads operating in the United States generated $2.8 billion in gross revenue from hauling crude oil in 2014, up nearly 30 percent from 2013, according to company data filed with the federal government and released earlier this month.

The $2.8 billion figure puts crude oil in sixth place among similarly classified products, trailing industry standards like coal, field crops and motor vehicles, the analysis shows. Sand and gravel, an often overlooked winner in the shale boom, generated $2.7 billion last year in gross revenue.

Crude oil provides the biggest return on a per-carload basis, drawing $5,700 in gross revenue for each car that originated on the network, more than double than what coal brings.

The continuing financial success comes as the industry faces threats from a massive drop in oil prices and impending new U.S. regulations aimed at public safety that could impose additional costs.

“Will the major carriers go belly up? No,” said Barton Jennings, a professor of supply chain management at Western Illinois University. However, short-line cariers that rely upon crude for the bulk of their business may be exposed, he said.

Overall, the seven major carriers reported U.S. profits of $14.4 billion last year, led by Union Pacific and BNSF, which combined accounted for 67 percent of the industry’s U.S. profits, the analysis shows.

KING CRUDE

The biggest player in the U.S. crude rail business is BNSF, which dominates North Dakota, home to the Bakken shale.

BNSF’s gross revenue from crude oil rose to $1.48 billion from $63 million in 2010. Gross revenue from hauling sand and gravel climbed to $651 million last year, a more than 300 percent jump from 2010.

The growth in crude and sand hauling helped BNSF boost profits, which climbed from $2.6 billion in 2010 to $4.4 billion last year.

(Reporting By Jarrett Renshaw; Editing by Jessica Resnick-Ault and Jonathan Oatis)
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