Lochiel Edwards knows no better place to check the pulse of the Montana economy than the iron arteries of the Burlington Northern Sante Fe.
When 120-car grain trains roll across the Hi-Line bound for Pacific Northwest seaports and when tanker cars of Bakken crude pulse across the southern Montana line to Billings refineries, the state prospers. Lately, the prognosis has been very good, said Edwards, a wheat farmer who has spent years negotiating with BNSF for the Montana Grain Growers Association.
BNSF is spending $4.1 billion on capital improvements this year, many of them to serve the Bakken oilfield along the Montana border with North Dakota. Information about where those capital improvements will be made has been scarce. Stock reports for the railroad haven’t been available since 2009, when Warren Buffett’s Berkshire Hathaway Inc. paid $34 billion for all outstanding BNSF shares and took the nation’s largest railroad off the trading board.
But Edwards and others like what they’re seeing locally. Between Glasgow and Williston, BNSF is building several long track sidings this construction season. The sidings are desperately needed because they allow rail shuttles of 100-plus cars to pull over and let other loads by. The only thing better than sidings, Edwards said, would be two rail lines running side by side.
“Being able to ship grain to Portland when the demand is there is important,” Edwards said. “That makes or breaks markets for farmers.
“In August, they’ll start working on the Glasgow sub and the Williston sub, putting in a lot of siding. That will take care of a lot of the congestion that’s arisen.”
Edwards credits Warren Buffett with the rail improvements. Buffett is bullish on rail transport, and therefore so is BNSF. The railroad says it’s responding to demand, which at the moment is coming from the Bakken oilfield, a region desperate for transportation because of insufficient pipeline infrastructure.
“We’ve seen exponential growth in oil production in the Williston Basin. We’re investing in growth as we always have,” said Steve Forsberg, BNSF general director of external relations director. “The good news for states like Montana and North Dakota is that those investments will benefit all the traffic that moves in those corridors.”
The railroad invested more than $100 million in Montana in 2012 and will do the same this year, Forsberg said. In North Dakota, the investment is more than $200 million annually.
The transformation in North Dakota has been staggering. As recently as 2008, North Dakota didn’t have a single terminal capable of handing crude oil shipments. The state now has eight rail terminals capable of loading 315,000 barrels of crude daily. By year’s end, that loading capacity in North Dakota is expected to reach 706,000 barrels daily. The railroad has even opened an economic development office in Bismarck.
The oil and gas boom isn’t just fueling BNSF profits; it could also soon be fueling its locomotives. The railroad announced in March that it would later this year restart tests of trains powered by liquefied natural gas. Because of hydraulic fracturing, the United States is awash in natural gas, priced at roughly half diesel’s cost and much cleaner burning.
U.S. railroads consumed 3.1 billion gallons of diesel fuel last year, according to the U.S. Energy Information Administration. Switching to a fuel costing half as much would produce billions of dollars in savings.
Burlington Northern used natural gas locomotives in the 1980s and 1990s and tested natural gas trains in the Los Angeles area until just a few years ago. Most recently, the company has been working with General Electric and Caterpillar-owned EMD to develop the new natural gas locomotives for this year’s tests.
BNSF has been tight-lipped about where its natural gas trains will be tested. But North Dakota Gov. Jack Dalrymple was courting the railroad to build a natural gas processing plant and refueling station there.
Other shipped commodities haven’t stirred that kind of development, Forsberg said, because they’re down. Rail shipments of coal have declined as post-recession demand for energy has remained sluggish and cheaper natural gas has lured some power generators away from coal.
Grain shipments out of the Midwest have also been in decline, particularly corn, which has found strong domestic markets and hasn’t moved by rail to coastal ports as it once did.
In Montana the demand for rail is stronger than in the nation overall. Montana wheat production has been at record levels in recent years, with 80 percent of the crop shipped by rail to ports in Oregon and Washington.
The number of Montana grain elevators capable of loading 120-car shuttle trains with wheat has more than doubled in recent years, as buyers from the Asian Pacific have constructed million-bushel high-speed grain terminals across the state.
“We had 10 or 12 of them not long ago, and now we have 21 of them. That’s phenomenal,” Edwards said. “What we’ve got is some good investment by the railroad and at those facilities themselves.”
Farmers get a premium for their crop if they can deliver it to an elevator capable of loading 120-car shuttle trains. In the days when only 10 such elevators existed, there was a real case of the haves and have-nots among farmers over shuttle access. That’s changed, Edwards said.
While coal shipments are down, rail improvements in anticipation of better coal sales are being made. At Sarpy Creek, rail crews are adding a westbound turn onto the BNSF southern line aimed at delivering coal to the West Coast for export. The Absaloka Mine on Sarpy Creek previously delivered its coal east to power plants, but that demand has softened and coal producers have set their sights on sales to buyers in Asia.
Coal is still Montana’s biggest rail load. The state shipped 35.2 million tons of coal in 2010, according to the U.S. Freight Railroad Industry. It shipped 8.5 million tons of grain and 2.9 million tons of petroleum and coal products.