The U.S. shale boom has profoundly increased crude oil movements by both pipelinesÑ the traditional mode of transportationÑand railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads’ flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail’s environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80Ð90% of the displaced oil to flow by rail instead.
Seminars·Mar 28, 2023
Thomas Covert, University of Chicago
- Date and Time: –
Crude by Rail, Option Value, and Pipeline Investment (with Ryan Kellogg)