tank carsBy Peter Galuszka

Hydraulic fracturing for natural gas and oil is creating a new and confusing class of corporate winners and losers in Virginia and elsewhere.

Analysts believe that environmental opposition to expanded pipelines such as Keystone helps railroads by putting more tank cars on rail lines. That could further tax a stressed-out rail system that has led to a slew accidents involving energy shipments such as the derailment, spill, explosion and fire of CSX tank cars cars in Lynchburg this week.

And while energy firms eye new markets for fracked gas that can be turned into Liquefied Natural Gas and exported to other countries, other firms involved in the petroleum sector such as petrochemical firms worry that exports will boost domestic prices for natural gas upon which they rely upon for feedstock for many of their products. That could put them at a big competitive disadvantage in global markets.

Due to the overtaxed oil pipeline transportation and storage system, rail companies are enjoying a boom by shipping tank cars albeit with new dangers as evidenced by the Lynchburg situation. Officials claim the local damage there has been contained and no pollution of drinking water is imminent.

Shipments of petroleum product has recently increased 28 percent to 1.54 million carloads according to Cowen & Co and RailShare.

The biggest players are those closest to the booming western shale oil fields like Bakken in North Dakota. The rail leader is Burlington Northern Sante Fe followed by Union Pacific Corp.

They are followed by Norfolk-based Norfolk Southern and Jacksonville-based CSX. NS saw its petroleum shipments up by 27.5 percent into April while CSX’s share increased even more – by 59 percent for the period.

What this means is that there are a lot more tank cars rumbling through farmlands, forests and downtowns like Lynchburg’s. That city’s fire department reports that within the past year, oil-related traffic has increased by 20 percent through the city. The train involved was actually going below the posted speed limit, according to news accounts.

What the Fossil Fuel gives, it can take away, however. While oil shipments are up, coal shipments are way down, largely because fracking has made gas so cheap that electric utilities are switching to it. That has meant that NS has taken a hit, reporting that its first quarter earnings fell 18 percent.

Much of the oil traffic through Virginia goes to Yorktown where crude is loaded onto barges for shipment to East Coast refineries – a fairly recent turn of events since crude oil from the West and Midwest seldom traveled this far east by rail. Eventually, the Yorktown terminal may be allowed to export U.S. crude. Plans are already afoot to allow Dominion Resources to export LNG from a nearly 40 year-old LNG import facility farther up the Chesapeake Bay at Cove Point, Md. Environmentalists are fighting the project.

So, too, are parts of the petroleum complex. Dow Chemicals has been leading a fight against exporting LNG saying that it will only raise the domestic prices for natural gas – a claim also made by environmentalists. The petrochemical firms want cheap feedstock they use to make plastics and other goods so it helps them with their pricing and profit margins. They also must compete globally against foreign, particularly Asian firms, which may be at a price disadvantage right now because they may pay more for natural gas. If the U.S. helps them with LNG, then, ironically, that also boosts their ability to beat U.S. petrochemical firms.

In other words, fracking puts money in some pockets while taking it away from others – a strange phenomenon in a rapidly changing energy picture.

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11 responses to “Fracking’s Strange Winners and Losers”

  1. larryg Avatar

    well .. to even further put on display my ignorance .. how does frack gas get from the well to market or to ports to export it?

    does it too go by rail since pipelines are in short supply?

  2. Peter Galuszka Avatar
    Peter Galuszka

    Larry, good question. In Dominion’s case, it can draw from two pipeline systems. One is from Louisiana that runs up near Loudoun and then cuts back to Cove Point. Dominion has another system running from Cove Point upwards to Pennsylvania and the Marcellus Shale fields of fracked gas. That’s an older system that was put in a while back when Cove Point was imported LNG — some of it went to storage in Pa. Plus, don’t forget that Pennsylvania has had pipelines since the beginning since that’s where the oil and gas industry began (besides Baku).

    1. larryg Avatar

      yup. Peter – you’re doing a good job bringing these issues up… anytime we delve into things that most of us do not know… it ought to cause us to want to learn more so we are able to actually have some level of informed opinion!

      this is one of those areas that has always fascinated me… I know I’m.. weird.

  3. larryg Avatar

    WHOA! http://goo.gl/MuAW1E

    I wonder what Lynchburg would look like if these babies blew up? !!!

  4. Peter Galuszka Avatar
    Peter Galuszka

    Thanks, When I left Virginia 30 years ago, I ended up in DC writing for energy trade newsletters. It got kinda boring but you did learn a lot and I got to travel.

