Pipelines & Inland Transport

While ocean shipping handles intercontinental commodity movement, inland transport connects production sites to export terminals and import terminals to end users. The choice of inland transport mode significantly impacts costs and logistics flexibility.

Transport Modes

Mode Comparison

Mode	Cost	Speed	Flexibility	Capacity	Best For
Pipeline	Very low	Continuous	Very low	Very high	Oil, gas, bulk liquids
Rail	Low-medium	Medium	Low	High	Bulk solids, oil
Barge	Low	Slow	Medium	High	Bulk near waterways
Truck	High	Fast	High	Low	Final mile, flexibility

Cost Comparison

TRANSPORT COST ($/MT/100km)
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Pipeline: $0.50-2.00
Rail: $3.00-6.00
Barge: $2.00-4.00
Truck: $8.00-15.00

EXAMPLE: Move 100,000 MT crude 500km

Pipeline: $250,000-1,000,000
Rail: $1,500,000-3,000,000
Truck: $4,000,000-7,500,000

Pipeline is 4-15x cheaper than truck!

Pipeline Systems

Types of Pipelines

Type	Commodity	Diameter	Example
Crude oil	Heavy/light crude	20-48 inches	Colonial, Druzhba
Products	Gasoline, diesel, jet	8-24 inches	Colonial, CEPS
Natural gas	Gas	24-48 inches	Nordstream, TAPI
NGL/LPG	Propane, butane	8-16 inches	ONEOK, Enterprise

Major Pipeline Systems

MAJOR GLOBAL PIPELINES
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CRUDE OIL:
├── Druzhba (Russia → Europe): 2M bpd
├── ESPO (Russia → Asia): 1.6M bpd
├── Keystone (Canada → US): 700K bpd
├── Caspian Pipeline (Kazakhstan → Black Sea): 1.4M bpd
└── Trans-Alaska (Prudhoe → Valdez): 500K bpd

PRODUCTS:
├── Colonial (USGC → Northeast): 2.5M bpd
├── Explorer (USGC → Midwest): 700K bpd
└── CEPS (Central Europe): 500K bpd

NATURAL GAS:
├── Nord Stream (Russia → Germany): 55 bcm/yr
├── South Stream/TurkStream: 31.5 bcm/yr
└── Trans-Saharan (proposed): 30 bcm/yr

Pipeline Tariffs

PIPELINE TARIFF STRUCTURE
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COMPONENTS:

1. Volume tariff: $/bbl or $/mcf
   - Based on distance
   - Published schedule

2. Quality bank: Adjustment for specs
   - Premium for lighter crude
   - Penalty for heavier crude

3. Scheduling fee: Administrative
   - Monthly nomination
   - Imbalance penalties

EXAMPLE (Colonial Pipeline):
Tariff: $0.50/bbl (Houston → New York)
Quality bank: -$0.05/bbl (for specific grade)
─────────────────────────────────────────
Net cost: $0.45/bbl

Compare to: Tanker voyage ~$2.00/bbl
Pipeline advantage: $1.55/bbl

Pipeline Access

PIPELINE CAPACITY ALLOCATION
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TYPICAL RULES:

1. PRORATIONING
   - If nominations > capacity
   - Allocate proportionally to history

2. SHIPPER MINIMUM
   - Must ship minimum volume
   - Or lose allocation

3. NEW SHIPPER
   - Limited initial allocation
   - Builds over time

STRATEGIC IMPLICATIONS:
- Historical shippers have advantage
- Entry requires patience/investment
- Pipeline ownership = guaranteed access

Rail Transport

Rail Freight Characteristics

Factor	Details
Unit train	100+ cars, dedicated route, lowest cost
Manifest	Mixed cars, multiple stops, higher cost
Car types	Tank (oil), hopper (grain), gondola (coal)
Speed	200-400 miles/day average

Rail vs Pipeline for Oil

RAIL VS PIPELINE (North America)
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SCENARIO: Bakken crude to Gulf Coast

PIPELINE (if available):
Tariff: $8-10/bbl
Transit time: 2-3 weeks
Capacity: Constrained

RAIL:
Cost: $12-18/bbl
Transit time: 1-2 weeks
Capacity: Flexible

WHEN RAIL WINS:
1. Pipeline full/unavailable
2. Multiple destinations needed
3. Urgent delivery
4. New production without pipeline

2019 Peak: 1M bpd crude by rail in US

Grain Rail Economics

GRAIN RAIL TRANSPORT
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UNIT TRAIN (100 cars):
Capacity: 11,000 MT
Cost: ~$4,000/car
Total: $400,000 for unit train

