Shale play is engine of growth for rail

10 01, 2012 by Fuel Fix

A few years ago, this was a cotton field distinguishable only for its location along a railroad track and a bucolic view of the Hill Country in the distance.

This year, an estimated 15,000 rail cars will move through Hondo Railway’s 175-acre property — many of them carrying fracturing sand bound for drilling operations in the Eagle Ford Shale formation.

All across South Texas, rail yards are adding track to service the shale drilling boom happening in a 20-county swath of the state, stretching from the border toward East Texas.

“We didn’t know the Eagle Ford Shale was coming,” said Miles Lee, chief operating officer of Hondo Railway. “It just kind of fell in our lap.”

The company started as the South Texas Liquid Terminal in San Antonio in the late 1970s, specializing in transporting about 1,500 rail cars a year filled with high-fructose corn sweetener from the Midwest for soft drink bottlers throughout South Texas.

But about six years ago, the company lost its lease on Union Pacific land where it had been operating and had to quickly find another spot or shut down. It found acreage — the cotton field — at Hondo’s
South Texas Regional Airport, about 30 miles west of San Antonio off U.S. 90.

South Texas Liquid Terminal made the move and opened a new entity, Hondo Railway, with 13,000 feet of track and hopes of diversifying beyond corn sweetener. Now it has 80,000 feet of track and moves fracturing sand, crude oil, ethanol, cornstarch and everything from lumber to power plant parts.

“We’ve gone from moving about 1,500 rail cars a year when we were in San Antonio to probably moving 15,000 this year,” Lee said.

And most of that increase has come from fracturing sand. Each day, 40 to 50 rail cars of sand moves through Hondo Railway. Houston’s Baker Hughes already has built two storage domes for fracturing sand there, and the Lee family and the city of Hondo are negotiating with companies that want to build sites with rail access in the burgeoning industrial park.

It’s not just Hondo Railway that’s moving fracturing sand.

“Not one site can handle it,” Lee said. “There’s so much sand coming in.”

Thomas Tunstall, director of the Center for Community and Business Research at the University of Texas at San Antonio’s Institute for Economic Development, said the growth in rail is part of a massive build-out of infrastructure, including pipelines and roads, related to hydraulic fracturing operations across South Texas.

Rail transport is cheaper than trucking, and although it usually can’t get a product all the way to where it needs to go, it helps eliminate some of the truck traffic that has clogged small communities in the shale play. As a rule of thumb, one rail car carries about four truckloads of product.

On top of that, many of the pipelines that eventually will handle much of the oil and natural gas haven’t been built yet. Since the wells already are operating, rail and trucks are being relied on to move the product to refineries, Tunstall said.

In Gardendale, in LaSalle County about halfway between San Antonio and Laredo, the rail line two years ago was doing, “nothing. Definitely nothing,” said Matt Cundiff, vice president at Iron Horse Resources, which owns Gardendale Railroad.

To show how far it has come, the company’s website proudly displays the “before” photo: an obviously unused rail line vanishing into the overgrowth of a grassy pasture. What started at 1,600 feet of track has grown to 130,000 feet of track. Gardendale Railroad moves a mix of oil field commodities.

“The root of everything is sand,” Cundiff said. “We hadn’t had any activity there in 15 years. We’ve gone from that beginning to 25 miles in just under 24 months.”

And at Port San Antonio, the East Kelly Railport is adding 15,000 feet of track to the existing 20,000 feet.
Spokesman Paco Felici said the rail port went from moving 2,594 rail cars in the 2010 fiscal year to 4,556 rail cars in the 2011 fiscal year.

“That was a big jump,” Felici said. “The majority of that was drilling equipment and drilling supplies for Eagle Ford.”