Competition between railroads and pipeline operators to transport oil

An article in Bloombergbusinessweek (June 17,2013) describes competition between a oil pipeline owner, Kinder Morgan, and railroads to transport oil from West Texas to Los Angeles. While pipeline operates demands long term contracts to cover their capital costs, railroads can add a few miles of rail track and connect oil production locations to refineries. With railroads transporting a record level of oil despite costs for pipelines between 33 and 50% of rail transport, contract flexibility and faster ramp up times tip the scales in favor of rail. Given the long term economics of pipelines, how will the potential clash between new pipeline capacity and rail evolve, given the greater options for shippers ? Will the plan by pipeline companies to invest in rail preserve profitability by avoiding ruinous competition ? Given the flexibility to change routes, will society be better off with rail as the mode of choice to transport oil ?

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About aviyer2010

Professor
This entry was posted in Operations Management, Service Operations, Supply Chain Issues and tagged , , , , , , , , , , . Bookmark the permalink.

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