Surging oil production in the land-locked Bakken Shale is finding a new outlet on one of America's first highways--the Mississippi River.
Kirby Corp. (KEX) said Thursday that it is shipping crude from the Bakken, an oil-rich shale located in North Dakota and Montana, to refiners in Louisiana using barges on the Mississippi, the first major barge operator to do so. The move comes as producers in the Bakken, where production is growing faster than energy companies' ability to ship it out, scramble to get their crude to more profitable markets.
The phenomenon underscores the growing geographic reach of U.S. light, sweet crude, a bounty which has been unlocked in recent years by advanced drilling techniques. It will give more Gulf Coast refineries access to the relatively inexpensive crude that has driven profits for their Midwest competitors; so far the Gulf coast, where the core of the U.S. refining industry lies, has been relying on more expensive imported crude.
Kirby during last weekend loaded on its barges at St. Louis a unit-train of Bakken oil that had arrived by rail. The barges take a week to travel down the Mississippi River to bring the oil to the Baton Rouge, La. area, said company spokesman Steve Holcomb.
"We've moved Canadian tar sands from St. Louis before, but this is the first time we have loaded crude oil that originated out of the Bakken," Mr. Holcomb said.
The Mississippi oil trade, which barely even existed until 2007, has until now been conducted by less than 100 barges operated by small, private companies. The business should start seeing more Bakken oil traffic now that Kirby, which owns more than quarter of the country's tank barges, has shown it thinks the trade profitable, said Kevin Sterling, analyst at BB&T Capital Markets.
Barges can deliver crude to Gulf Coast refiners and then transport gasoline, diesel and other fuel products on the return trip north, Mr. Sterling added.
"It makes sense--they get paid both ways," Mr. Sterling said.
The oil will be welcome at the 19 refineries in Louisiana, many of which are large facilities operated by Exxon Mobil Corp. (XOM), Phillips 66 (PSX) and Marathon Petroleum Corp. (MPC). Louisiana is the second-largest refining state in the U.S. after Texas, according to the EIA.
Rail cars have so far been the main mode of transport for oil out of the Bakken, where oil production reached 600,000 barrels a day in April, making the state surpass Alaska as the nation's second-largest crude producer. The region's oil output helped boost the number of rail cars used to transport crude oil and petroleum in the U.S. to 241,000 during the first six months of 2012, up 38% from the same period last year, the EIA said Thursday.
But the increase in traffic has made rail cars harder to come by and barges more attractive for deliveries, said John Heida, director of North American oil research at analyst firm IHS.
"The volume of oil coming out of the Bakken might not change, but [barges] will make it easier to get it down to the Gulf Coast," Mr. Heida said.
--Tom Fowler contributed to this article
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