In this article we discussed crude oil transportation and the various means through which it is transported around the globe.
Crude oil plays a critical role in all modern economies and its transportation is a vital element of the global energy supply chain. However, as consumer markets are not always overlapping with producing regions, transportation, especially across continents and seas, plays a huge role in shaping the global oil and gas market.
The two most common modes of moving crude oil, oil products and natural gas is through tanker ships and pipelines.
Although pipelines are often considered the safest and most efficient means of transporting oil and gas products, their construction is a huge undertaking and has not been without controversy. Where distances are too great or where political and topographical issues make pipelines non-viable, oil tankers and LNG vessels are used to transport the respective products. Trading of natural gas in liquefied form is particularly important for gas-producing countries such as Qatar and Australia, which are far removed from big consumer markets and almost exclusively reliant on maritime shipping for foreign trading. Meanwhile, major LNG importing countries are largely concentrated in East Asia.
How Crude Oil Transportation Works
Crude oil needs to move. To get from oil wells to refinery and storage facilities, millions of barrels of crude oil need to be transported in one form or another to ultimately become end-use products. After oil companies successfully extract oil products from the ground, they must consider infrastructure, geography and cost implications to determine the best mode of transportation. The best options for their energy supply chain will move products while minimizing costs and maximize their bottom line.
Crude Oil Transportation Method
Oil and refined products are transported twice throughout the crude oil supply chain: first upstream from wells to refineries, and then downstream from a refinery to the market.
- From extraction sites to refineries for refining and processing
Crude oil is a raw material, meaning it needs to undergo an extensive refining process in order to turn it into usable products. Given that oil reserves are often in geographically remote regions of the world, far away from the areas where they are processed, there’s a need to transport the crude oil from extraction sites to refineries. Once transported, it can then be processed into products such as diesel and gasoline.
- From refineries to locations with market demand
Demand for petroleum products differs between the various regions and countries of the world. For example, countries with cold climates might need more heating oil, whereas those with high transportation needs will have significantly greater demand for gasoline and diesel. As such, crude oil is transported internationally according to demand in different regions, being imported and exported by various countries according to demand.
READ: PETROLEUM REFINING PROCESSES
Crude oil is transported to the markets through the following means:
Pipeline Transportation of Crude Oil
Crude oil pipelines are the most common, safest, and cheapest of all modes of crude oil and refined product transport. With a high upfront investment cost their long-term payoff comes from decades of use. Pipeline networks are built to transport crude oil from nearby oil wells to oil tankers long distance.
Crude Oil Transportation by Ship
Marine transport, largely via barge or tanker, is the second cheapest mode of oil shipment. This is especially true for companies that export crude oil internationally. The world tanker fleet currently contains approximately 4,200 vessels, 85 percent of which are owned by independent tanker companies with the sole purpose of transporting oil products from border to border. Smaller vessels typically transport “clean cargoes” which are refined products such as gasoline, diesel, and jet fuel. Large tankers—averaging 2 million barrels of crude oil per movement—however, carry dirtier cargoes like crude oil and unrefined commodities. The global vessel fleet faces several operational constraints. To satisfy global demand and facilitate the adequate flow of crude oil to appropriate markets, high traffic areas often experience chokepoints. Some of the key international marine chokepoints are highlighted in the map above.
Transporting Crude Oil by Rail
Crude oil movements by rail spiked in 2013, increasing by roughly 31 percent from 2012 values. This was due in large part to the domestic oil boom that flooded surplus oil into the US market. This excess created insufficient pipeline capacity and opened the door for rail transport as the next-best alternative to move oil. That said, crude-by-rail movements have decreased since 2015. As the WTI-Brent price spread narrows and pipeline capacity expands, pipelines once again become more optimal.
Not all oil wells are accessible via pipeline, making rail the most financially feasible option for accessing land-locked oil wells that later feed the refining landscape. The sustained growth of US shale production has increased domestic production to record levels, again creating pipeline capacity concerns and increasing overall utilization of rail transit.
Crude Oil Transportation by Truck
Over-the-road transportation is the most expensive and inefficient means of crude oil transportation. The amount of crude oil an average truck can transport is only between 200-250 barrels of oil per movement. This makes it an expensive and inefficient option. This method is typically utilized only when wellhead locations are not accessible by pipeline or rail networks, or for short distances during final-mile segments of the movement.