An agricultural group is betting pipelines can keep grain flowing in the Upper Midwest.
The American Farm Bureau Federation doesn’t expect farmers to pump lentils through steel pipes, although a recent study commissioned by the nonprofit said “they would be delighted to do so” were it physically possible.
Instead, the study published last week concludes oil pipelines would ease pressure on congested rail networks that corn and soybean shippers now share with milelong trains hauling crude.
Though railroads move more coal and intermodal shipments than crude, “you can’t take them off the rail — you can’t put those into pipelines,” noted Elaine Kub, an independent grain market analyst who assembled the white paper for AFBF. “That’s why the biggest part of relieving rail congestion has to come from the oil.”
Despite increasing nearly 20-fold since 2010, railbound petroleum products account for a fraction of overall U.S. freight traffic. But based on Kub’s findings, crude oil’s relatively tiny stake of rail traffic “is the most problematic for agriculture,” both because of safety concerns and because “oil’s rail routes directly pull resources, like locomotives, personnel, and track capacity, away from grain service.”
In states such as North Dakota, with its booming crude oil production and limited access to waterways, farmers are especially dependent on railroads to move products to market, according to AFBF chief economist Bob Young.
“The surge in rail transportation of crude oil has affected that ability and timing in recent years,” he said last week. “Construction of new pipelines would certainly be a more effective way to move that product to market.”
In statements and in meetings with surface transportation authorities, railroads such as Warren Buffett’s BNSF Railway Co. have denied putting crude oil on the fast track over grains. Executives attributed the slow service through much of last year to icy weather, the record fall 2013 harvest and a recovering economy that boosted demand for freight transport across a range of industries. BNSF is on track to invest a record $6 billion in its domestic track network this year to help relieve the stress, and other railroads have followed suit with their own multibillion-dollar pledges.
Pipelines ‘the most logical solution’
A few refiners complained of poor rail service in late 2014, seemingly backing railroads’ claims that they weren’t giving the oil industry special treatment (EnergyWire, Oct. 30, 2014).
Kub sought to downplay the traffic disputes that left energy and agricultural representatives trading barbs through much of last year (EnergyWire, Sept. 4, 2014).
“It’s not the railroads’ fault, and it’s not the crude oil industry’s fault,” she said of congestion that cost the average North Dakota corn farmer roughly $10,000 in lost profit, according to her study. “It’s just that going forward, taking [oil] off the rails and putting it into pipelines is the most logical solution.”
Pipeline companies have seized on rail problems as a reason to get their projects up and running. Energy Transfer Partners, which is proposing a 450,000-barrel-per-day pipeline to ferry oil from the Bakken Shale play in North Dakota to Patoka, Ill., has said the connection “will reduce the current use of rail and truck transportation to move Bakken crude oil to major U.S. markets.”
“The Dakota Access Pipeline will free up rail capacity for the transportation of crops and other commodities currently held up by crude oil cargos,” Energy Transfer claims.
Efforts to attach dollars to all of the holdups have fallen flat due in part to data limitations. When a North Dakota State University economist slapped a $67 million price tag on farmers’ losses during the first four months of 2014, he faced scrutiny from outside experts and the study containing the estimate was eventually withdrawn (EnergyWire, Sept. 23, 2014).
For her own report, Kub modeled what would happen to grain shipping capacity under different scenarios, such as building out pipelines, improving rail and barge infrastructure, or investing across multiple freight methods. Her study cites data from the U.S. Department of Agriculture suggesting Upper Midwest farmers may have earned $570 million less for their products in 2014, compared to what they would have earned in a season without rail bottlenecks.
“The value of this study is in putting the numbers on the pain and being able to document that expanding freight can be a solution,” Kub said.