The prospects for sellers of Williston Basin/Bakken crude oil in what once was a prime growth market—the U.S. East Coast—have been dwindling fast, as have the volumes of Bakken crude being railed and barged to refineries along the Mid-Atlantic coast and the Canadian Maritimes. Today we look at how a combination of weak crude oil prices, declining production, high relative freight costs, and the lifting of the U.S. crude oil export ban have opened the door to more imports from West Africa, and left Bakken producers out in the cold.
The Bakken remains an American success story, but the play’s star has certainly faded along with declining crude prices. As North Dakota oil production ramped up in 2013 and 2014 (peaking at 1.3 MMb/d in December 2014), shipments of Bakken crude to the U.S. East Coast via rail rose in tandem. From only 10 Mb/d in 2011, Bakken barrels railed to the East Coast ultimately reached 431 Mb/d in May 2015 (see While CBR Gently Weeps). In the early days of CBR, midstream companies, marketers and refiners rushed to develop the infrastructure (rail terminals, rail fleets, etc.) to serve refineries in the Mid-Atlantic states and Maritime Canada. But unfortunately, about the time all that infrastructure was in place, crude prices started to decline, the number of active drilling rigs in the Bakken plummeted, and crude oil production there fell to less than 1.0 MMb/d. The decline in production continues today; Energy Information Administration’s (EIA’s) Drilling Productivity Report projects that Bakken crude production now (as of September 2016) languishes at only 875 Mb/d. Rail shipments to the East Coast in June 2016 averaged only 132 Mb/d, a decline of 69% since the peak in May 2015.
Back in the heyday of Bakken-to-East Coast CBR, it was the rail shipments that attracted most of the market’s attention. However, a significant portion of the oil produced in North Dakota and railed east was actually delivered by a combination of rail and barges, with several rail-to-barge trans-shipment terminals playing key roles. The Port of Albany in upstate New York was one of these trans-shipment points. Another was in Newport News, VA, where CSX set up an operation to move crude from rail to barge. The Albany volumes mostly moved down the Hudson River to the New York Harbor area and to Saint John, NB in the Canadian Maritimes. The Newport News volumes moved mostly into Delaware Bay, serving refiners along the Delaware River. The primary reason for this round-about way of getting crude to the end-user is real estate. There simply was not enough available land to build a railroad loop to efficiently discharge crude oil unit trains at many East Coast refineries. And these refineries all have water access, making deliveries by barge convenient. Note that two refineries did build out the means to take crude by rail directly at their plants: Philadelphia Energy Solutions’ refinery in the City of Brotherly Love and PBF Energy's Delaware City, DE refinery.
In addition to the Albany (NY) and Newport News (VA) rail-to-barge trans-shipment points, Monroe Energy—the refining subsidiary of Delta Airlines and owner of the Trainer refinery along the Delaware River near Philly—set up another facility on the Delaware only a few miles downriver from its refinery. There, the Eddystone (PA) power plant had shuttered its coal-fired units but still had a rail loop that had been used to offload coal. The loop was reworked to allow railed-in crude oil to be transferred onto a barge for the short trip over to Trainer.