In Dakota Oil Patch, Trains Trump Pipelines

Moving North Dakota's oil riches out of state on trains was supposed to be a stopgap solution until pipelines could be built. But even as crude gushes from the state's Bakken Shale at a rate of nearly 1 million barrels a day, some pipeline companies are abandoning proposed projects, and it is becoming clear that rail transport won't be a temporary phenomenon.

In January, Koch Pipeline Company walked away from a project because of what it said was tepid interest by local oil producers. A year earlier Oneok Partners LP canceled plans for a $2 billion pipeline from North Dakota to Oklahoma for the same reason. Rail is almost always a more expensive way to transport crude than pipelines—as much as twice the price a barrel over similar distances. But in North Dakota's case, rail's greater flexibility to ferry oil to where it fetches the highest price trumped the economics of pipelines, said energy experts.

The abandoned pipeline projects could have tied into existing and proposed lines bringing oil to refiners in Texas and Louisiana, a market already awash in oil from nearby shale fields... producers want the ability to sell oil flowing out of the Midwest to the highest bidder—often refineries in Washington state, New Jersey and Pennsylvania that are only accessible by rail... In part, the crude produced in North Dakota is a low-sulfur type that is highly prized right now among East Coast refiners.

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Trains also can reach refineries that pipelines cannot. That flexibility means there is little incentive to build or expand lines to carry oil from North Dakota, Mr. True said. His company believes new pipeline construction will largely be to connect the network of pipes already in the ground to rail systems—so they fit together more seamlessly, he added.

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But in the long run, producers say they would like more pipelines build. "Our philosophy is that pipelines are the best transportation solution, because it takes traffic off the road and you've seen the consequences of the burden on the railroad system," Whiting Petroleum Corp. spokesman Jack Ekstrom said.

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