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June 12, 2017 8:55 AM, EDT

Rail Bottlenecks Ease in North Dakota Since Oil Bust

Kurt Haubrich/Flickr

In 2014, railcar space was prime real estate that was high in demand. A conglomerate of factors had come together to bottleneck North Dakota rail shipments.

Despite the fact that oil prices were beginning to slip, oil production remained high. Agriculture producers wanted to get out as much crop as possible in a year, foreseeing a downturn in commodity prices. To top it off, coal shipments across the country increased, and with too few pipelines for oil, crude by rail was the way to get the most shipments out of the state.

Add in a shortage of workers, locomotives and cars, as well as shorter trains because of cold weather and construction along rail lines, and you have a recipe for delay.

"Some of those problems were compounded; it was the perfect storm" North Dakota Agriculture Commissioner Doug Goehring said. "We were really constrained by what capacity was on the rail."

In that year, Canadian Pacific and BNSF Railway shipped almost 663,000 railcars from the state, with about 54% of those cars dedicated to oil and gas, according to numbers from the state Public Service Commission. About 28% was dedicated to grain.

The delays in rail shipments — some of which were almost a month late — prompted complaints across the state, especially from farmers wanting to get their product to market.

A lot has changed since the oil bust in 2015. Oil and grain carloads are about equal, and infrastructure has made the delays almost nonexistent.

It hasn't all been because of a drop in oil prices. Key elements, some that are more welcome than others, have come together to free up space on the rail.

"The best indicator of all is our complaints," Rep. Kevin Cramer, (R-N.D.), said. "No one is calling to complain about late cars or late shipments."

Delays

Goehring remembers oil producers coming to him during the rail delays to ask for more rail space, saying they had limited access to trains.

"They had some of the same issues," he said. "Everyone was feeling it."

The delay prompted complaints to public officials, including those in Congress. Those complaints are why Cramer began tracking late shipments. Thousands of cars each week would be almost a month behind schedule, according to some of Cramer's weekly reports sent out in 2014.

The numbers that came from the U.S. Surface Transportation Board have improved dramatically. In the first 26 days of May, about 60 cars from Canadian Pacific and BNSF were up to 10 days late.

Seeing the delays drop is rewarding, Cramer said, citing a number of factors that contributed to the improvement in numbers. Both he and Goehring pointed out that oil shipments have decreased both from depressed prices and more pipeline coming online — North Dakota went from shipping about 850,000 barrels of oil per month in early 2015 to just about 300,000 barrels of oil in March 2017.

Cramer said he expects more oil to be shipped by pipe now that the Dakota Access Pipeline has begun shipping crude.

Goehring noted a drop in agriculture prices helped alleviate the delays, but BNSF adding more cars, locomotives and employees, as well as more rail coming online, also made a difference.

He pointed out the $1 billion BNSF has invested in North Dakota's railroad infrastructure since 2013, as well as adding staff and cars.

"You can't argue with the $1 billion BNSF has invested," he said, adding other railroad companies had made some investments in North Dakota but not as much as BNSF.

BNSF has set aside $80 million for maintenance in North Dakota for 2017.

Change in shipping

The U.S. shipped almost 1.3 million carloads across the country in May, an 8.4% increase from last year.

BNSF and Canadian Pacific shipped fewer cars in 2016 than in 2015 — 496,000 versus 599,000, respectively. The amount of grain shipped from North Dakota has jumped slightly from 2014 to 2016 while oil has been cut in half.

Coal and oil continue to ebb and flow, BNSF spokeswoman Amy McBeth said. While 2016 numbers were down about 5% for the company across the country, BNSF expects 2017 to be better in terms of freight rail volumes.

"So far in 2017, BNSF's volumes are up compared to this time last year, which includes increases in grain, coal and intermodal (consumer products moving in trailers and containers)," she said in an e-mail.

Like in North Dakota, McBeth said BNSF crude movements across the country have been cut in half since the height of the boom — she noted crude made up about 5% of BNSF's national shipments during that period.

North Dakota shipped more cars of grain than oil products last year —  about 179,000 oil cars versus almost 187,000 grain cars.

If agriculture prices improve, the rail likely will be more open for farmers wanting to ship grain, Goehring said. Prices have been moving up, but the profitability is not quite there yet.

"Eventually, everything has to move because farmers can't sit on it [for much more than a year]," he said. "Price will dictate when it will move, but production is definitely going to dictate how much is moving in the system.

"What I would say in all of this is capacity has freed up on the rails, and when farmers are ready to move something, they will move it," he said.

'Legacy transportation'

Though 1,800 miles of rail have been abandoned since the 1980s — North Dakota has about 3,500 miles of working rail — the rail system is vital to North Dakota. Goehring said 18% of the state's grain is transported by truck while the rest hits the rail. Rail has served as a connector for North Dakota to the rest of the country and continues to connect the state to world markets, McBeth said.

"When you look at the investments we have made in North Dakota, it is clear the future is bright, and we are going to continue to invest there to serve our customers there," she said of the rail industry.

Cramer agreed, adding no one makes an investment like the railroad industry has unless they are here for the long haul.

"Agriculture is the one industry that is always going to need the railroad," he said. "The railroad is the legacy transportation means in North Dakota for moving agriculture product to market."

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