  5. Peter Galuszka Avatar
    Peter Galuszka

    Falwell u. Would be in heaven

  6. cpzilliacus Avatar

    McClatchy Washington Bureau: Lynchburg, Va., oil train derailment illustrates threat to rivers

    As Pat Calvert steers a small motorboat over the James River, it’s impossible to not notice the smell of motor oil, and it’s not coming from the boat.

    Two days after a CSX train derailed and put three tank cars full of crude oil into the river, Calvert, who keeps tabs on the Upper James River for the James River Association, is only beginning to survey the spill’s impact. Wednesday’s derailment spared the town from catastrophe, but not the river.

    Much of the spilled crude burned in a spectacular fire on Wednesday, and the river, flooded from recent rains, washed the rest downstream toward the state capital, Richmond, and the Chesapeake Bay.

    1. larryg Avatar

      there’s interesting rail history..here

      the first dry bulk transport systems were – canals…

      but then came the trains.

      but trains don’t like hills so how did they handle that?

      well – they followed rivers!

      virtually every major river in the country – has a rail corridor next to it.

      when they run out of river – they go to tunnels!

      but way back when – rails first starting following rivers – they were not carrying large quantities of bulk liquid..but as time went by the “tank” car was created and they began carrying bulk liquids – not just coal but all kind of noxious and poisonous substances. And in that time – it was consider no more worse that cities dumping raw sewage including nasty chemicals into river.

      as time went by – actually a LOT of time – it was the latter part of the 20th century – actually during the POTUS term of a guy named Nixon that we as a country became “concerned” about all the CRAP we were dumping in to the rivers (and by the way we realized that CSOs were not good either!).

      at any rate – the rail had these ubiquitous river corridors and were not about to abandon them – it not only would have been ungodly expensive – it still would not have kept spills from getting into rivers via smaller tributaries.

      Now, this aspect has become one of those “nasty” NEPA deals where for both proposed new rail – AND road – they have to ask if the rail/road crosses a stream that feeds into a water supply and if it does – it can drive corridor selection if there are alternatives that reduce the threat.

      like road accidents, rail has it’s share – per year and some go into creeks and rivers – and the problem is that bulk liquids are an increasing part of rail traffic.

      CSX currently goes right through DC and among it’s cargo are bulk liquid tank cars and more than one person including Homeland Security has stated that this is not a good thing for most cities but perhaps even worse for DC (although some might consider the potential loss of a lot of politicians at one time not necessarily a bad thing. 😉 ).

      so what are we going to do?

      are we going to ban bulk liquids by rail?

      are we going to force freight rail to re-route away from rivers and cities?

      Crude oil is actually one of the lesser poisons that rail carries these days.

      Oh.. one more thing….. coal is not the only issue in West Virginia. It is home to a plethora of chemical plants that other states – don’t want either.

  7. Breckinridge Avatar

    Sometimes you guys crack me up. You are worried about the oil on those trains? The oil? You have no idea what else is in those tanker cars? An oil fire is no big deal, and if those cars had exploded the buildings right along the right of way would be gone but Falwell U five miles away would have been unaffected.

    There is stuff in those other cars that would get Falwell U.

    Yes, life is full of risks. The railroads and the regulators have high motivation to reduce those risks. Don’t know what happened in this case — maintenance issue, equipment problem, operator error — but derailments of chemicals and hazardous wastes should scare us all. Fracked oil is not that scary.

    1. larryg Avatar

      once again – Breckinridge and I are on the same total wavelength!

      never will be 100% I’m sure but on a lot of things – Breckinridge has the ability to see the bigger picture..

      as he says – there ARE .. FAR WORSE things in those tank cars – INCLUDING nat gas – frozen and called LNG.



  8. larryg Avatar

    also to point out – that pipelines break also…


    ” In 1989, 212,000 gallons of kerosene spilled into Mine Run in Orange County, forcing Fredericksburg to shut its water intake at Embrey Dam. A 1980 spill of 92,000 gallons of fuel oil into Mine Run also forced closure of the city’s water intake.”

    there is no 100% guaranteed flawless way to move bulk liquids from their source to their markets.

    pipelines cross rivers and they cross tributaries that flow into rivers and they get old and brittle -and break.

    even natural gas pipelines – even in urbanized areas break.


    there is no fail-safe way to move liquids

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