Pipeline Projects Abandoned

   In the Tuesday, March 4, 2014 issue of the Wall Street Journal,  was an article entitled Who Wants an Oil Pipeline?   Trains Bring in More Money.  The article, by Alison Sider,  reports that Koch Pipeline Company walked away from a pipeline project because of "tepid interest"  form oil producers. And a year earlier, Oneok Partners canceled a planed line from North Dakota to Oklahoma for the same reasons.  The oil producers, at least for the present, prefer to just keep shipping by rail.
    Rail costs much more per barrel to ship oil than any pipelines.  But a pipeline, once built, locks the builder into shipping to only one destination.  And all the oil producers who have signed long term contracts agreeing to use that pipeline are locked into that same destination.  But markets can shift over time---in fact, they can shift from day to day.  But when you load oil into a railcar,  you can send it to any place on the continent.
    The proposed proposed pipelines would all ship oil from the Midwest to Texas and Louisiana, where refineries are already oversupplied with oil from local shale.  North Dakota oil is low sulphur oil, of the same type that East Coast refiners are paying $104 per barrel to import.  Yet Midwest producers received only $74 per barrel in January.  So even though pipelines ship oil more cheaply than rail, having a pipeline to Texas is not what the oil producers really want right now.  They don't want to ship to Texas--they want to ship to New Jersey, and will find it profitable to do so, even at a rail freight cost of $5-$15 per barrel.   And next year, they may wish to ship somewhere else.  But no new pipelines will be built without  oil producers signing long term contracts to commit to shipping a specific volume  for a specific number of years.   The article quotes one analyst as saying, "Making a pipeline volume commitment is like getting married.  Shipping by rail is like a one night stand........"