CBR Is Not Bakken's Be All And End All

[By the way, memo to self: whoopee!]

A number of analysts are raising concerns about the recent crude oil derailments. The most recent is from The Financial Times:

Manufacturers of tank railcars have been among the biggest beneficiaries of the US shale energy boom, with share prices and order backlogs soaring as fast as oil pouring from new deposits in North Dakota.

Deliveries are booked well into 2015. But growth of the industry’s backlog has slowed recently, sparking speculation that supply is catching up to demand from companies eager to ship crude on routes not well served by pipelines. 

Hold that thought.

I posted this the other day:

The emotional anxiety this will cause investors will result in share price volatility but it will be temporary. There are four pipelines that are particularly interesting and relevant to this discussion:

• the Keystone XL 2.0 South will start flowing oil out of Cushing on January 22, 2014, but the huge influx of western Canadian heavy oil that was to replace it via the Keystone XL 2.0 North won't be on-line by 2016, if ever. There may be a reason that Harold Hamm has said the Keystone XL is no longer needed; 
• the Killdeer-to-Dickinson pipeline will be on-line by the middle of this year;
• the Enbridge Sandpiper project; this one won't be completed until 2016; in addition, I have some concerns whether it will be completed/delayed due to activist environmentalist concerns, but with the rail issues, the advantage may have turned in Enbridge's favor; and, 
• the Double H pipeline from Dore, North Dakota, to Guernsey, Wyoming. I haven't seen anything on that recently; updates should be in the annual report, if nowhere else.

The point is this: the pipeline companies have not been sitting idly by for the past two years thinking CBR is the "be all and end all."

Go back to that linked Financial Times story and the thought you were holding. I posted the first two paragraphs from that linked story. Here's the rest of the story:

With new pipeline capacity set to come online in the next few years and new regulations under discussion, whether the industry can sustain the explosive growth of the past few years remains uncertain.

“It’s hard to tell because the dynamics change all the time,” says Art Hatfield, analyst at Raymond James. “But based on some of the data we look at it would appear that orders are going to slow dramatically.”

The promise of tank cars has attracted some of the biggest names in investing to two of the four main manufacturers: Union Tank Car is owned by Warren Buffett’s Berkshire Hathaway while American Railcar Industries is controlled by Carl Icahn.

Both companies, along with Trinity Industries and Greenbrier Companies, have enjoyed soaring fortunes in recent years, with shares in the three public companies up more than 250 per cent in the past five years, compared with a doubling of the S&P 500.

Investors need to focus on issues facing the railroads, but investors also need to look at the overall picture.

One almost gets the feeling that Warren Buffett saw this coming six months ago when it was learned he bought a company that makes a product that helps oil flow more smoothly through pipelines. I would assume that this would be particularly helpful for heavy oil coming out of Western Canada. Minyanville, by the way, provides a nice look at the the recent Buffett/PSX deal.

In Canada, it looks like Enbridge is one step closer to a huge trans-Canadian crude oil pipeline. Motley Fool is reporting: 

Northern Gateway pipeline just received approval from a Canadian federal environmental and energy regulators' panel. Now the federal government has 180 days to review the $6.5 billion pipeline, placing the big decision in June 2014. Canada needs to get more oil out of its interior, and new pipelines could open up the precious Asian markets. While the deal is not done yet, 2014 will be a big year for Enbridge and its shareholders.

Reminder: this is not an investment site. Do not make any investment decisions based on anything you read here or what you think you may have read here. 

This pipeline will move 525,000 barrels of oil per day from Alberta to tankers in Kitimat in British Columbia. It will also carry 193 mbpd of heavy oil thinning condensate from B.C. to Alberta. The panel did not give Enbridge a free ride, however. The company must put up $950 million in liability coverage and comply with 208 other conditions. 

While it is impossible to predict the future, there is a good chance the pipeline will be approved. Canada's reliance on U.S. refiners makes Canadian energy producers sell their products at a discount, reducing federal and provincial tax income. Also, transporting oil through mountain passes in rail cars is not too attractive after runaway crude cars in Lac-Megantic, Quebec killed 47 people.