Kinder Morgan has announced plans to build a crude-by-rail terminal in Houston, Texas, underlining a U.S. trend towards the use of rail to ship crude.
The pipeline transporter and truck and rail operator Watco have formed a joint venture KW Express LLC which will own 85% of the terminal.
The remaining 15% will be owned by Mercuria Energy Trading Company, a Texas energy trading firm. The terminal will deliver up to 210,000 barrels of crude oil per day for sale to nearby refineries.
Kinder Morgan says the terminal would enable Mercuria Energy to bring crude oil to the Gulf Coast from western Texas, the oil hub at Cushing, Oklahoma, the Bakken Shale, and western Canada (where a potential investment by Kinder Morgan will give the company more access to oil in the area).
Kinder Morgan’s initiative to resort to an age-old approach for oil transportation is a manifestation that the pipeline network has not been able to keep up with the rapid but geographically scattered growth on the unconventional side.
The company is a pipeline transporter, and what it is doing could somewhat weaken the pipeline operators' influence in the market. It is usually a zero sum game between pipeline operators and railroads, as one’s gain would be another’s loss.
Despite this conflict, Kinder Morgan’s decision seems to make sense, as trains can reach higher-paying markets more flexibly, allowing shippers to take advantage of more favorable market conditions.