Thousands of railcars ordered up to transport oil are now sitting idle because current ultralow crude prices have made shipping by train unprofitable. Meanwhile, traditional storage tanks are running out of room as U.S. oil inventories swell to their highest level since the 1930s, Censor.NET reports citing The Wall Street Journal.
Some industry participants are calling the new practice "rolling storage"-a landlocked spin on the "floating storage" producers use to hold crude on giant oil tankers when inventories run high.
The combination of cheap oil and surplus railcars has created a budding new side business for traders. Analysts estimate there are now as many as 20,000 tank cars-about one-third of the North American fleet for hauling oil-parked out of the way in storage yards or along unused stretches of tracks in rural areas. The plunge in oil prices brought that activity to a halt.
Dennis Hoskins, a managing partner at Energy Midstream, says there are so many unused tank cars that he is constantly hearing from railcar owners hoping to put them to use. "We get offers everyday for railcars," he said.
Railcars hold between 500 and 700 barrels of oil, less than a cavern, tank or ship can store. The cheapest form of storage-underground salt caverns-can cost 25 cents a barrel each month, while storing crude on railcars costs about 50 cents a barrel and floating storage can cost 75 cents or more. The cost estimates don't include loading and transportation.
The use of railcars for storage could be limited by the cost of track space and safety and liability concerns that have followed a string of high-profile transport accidents. Issues range from leaky cars to the risk of collisions and fires.
Federal regulations require railroads that store cars loaded with hazardous materials like oil to comply with strict storage and security measures to keep the cars away from daily rail traffic. Railroads and users face responsibility for leaks, collisions or other mishaps.
"I don't want the liability," said Judy Petry, president of Oklahoma rail operator Farmrail System Inc. "We prefer not to hold a loaded car."
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