October 4, 2011 / 9:26 PM / 8 years ago

Enbridge says Bakken rail oil is "the Wild West"

* Enbridge sees rail scramble in Bakken

* Company is building out its pipeline capacity in field

* Tank cars hard to come by, long term leases asked for

By Scott Haggett

CALGARY, Alberta, Oct 4 (Reuters) - The rush to ship oil by rail from North Dakota’s prolific Bakken field has created a “Wild West” situation as producers scramble to move their product to market, an executive at pipeline operator Enbridge Inc (ENB.TO) said on Tuesday.

Steve Wuori, head of liquids pipelines at Canada’s No. 2 pipeline company, said pipeline and rail infrastructure has yet to catch up to booming production in the prolific oil-shale field, creating some dangerous situations.

“It’s the Wild West out there at the moment,” said Wuori at a company-sponsored investment presentation. “I hear stories of railcars being loaded by men standing on top of the railcar holding the hose, with a 55-gallon drum cut in half for their firewater protection system. It is a real, real Wild West, cowboy type of thing that’s going on as people scramble to get crude onto rail in any possible way they can.”

Rising from almost nothing a few years ago, production from the Bakken field topped 420,000 barrels a day in July and Wuori estimates that current pipeline capacity in the region can handle less than half that output.

Without access to pipelines, producers are hiring rail tank cars to haul their oil to market. As well, shipping by rail lets producers avoid the lower-value Midwest refining market and ship to regions where higher prices are on offer.

“There’s a tremendous enthusiasm for rail,” Wuori said. “It is clearly a force to contend with when it comes to movements of crude in areas where pipelines are nonexistent or are constrained. We have Bakken crude showing up in Philadelphia, ... in St. James, Louisiana, and New Orleans.”

Enbridge is operating a rail-access program in the Bakken while it works to ramp up its own pipeline capacity in the region. A project to loop its existing North Dakota system will add nearly 150,000 bpd of new capacity while other projects will add an additional 145,000 bpd of additional space. However those projects are still two years away.

While pipeline space is being demanded, producers are looking for access to a limited supply of tank cars. Wuori said terms are getting tight, with owners of the hard-to-come-by tank cars demanding long-term commitments.

“We’re finding that the railcar companies are actually demanding long-term contracts,” Wuori said. “Who would ever have thought such a thing a few years ago.”

Indeed, GATX Corp GMT.N, one of the largest railcar leasing companies, said it is only leasing out tank cars to creditworthy customers willing to commit to long lease periods. It said only a few hundred of its fleet of 30,000 gallon tank cars are currently being used to transport Bakken oil.

“We’re watching that market pretty carefully,” said Jennifer Van Aken, a spokeswoman for the company. “We only have a couple of hundred cars in that (Bakken ) service right now, just because it does feel a little bit speculative in nature.”

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