* Crude shipments fall nearly one-fourth compared with 4Q 2012
* Decline stems from crude price decline, pipeline startups
By Kristen Hays
HOUSTON, Jan 23 (Reuters) - Union Pacific Corp’s crude oil shipments via rail to the U.S. Gulf Coast were down 22 percent in the fourth quarter from a year earlier as pipeline startups increased supply in the region, a senior executive told analysts on Thursday.
Narrowed discounts of U.S. crude prices to London’s Brent also played a role in the decrease, Eric Butler, executive vice president of marketing and sales for the railroad, said during the company’s fourth-quarter earnings call.
“Crude oil spreads, growing crude supply and increased pipeline activity are expected to have a continued impact on our crude by rail volumes,” he said.
The largest publicly traded U.S. railroad network reported a 20 percent increase in quarterly profits on Thursday on higher demand for agricultural goods, autos and other industrial shipments.
Crude oil shipments make up about 2 percent to 3 percent of the company’s total volumes, according to Beth Whited, vice president and general manager of chemicals for Union Pacific, who spoke at an energy conference in Houston this week.
Butler said pipeline startups through 2013 increased flows of West Texas and Oklahoma crude output to the Gulf Coast, reducing the need to move it via rail.
In addition, the spread of Gulf Coast crude benchmark Light Louisiana Sweet (LLS), which had traded at a $1-per-barrel premium to Brent in the first three quarters of last year, fell sharply to a discount in the fourth quarter. Cheaper crude already in the region prompted a decline in rail shipments of North Dakota Bakken crude, he said.
Just Wednesday, TransCanada Corp started commercial service for its long-awaited 700,000 barrel-per-day Gulf Coast pipeline, linking the bloated U.S. crude futures hub at Cushing, Oklahoma, to Texas Gulf Coast refineries. That new influx of crude could further pressure crude prices down in the Gulf Coast market.
Union Pacific’s network connects 23 states in the western two-thirds of the nation by rail. In addition to moving crude from North Dakota and Texas, the company’s network serves oil plays in Colorado, Wyoming and Utah.
Butler said Union Pacific’s strategy to growing crude-by-rail volumes will focus on strengthening the sites where shipments are loaded and then unloaded, recognizing that volumes can change as crude prices fluctuate.
“The various destination regions really are fundamentally going to be driven by the market and spreads,” Butler said.