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The United States will produce more oil than ever this year – so much so that pipelines are overwhelmed.
New technologies such as fracking have enabled drillers to extract oil and natural gas from shale formations that were previously impenetrable. As a result, oil and gas are being produced at a faster rate than pipelines can handle. And a lack of pipeline capacity has prompted energy companies to seek other means of getting all that oil to market.
Amid this energy boom, railroads have clearly emerged as the preferred method of non-pipeline crude transport. Trains are getting bigger, and are better equipped to handle the larger oil shipments than trucks. Because many of the most oil-rich drilling sites in the U.S. are in landlocked states such as North Dakota, Montana and Oklahoma, sea barges and tankers are useless. To reach the coasts, the oil must be shipped by rail.
Almost overnight, crude-by-rail shipments have exploded.
Last year, 434,000 carloads of crude oil were shipped across U.S. rails. That was a staggering increase of 4,468% from 2008 when just 9,500 carloads were shipped.
As production accelerates, the number of crude-by-rail shipments should continue to rise. U.S. oil production reached 7.5 million barrels per day last year, up from 5 million per day in 2008. This year, oil production is expected to be 8.5 million barrels per day.
There simply won’t be enough pipelines to keep up with the breakneck pace of U.S. oil production.
For one, Americans will continue to fight against new pipelines being built. No one wants an oil pipeline running through their backyard.
Take the Keystone XL pipeline, for example. The proposed 1,179-mile pipeline would carry crude oil from western Canada through Nebraska and all the way down to the Gulf Coast. TransCanada Corporation proposed the project in February 2005. Nine years later, it’s still awaiting approval from the U.S. State Department.
Even if the Keystone project does get the green light, pipelines take years to build. At the rate oil and natural gas are being extracted from places like the Bakken in North Dakota and the Marcellus Shale in Pennsylvania and West Virginia, the U.S. pipeline shortage will likely become even more pronounced.
Not since World War II has America relied so heavily on railroads as a means of transporting oil. Crude oil is being produced at a record clip.
Warren Buffett saw this coming. It’s one reason why Berkshire Hathaway (NYSE: BRK-B) shelled out $34 billion to buy Burlington Northern Santa Fe, America’s second-largest railroad, in 2010. His investment is paying off: Burlington Northern Santa Fe brought in $22 billion in revenue last year, a 6% increase from 2012.
Crude by rail is big business. And there’s a way for investors to profit from that big business without having to invest in a big-oil company.
In this month’s issue of our premium $100k Portfolio, we have added shares of a little-known company that is benefitting greatly from the crude-by-rail boom. It’s a company that has been in business for more than a century, is the leader in its field, and is coming off its most profitable quarter ever.
To learn more about this play on America’s energy renaissance, click here.
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