Executive Briefings

As Coal Use Declines, Natural Gas Has Been Good to U.S. Railroads

Burlington Northern Santa Fe railroad and Union Pacific Corp. are combating a drop in coal cargoes by catering to the industry responsible: the hydraulic fracturing of shale formations.

BNSF, Union Pacific and their peers are hauling in energy producers' gear to extract crude oil and gas from shale, then shipping out petroleum products. BNSF's petroleum carloads rose 75 percent in the second quarter from a year earlier while Union Pacific saw a 12-percent gain in the unit where it groups fracking-related freight.

"This is a whole industry that just sprung up on all the rail properties," Jeffrey Kauffman, an analyst at Sterne Agee & Leach Inc., said in a telephone interview. "It's a new growth source that helps to mitigate what's probably a temporary dislocation of an old energy source."

The dislocation has come with a hefty cost, as many North American utilities stopped generating power from coal in favor of cheaper natural gas released by fracking.

"The shale opportunity has been a double-edged sword for the rails," said Ben Hartford, a Robert W. Baird & Co. analyst. "The abundance of natural gas domestically has pressured prices, and the resulting degradation to the coal demand has been palpable." 

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Keywords: supply chain, transportation management, natural-gas transportation

BNSF, Union Pacific and their peers are hauling in energy producers' gear to extract crude oil and gas from shale, then shipping out petroleum products. BNSF's petroleum carloads rose 75 percent in the second quarter from a year earlier while Union Pacific saw a 12-percent gain in the unit where it groups fracking-related freight.

"This is a whole industry that just sprung up on all the rail properties," Jeffrey Kauffman, an analyst at Sterne Agee & Leach Inc., said in a telephone interview. "It's a new growth source that helps to mitigate what's probably a temporary dislocation of an old energy source."

The dislocation has come with a hefty cost, as many North American utilities stopped generating power from coal in favor of cheaper natural gas released by fracking.

"The shale opportunity has been a double-edged sword for the rails," said Ben Hartford, a Robert W. Baird & Co. analyst. "The abundance of natural gas domestically has pressured prices, and the resulting degradation to the coal demand has been palpable." 

Read Full Article


Keywords: supply chain, transportation management, natural-gas transportation