A consortium of pipeline operators spearheaded by Plains All American Pipeline LP has announced it will spend an estimated $1 billion on rail projects in the coming year. By contrast, Warren Buffett's Burlington Northern Santa Fe LLC, America's biggest railroad, spent only $400 million on rail depots in 2012.

Energy companies have used new rail terminals to ferry cheap shale oil from the interior United States or Canada to the coasts for refining. With international oil trading roughly 20 percent higher than domestic supplies, refineries stand to profit from shipping in local crude via rail rather than importing it.

Several major pipeline projects are predicted to come online in the next few years, allowing some companies to switch to the cheaper mode of transporting crude. However, analysts predict that railways' flexibility -- more tracks spell more possible destinations for producers -- means locomotives will haul crude for years to come.

Oil producers and refiners, including Devon Energy Corp. and Irving Oil Corp., say they are switching from renting rail capacity to purchasing railways outright to meet rising output from Alberta's oil sands and the Bakken shale play in North Dakota.

"If a refiner in Philadelphia is paying $110 for Nigerian crude and could replace it with cheap Bakken crude, they'll be willing to pay up to $109.99 to replace that," said Bradley Olsen, an analyst with Tudor Pickering Holt & Co. in Houston.

Olsen added that about 1 million barrels a day of rail-unloading capacity is being built in the United States -- more than double the current level of shipments (Lee/Penty, Bloomberg, Jan. 14). -- BS