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Oil by train increases

North Dakota’s top oil regulator said railcars could move up to 90 percent of the oil produced in the state next year as differences in crude prices make rail more lucrative for operators than shipping by pipeline.

“We’re expecting 2014 to be soft in the crude price scenario, and so railcars are going to be absolutely vital to what we do in North Dakota,” Lynn Helms, director of the state Department of Mineral Resources, said Thursday.

North Dakota is the nation’s No. 2 oil-producing state behind Texas, with total daily output projected to top 1 million barrels by early next year.

Railcars carried about 63 percent of the state’s oil production in September, the most recent month for which figures were available, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Meanwhile, the price for a barrel of Bakken sweet light crude fell from about $96 in July to $73.50 this month, Helms said. At that price, it’s still “extremely economical” to drill in North Dakota’s four core oil-producing counties – Dunn, Mountrail, McKenzie and Williams – as well as in Stark and Divide counties, but not in Oil Patch fringe counties, he told the Legislature’s interim Government Finance Committee.

North Dakota ‘s oil industry has seen an “enormous shift” from pipeline to railcar in the last three to four months as the gap has widened between the world oil price and the U.S. benchmark price and between the U.S. price and the Bakken sweet crude price, Helms said.

Shipping by railcar to specific markets is netting operators $24 per barrel more than moving it by pipeline, which is helping the state meet its revenue forecast from oil taxes, Helms said. He said one operator that was transporting 75 percent of its oil by pipeline to Minnesota and Wyoming in July is now moving 95 percent by railcar to refineries in Philadelphia and St. James Parish, La.

“So rail has really saved our bacon in this whole business,” he said.

As for the state’s total oil production, Helms said the percentage moved by rail probably won’t reach as high as 90 percent, “but it could if we see continued increases in those price differentials.”

Kringstad said he doesn’t have a projection for 2014, but he added, “I expect, given the market conditions today, that going forward we’ll see additional barrels being moved by railcar.”

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Mike Nowatzki

Mike Nowatzki reports for Forum News Service. He can be reached at (701) 255-5607.