Will Nebraska’s decision to approve a permit for the controversial Keystone XL pipeline signal the end of movements of large volumes of crude oil by rail?

Probably not.

Rail shipments of crude oil persist, experts say, in spite of the higher cost over pipelines and the increased regulatory scrutiny railroads have faced after a series of high-profile derailments.

Ryan Kellogg and Thomas Covert, both professors at the University of Chicago, wrote in a September research paper that the option to ship by rail actually decreases the incentive to build pipelines, or to build bigger pipelines than they would otherwise.

“Crude-by-rail may be an attractive transportation option in spite of its higher costs,” Kellogg and Covert wrote.

Shippers initially turned to rail to absorb a sudden upswing in oil production from North Dakota’s Bakken shale region, which had extensive rail access but few pipelines. Many energy economists predicted the surge in rail shipments would be temporary.

New pipelines, including the controversial Dakota Access project, have reduced the reliance on trains to get the oil to refineries. But Kellogg and Covert noted that there are still places pipelines don’t go, and likely won’t. Meanwhile, rail continues to offer flexibility: It goes everywhere and can be quickly ramped up or down as required.

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Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...
Transportation
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Transportation
Mobility is central to economic activity. Yet, a lack of fuel diversity and continued demand growth have made the transportation industry a major contributor to global pollution and carbon emissions....