To Market, To Market, To Fetch a Fat Spread: Canadian Pacific Railway Limited (USA) (CP), Trinity Industries, Inc. (TRN)

Page 1 of 2

Unconventional oil shales have provided critical revenue for the large US independents at a time when weak gas pricing might otherwise be disastrous. Getting that oil to market however, is a challenge. Bakken production is log jammed because of a lack of pipeline infrastructure. Similar issues have hamstrung western Canadian syncrude producers. Rail shipping has been critical to getting this off-the-beaten-trail production to market and its contribution is still expanding.

Berkshire-Hathaway gives its shareholders a peek into virtually every corner of the economy. The relatively recent addition of Burlington Northern Santa Fe extends that look even further. With the slowdown in coal shipments to China, there was some concern that rail revenue might be impacted. In his annual letter, Buffett disclosed that BNSF’s moving a lot of oil that’s more than picking up the slack.

Canadian Pacific Railway Limited (USA) (NYSE:CP)The railroad unit handled 500 MBbld (thousand barrels per day) of rail shipped crude. That’s about 10% of production in the lower 48, according to Buffett. The railway expects that number to reach 700 MBbld by the end of the year on its way to 1,000 MBbld in a year and a half.

Canadian Pacific Railway Limited (USA) (NYSE:CP) is just beginning build-out of its Bakken crude loading depots, and expects to be operating 70,000 oil tankers annually, up from 13,000 in 2011. Altogether, approximately a third of current Bakken production is shipped by rail.

With environmental impact studies still red-lighting the controversial Keystone XL pipeline, Canadian syncrude producers are looking to copy the rail success in the Bakken. Canadian Pacific Railway Limited (USA) (NYSE:CP) is now gearing up its facilities in Alberta to carry oil sands syncrude. The combined weight of Bakken and Canadian demand has created a production backlog for railcar tankers.

Berkshire-Hathaway’s Union Tank Car unit is backlogged through 2014. Another manufacturer, Greenbrier Companies Inc (NYSE:GBX), is reportedly now booking its 2015 orders. Carl Icahn recently disclosed a 9.9% stake in Greenbrier, so the heavyweights are taking notice and making their bets. Trinity Industries, Inc. (NYSE:TRN) is a third way to play the high railcar demand, for those keeping score.

In contrast to the Bakken, only a small portion of Alberta oil sands production is now shipped by rail. That could increase significantly if Keystone XL is held back longer. In fact, the successful utilization of rail for Bakken oil shipment has been highlighted by US officials that question the need for the controversial pipeline.

Rail shipping is becoming cool again. EOG Resources Inc (NYSE:EOG) first started using it to move its Bakken crude in 2009. The project was so successful that EOG expanded its rail shipping capacity to 70 MBbld. It’s currently rail shipping the bulk of its Bakken production to its St. James, LA rail terminal.

That means that EOG nets Louisiana Light Sweet prices on its Bakken crude, rather than West Texas Intermediate prices that prevail at Cushing, OK or Enbridge’s terminal at Clearbrook, MN. Since LLS prices off Brent due to its easy access to east coast refiners, the spread can top $20 a barrel. For many producers, shipping costs eat up that spread, since rail shipments are estimated at $16-$18 per barrel, about 3 times the cost of pipeline transport.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!