As the first quarter of 2013 draws to a close, I thought it would be a good time to take a step back and reflect on what’s happened in the energy industry so far this year. It’s been an eventful first quarter, with several themes continuing to emerge. However, three story lines are becoming what I believe to be the biggest stories in energy.

Buffett was right about the rails
When Warren Buffett’s Berkshire Hathaway bought Burlington Northern Railroad, some thought he’d lost his mind. We all know that railroads ship coal, and that’s not exactly a favorite fuel these days. However, as is so often the case, Buffett was right.

However, it’s not coal that’s driving profits at the rails; its oil. Because of pipeline constraints coming out of the Bakken and the Canadian Oil Sands, producers have turned to the rails to get the oil to market. Not only has that fueled profits at for railroads, but it’s also really helped to pad the bottom lines of refiners.

Despite the higher shipping costs, refiners love rail because they can access cheaper North American crude oil. Phillips 66 is one of the biggest champions of crude oil by rail, recently signing several deals to have cheaper crude delivered to its East and West Coast refineries. It’s using all means possible to get oil to its refineries, with rail being a key cog in the supply chain.

Expect this theme to continue to pick up steam in the coming years. It costs billions to build new pipeline infrastructure, and if the Keystone XL is any indication, it will take some major political maneuvering to get new pipeline routes approved. That just means more crude oil will be taking a ride on the rails.

The Bakken is still beautiful
One of the reasons the rails are doing so well is that the Bakken is producing more oil than our current pipeline system can handle. Top Bakken oil producer Continental Resources saw its production jump 58% in 2012. That’s just the tip of the iceberg for the company, as it expects production to grow threefold by 2017. President and COO Rick Bott sums up the story pretty well:  

“We’ve recently seen a significant improvement in Bakken oil price differentials, reflecting higher volumes being shipped by rail to the coasts and the anticipation of increased pipeline capacity. … We now have excess transportation capacity in both pipe and rail, and, with additional infrastructure projects in the planning and construction stages, capacity should remain ahead of Bakken production growth.”

This is good news for continued growth in the region, and Continental isn’t the only one enjoying this growth. Smaller producers such as Kodiak Oil & Gas have seen triple-digit annual production growth since 2010. That’s driving massive growth for the company, and wealth creation for its shareholders. Kodiak’s shares are up more than 400% over the past five years. 

Overall production in …read more
Source: FULL ARTICLE at DailyFinance