Could a Rail Strike Affect Energy Price and Availability? Yes, Say Experts

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--After seemingly averted in September, the threat of a national railroad strike has returned. On October 13 the Brotherhood of Maintenance of Way Employees Division rejected the proposed settlement due to their dissatisfaction with amounts of paid sick time and working condition improvements. The union has, however, agreed to wait on a possible strike until Congress reconvenes on November 13, after mid-term elections.

While a strike would have national and international implications on practically every supply-chain issue, one might think that energy would be spared, due to the fact that most oil and gas travels by pipeline. And there's truth in that, but other factors could come into play to push prices up and supplies down.

Coal Train Stoppage and Natural Gas Prices
Coal could be the wildcard because that industry estimates that almost 75% of its product punches a train ticket, to destinations including electric utilities (91.9% in 2021, according to the U.S. Energy Information Administration (EIA)), industry (8%) and a smattering of others. EIA's coal-by-train estimates are a bit lower, coming in at 68%.

Because coal and natural gas are both used for electricity generation, a coal strike in the still-warm month of September was seen as possibly straining natural gas supplies as generation was forced to switch. But a coal supply disruption in November or later would have less effect on prices, as homes and businesses use less energy for heating than for cooling.

Coal in Their Stockings
A long strike also could strain energy supplies in Europe, as that area struggles to replace Russian crude and natural gas. Energy Ventures Analysis, a leading energy consultancy, says U.S. thermal coal exports over the first four months of the year were up 77% to Europe because significant amounts of tonnage shifted from Asia. About 23% (85.1 million short tons) of total U.S. 2021 distribution (574.1 million short tons) went to exports, according to the EIA.

On a positive note, history tells us that a long strike is unlikely. Since the first major strike in 1877 through the most recent one in June of 1992, about 30 years ago, the government has often intervened due to the nation's heavy dependence on railroads. But if there is a strike, will crude be affected?

Direct Effect on Crude Oil?
IIR's Jesus Davis says pipeline shortages did increase crude oil transportation by rail a few years ago. "We witnessed the boom in crude-by-rail projects in 2018-2020 when there was a bottleneck in crude pipeline capacity. Today, as the industry continues to recover from COVID shutdowns, we see that the facilities are there but not operating at near peak levels as they were in 2020."

This is particularly true for the Permian Basin of Texas, at least for now, as the region continues to produce at record levels. While more pipelines for gas and oil are in both planning and construction stages, some experts think gas production could rise faster than pipelines can be built, creating backlogs in that sector by early 2023.

According to EIA data, the one area that could see some takeaway challenges for crude oil is PADD (Petroleum Administration for Defense District) 2, which includes another significant field, the Bakken in North Dakota. In July of 2022, the most recent reporting date, PADD-2 was averaging 103,000 barrels per day by rail, which is about 6.4% of its July average of 1.6 million barrels per day. The Bakken accounts for 1.034 million of those each day.

The EIA reports that 66,000 of those barrels go to PADD-5, which includes the West Coast, and 29,000 go to PADD-1, the East Coast. The remainder goes to PADD-3 of Texas and the Gulf Coast. All three PADDs have refineries and export facilities.

North Dakota could face a double whammy with a strike because it is also the No. 3 coal-shipping state, behind Wyoming (by far No. 1) and West Virginia.

Whether there is a strike, and whether it lasts long enough to make supply chain issues worse than they are remains to be seen. But railroads are still as important to the economic life of the nation as they were when they were instrumental in opening the Wild West to hordes of settlers responding to Horace Greeley's call to "Go west, young man."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).