Buffett Railroad's Crude Cargo Climbs 40% on Shale Boom

Tuesday, 08 Jan 2013 09:26 AM

 

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Burlington Northern Santa Fe LLC, the railroad owned by Warren Buffett’s Berkshire Hathaway Inc., will boost crude-oil shipments by 40 percent this year, helping blunt a decline in coal cargo, Chief Executive Officer Matt Rose said.

BNSF will spend “a couple hundred million dollars” on capital improvements to haul more petroleum to refineries from the Bakken shale formation in the northwestern U.S., Rose said in a telephone interview. Crude oil shipments will grow to 700,000 barrels daily by the end of this year, he said.

Crude from the Bakken, which is putting the U.S. on course to become the world’s biggest oil producer by 2020, is helping the second-biggest U.S. railroad buck an industrywide slump in commodity cargoes. Fort Worth, Texas-based BNSF’s raw material volumes were little changed in 2012 as competitors posted declines, based on Association of American Railroads data.

“We’re the 1,000-pound gorilla in the oil markets,” said Rose, 53, who has been CEO for 12 years. “Crude by rail is going to be really strong for us. It’s been a real benefit to us to replace some of that lost coal business.”

BNSF, which Buffett took over three years ago in a $26.5 billion deal, saw coal shipments fall 6.2 percent last year, compared with an average drop among North America’s seven largest railroads of 9.8 percent, railroad association data show. Chemicals carloads grew 26 percent, the most among peers.

The railroad carried more coal than its bigger rival, Union Pacific Corp., every year from 2007 through 2012, according to data compiled by Bloomberg. Both companies’ networks are centered west of the Mississippi River.

Tank Cars

BNSF isn’t the only piece of Berkshire’s empire benefiting from increasing output of shale oil produced by hydraulic fracturing. Union Tank Car Co. is already working at full capacity to produce rolling containers that carry the fuel in trains.

Rose is exploiting what he once projected would be a fleeting opportunity as the U.S. grows its oil production by the most since the first commercial well was drilled in 1859. Now he sees a “longer-term picture” moving petroleum by freight train because his network is more flexible than a pipeline can be.

BNSF is working with customers to build new loading facilities connected to its 32,000-mile (51,500-kilometer) rail network and plans to deliver crude to refineries in California, Oregon and Washington, Rose said.

It’s in talks with Norfolk Southern Corp. and CSX Corp. to carry crude to East Coast customers including Delta Air Lines Inc.’s refinery in Trainer, Pennsylvania, near Philadelphia, Rose said.

Crude Refineries

CSX is negotiating with western and Canadian railroads to allow shipments of crude oil east to “a number of refineries and terminals,” Lauren Rueger, a spokeswoman for the company, said in an e-mail. Robin Chapman, a spokesman for Norfolk Southern, said he couldn’t immediately comment.

“When you look at the flexibility of where this crude can go, this can be a very long-term business venture,” Rose said. “We’re out there right now working with a plethora of customers creating destination plants that allow this crude to get in markets where, five years ago, it would have been unthinkable that we’d be bringing crude into a place like Philadelphia.”

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