|Figure 1: The UP system is notably absent in the Dakotas, and barely touches Montana. The Bakken Basin and the Williston Basin shale oil plays sit astraddle the Canadian border at the Montana-North Dakota border. BNSF, on the other hand, covers all the northern states, and must contend with crude oil and frac sand traffic that UP never sees. In addition, BNSF must deal with self-caused traffic slowdowns due to their energetic new construction and track improvements in the northern region of their system.|
By Dave Gambrel
In August 2014, Surface Transportation Board (STB) Chairman Daniel Elliott wrote to seven Class I and two short line railroads requesting an assessment of their ability to meet traditional “fall peak” service demands. This review of their responses focuses on the two railroads that comprise the majority of U.S. western coal mine originations, Burlington Northern Santa Fe (BNSF) and Union Pacific (UP). BNSF was also asked to respond to additional issues that were raised at the September 4, 2014, field hearing held in Fargo, North Dakota. Products other than coal are mentioned only as they might add to an understanding of rail transportation challenges; crude oil and frac sand are two such commodities.
While UP and BNSF are often thought of as serving the same mines in the Powder River Basin (PRB), that statement is only partially true. They jointly serve the six mines in the southern end of the PRB, between Orin and Coal Creek Junction, but only BNSF serves the 11 remaining mines in the northern end of the PRB, four of which are in Montana. Only BNSF has the right to go northward out of Coal Creek Junction, and that is where their two traffic worlds depart. UP should not encounter crude oil and frac sand traffic on its southward trip out of the basin, but some BNSF trains often head right into such traffic or try to cross it. As a consequence, we will see that UP’s system velocity is higher than BNSF’s. As we have read, BNSF is working hard to fix that problem, and Figure 2 will show that they have made commendable progress.
UP Activated Surge Resources
Both UP and BNSF suffered through the winter of 2013-2014. UP Chairman Jack Koraleski wrote, “Only 40 of the first 243 days through August 2014 passed without a major service interruption. In earlier years, the combined challenges of higher demand and service interruptions might have ground our system to a halt. But because we have invested more than $40 billion of capital into our railroad since 1999, we have been able to bend but not break. Our system velocity is holding around 24 miles per hour, which means we are moving more traffic faster than we moved approximately the same volumes in 2006.”
UP added about 850 locomotives to their active fleet and purchased 229 new locomotives as part of their 2014 capital plan. They increased their train, engine and yard (TE&Y) workforce by more than 800, and planned to hire around 3,200 TE&Y employees for the full year to cover
Koraleski stated UP’s “demand for coal is much stronger this year than in recent years. In December 2013, coal inventories were well below historic levels and on average were down 31% from the prior year. Inventories fell further when prolonged extreme cold hit much of the U.S. last winter, increasing demand for electricity.
Moreover, higher natural gas prices contributed to greater demand for coal-fired electricity generation. Through August 30, 2014, our coal carloadings are up 2% compared to 2013. While the summer saw below-average temperatures for much of the country, utility stockpiles are still down more than 20% from their five-year averages. Accordingly, we anticipate demand from utilities as they replenish and build stockpiles for the coming winter.
|Figure 2: Western Coal Train Speeds (miles per hour), March 2014-March 2015. (Source: AAR Railroad Performance Measures)|
“Responding to the demand for coal-fired generation, our coal customers desired to ship more coal in 2014 — much more than they told us to plan for last year. We responded by activating our surge resources, acquiring more locomotives and hiring more employees. We added coal trainsets and increased train size where we could, so that our customers are receiving more coal. We are closely monitoring our deliveries and maintaining service logs to track customer issues, including low inventories.
We are also proactively communicating with our customers and updating them on our efforts to deliver more coal.”
While both UP and BNSF had problems with maintaining coal stockpile levels throughout the year, most of the slow service complaints were focused on BNSF (see Coal Age, March 2015). UP did have its experience with crude oil and frac sand, but their crude oil shipments were lower. They anticipate that aggressive shale drilling will lead strong demand for frac sand, which largely moves from mines in Minnesota and Wisconsin to UP destinations in Oklahoma and Texas. In 2009, they hauled 50,000 carloads; by 2013, this had increased to 200,000 carloads.
BNSF's Service Challenges
BNSF’s response, written by President Carl Ice, was, “BNSF is currently moving large volumes of coal, agriculture and crude across its network particularly in its northern operating region, and we expect these large volumes to continue for the rest of the year and into 2015. We also expect that the customary seasonal demand patterns seen in previous years will continue. Through August, BNSF units are up 1.8% compared to the same period a year earlier.”
“Industrial Products volumes have grown about 5% this year through August compared to the same period last year, primarily driven by the strength of energy-related commodities, most notably crude oil and frac sand (frac sand is used in the hydraulic fracturing process to produce petroleum fluids.) Volume growth is expected to trend upward in the remaining months of the year led by the aforementioned commodities. BNSF currently serves a number of crude unit train facilities servicing several western shale plays — 31 origin facilities and 34 destination facilities — with several more origin/destination facilities under development. We currently have about 180 active crude unit train sets in service and these are expected to exceed 200 by the end of the year.”
|Figure 3: U.S. electric power coal stocks (millions short tons). (Source: Short-term Energy Outlook, March 2015)|
The occasional mention of crude oil and frac sand may seem curious to the pure coal shipper, but to the shipper of northern PRB coal, the number of unit trains carrying these products has been growing rapidly. While the long-term projections of EIA show Wyoming coal production holding steady at 400-450 million tons annually until at least 2040, BNSF has continually sought new business, as any well-run company should do. Its involvement in the tanker business of North Dakota Bakken crude has been rapid and continues to grow (see Coal Age, March 2015).
“Coal units are up 1.4% through August compared to the same period last year. This is a continuation of higher volumes that we began to experience in June 2013 as demand for PRB coal increased with a rise in natural gas prices and utilities returned to greater coal-fired generation as the best value. The increase in PRB burn took place against the backdrop of declining inventories that was already under way prior to natural gas price increases. During the first half of 2014, PRB burn is up almost 25 million tons, or 13%, over the same period in 2012 and up 6 million tons, or 3% over 2013. Understanding that we have under delivered against this coal demand through the winter and spring, we have continued to grow the number of coal sets across our coal corridors and are operating nearly 500 sets. We expect this higher demand to continue for the rest of this year and into 2015 as we are not meeting current coal demand due to our service challenges.”
BNSF is to be commended for its quick rise to a new level of performance. As shown in Figure 2, average coal train speed rose steadily from mid-November to year end, reaching a whole new plateau of performance about 2.5 miles per hour faster than the average speed experienced in the first nine months of the period.
Ice continued, “We are focused on meeting our contract obligations and working with those customers who want more volume than their contact declaration, but there are also customers for whom we are not meeting our customer declarations. We will move more coal the latter part of this year and next year as capacity is added, which I will discuss in more detail below. However, we will continue rebuilding stockpiles in 2015, with some completing in 2016.
“BNSF is currently moving large volumes of many different commodities and our job is to continue building out the railroad to handle the growth as it comes. We have a track record of doing so, having invested more than $46 billion in capital since 2000. We are not ahead of growth yet and we will continue next year with another significant capital plan. As noted above, we will continue investing on the segments of our network where volume growth requires expansion.”
Dave Gambrel is an independent transportation consultant. His articles have covered issues in ocean transportation, rail transportation, barging, midstream loading and coal terminals since 2011. He may be reached at [email protected]