CBR Is Here To Stay: Pipeline And Shale Are Not Compatible Unless There Is The Rail Option

For those of you who haven't read the sixteenth and last in the 2013 series on crude-by-rail provided by RBN Energy, you need to do so. Absolutely fascinating. Some takeaways:

Costs:

• pipelines: billions of dollars
• CBR terminals: millions of dollars

Investment return:

• 20% on a $50 million investment
• payback in 5 years

Advantages:

• scalable
• flexible
• activist environmentalists apparently are rail buffs, apparently they love Burlington Northern, Canadian Pacific, and Union Pacific (these are the big winners)

From concept to design to permitting to operation:

• measured in months, not years (let's see, are we in our 8th year with regard to the Keystone XL?)
• exception: years in California due to permitting process

Most interesting: rail is particularly suitable to shale production = production volatility

• initial production huge; tapers off quickly (hard on pipelines; perfect for scalable CBR)
• pad drilling: huge initial production (can't get pipelines in fast enough for all the new pads)
• new rigs more effective; increased production volatility; again, CBR better than pipelines
• as sweet spots targeted, production volatility increases

RBN summary:

So the pipeline model and the shale crude model are not compatible unless you have a third transport option to take up the slack. That is where rail came into play. Originally as a band-aid to ship production until pipelines were built. Now that the rail network is set up however, the band-aid becomes part of the solution and no longer just a work around.

MDW summary:

• not one downside to CBR for shale oil production
• scalable, flexible
• no losers
• activist environmentalists love rail
• once natural gas proves cost effective for locomotives, one more advantage
• best thing that ever happened: Keystone XL killed

 Yup, CBR is here to stay:

Rock and Roll Is Here To Stay, Danny & The Juniors