Per MT: $36/MT (Kansas → Gulf)
Distance: ~1,000 miles

SHUTTLE SERVICE:
Dedicated fleet
Pre-scheduled
Lower cost: $30-32/MT

SINGLE CAR:
Higher cost: $45-50/MT
Only for small volumes

Barge Transport

Barge Systems

System	Commodities	Route Length
Mississippi River	Grain, coal, petroleum	2,000+ miles
Rhine River	Oil products, chemicals	800+ miles
Volga River	Grain, oil	2,000+ miles
Danube River	Grains, minerals	1,800+ miles

Barge Economics

MISSISSIPPI BARGE ECONOMICS
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GRAIN: St. Louis → New Orleans

COVERED HOPPER BARGE:
Capacity: 1,500 MT
Cost: ~$12,000 per barge
Per MT: $8.00/MT

TOWING (15 barges):
22,500 MT per tow
Tow cost: $50,000
Per MT: $2.22/MT

TOTAL: ~$10.22/MT
Distance: ~700 miles

COMPARE TO RAIL: ~$20-25/MT
BARGE ADVANTAGE: 50-60% cheaper

Seasonal Factors

BARGE SEASONALITY
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MISSISSIPPI RIVER:

Spring (Mar-May):
- High water from snowmelt
- Some flooding risk
- Normal operations

Summer (Jun-Aug):
- Low water possible
- Draft restrictions
- Higher costs

Fall (Sep-Nov):
- Harvest surge
- Peak demand
- Higher rates

Winter (Dec-Feb):
- Ice possible (upper river)
- Lock closures
- Reduced capacity

TRADING IMPACT:
Factor seasonal costs into grain basis
Harvest logistics = price pressure

Trucking

When Trucking Makes Sense

Situation	Rationale
Final mile	No other mode reaches destination
Small volumes	Below rail/barge minimums
Urgency	Fastest delivery
Flexibility	Multiple pickups/deliveries
Short distance	Under 200 miles

Trucking Costs

TRUCKING ECONOMICS
──────────────────

FUEL TANKER:
Capacity: 8,000 gallons (~190 bbl)
Cost: $3-5/mile (loaded)

EXAMPLE: 100 mile delivery
Cost: $400
Per bbl: $2.10/bbl

BULK TRUCK (Grain):
Capacity: 25 MT
Cost: $2.50/mile

EXAMPLE: 50 mile to elevator
Cost: $125
Per MT: $5.00/MT

BREAK-EVEN VS RAIL:
Rail minimum: ~100 cars
If < 100 cars: Truck may be cheaper
If > 100 cars: Rail wins

Multimodal Logistics

Optimizing Mode Mix

MULTIMODAL OPTIMIZATION
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SCENARIO: Copper concentrate from mine to port

OPTION A: Truck only
Mine → Port (300 km)
Cost: $45/MT

OPTION B: Truck + Rail
Mine → Rail terminal (50 km): Truck $8/MT
Rail terminal → Port (250 km): Rail $12/MT
Total: $20/MT
Savings: $25/MT ✓

OPTION C: Slurry pipeline
Mine → Port (300 km): Pipeline $5/MT
Capital cost: High
Best for: Large, long-term operations

Logistics Hubs

INLAND HUB EXAMPLE: US Midwest
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CHICAGO HUB:
├── Rail: 6 Class I railroads converge
├── Barge: Access to Mississippi system
├── Pipeline: Crude, products, gas
├── Truck: Interstate highway network
└── Storage: Significant tank/silo capacity

FUNCTION:
- Consolidation point
- Mode transfer
- Storage/blending
- Market making

VALUE:
Hub position = trading advantage
Multiple transport options = flexibility

Infrastructure Bottlenecks

Common Constraints

Constraint	Impact	Example
Pipeline capacity	Price discount at origin	Permian Basin spread
Rail congestion	Delays, higher costs	Harvest season grain
Lock delays	Barge transit time	Upper Mississippi
Port capacity	Demurrage, queuing	Santos during harvest

Permian Basin Example

PERMIAN INFRASTRUCTURE CONSTRAINT
─────────────────────────────────

SITUATION (2018-2019):
Production: 4M+ bpd
Pipeline capacity: 3.5M bpd
Gap: 500K+ bpd

RESULT:
Midland (Permian) price: WTI - $15/bbl
Cushing (Oklahoma) price: WTI flat
Houston price: WTI + $2/bbl

ARBITRAGE:
Buy Midland: $50/bbl
Truck/rail to Houston: $12/bbl
Sell Houston: $67/bbl
Margin: $5/bbl

But: Limited truck/rail capacity
Result: Spread persisted until pipelines built

Key Takeaways

Mode choice impacts economics — Pipeline < barge < rail < truck
Pipeline access is strategic — Historical rights matter
Seasonal factors affect barges — Water levels, ice, harvest
Multimodal optimization creates value — Combine modes smartly
Bottlenecks create spreads — Infrastructure constraints = opportunity
Flexibility has value — Truck/rail offer options

References

Association of American Railroads
American Waterways Operators
Inland Waterways Users Board
FERC Pipeline Tariffs
EIA Petroleum Transportation