Daily Energy Blog

Earlier this month, US Midstream logistics firm Targa pulled out of a crude by rail marine dock project at the Port of Tacoma, WA. The plan was to rail crude from the Bakken to barges and tankers for shipment to refineries in Washington State and California. Other rail projects in California like the Valero Benecia terminal have been delayed by permitting issues. Some folk are questioning whether these setbacks mean that crude- by rail to the West Coast has gone off the boil. Today we begin a two part review of West Coast rail prospects.

The saga of Western Canadian producers struggling to get increasing volumes of heavy crude to market in the US has not been pretty. In 2010 the rude interruption of surging Bakken crude output competing for space on pipelines built for Canadian crude contributed to a logjam in the Midwest. Now that logjam is finally unwinding and pipeline capacity to the Gulf Coast is opening up. And Canadian producers suddenly have the option to ship bitumen crude to market competitively by rail. Today we investigate why they may be hesitating to jump on board that train.

There has been a lot of market interest and investment in moving Canadian heavy crude from Alberta to the Gulf Coast by rail in the face of competing pipeline routes that will come online in the next two years. Our analysis indicates that rail can beat the pipelines but that the infrastructure to achieve the necessary economies of scale are not yet in place. Today we provide a worked example of the cost alternatives.

New pipelines are coming online to deliver increasing volumes of US and Canadian production to market. Producers want to be paid full value for the quality of the crude that leaves their wellhead. Yet many pipelines blend different shippers’ crude into a common stream. To compensate for any loss of value en route, pipelines operate quality banks. These systems calculate payments or debits for each shipper based on their input crude quality versus the common stream. Today we look at crude quality banks that determine value using refined products.

RBN Energy estimates that by 2015 rail terminal capacity to load heavy bitumen “dilbit” crude in Western Canada will be about 800 Mb/d. Unload terminals hoping to receive that crude on the Gulf Coast will have about 1 MMb/d capacity by 2015. Moving that crude by rail will compete directly with planned pipelines expected to be in service by 2015. Yet the details show only about 25 percent of Canadian rail terminals will be able to load railbit crude, which has less diluent. And the terminals that do handle railbit will not be handle larger unit trains. Today we continue our analysis of Canadian crude transport options.

Seems like every other week a new loading or unloading terminal project is being announced to move Western Canadian heavy crude by rail to somewhere on the Gulf Coast. If they all get built there will be at least seven unit train load terminals operating in Alberta by 2016 with over 550 Mb/d capacity. Six unit train terminals are planned or being built to unload Canadian heavy crude to deliver to Mississippi Gulf Coast refineries (~400 Mb/d unload capacity) and three unit train terminals (~350 Mb/d) are operating or being built to deliver to Texas Gulf Coast refineries that will handle Canadian crude. Today we survey unloading terminals on the Gulf outside the CN direct network.

The strange looking yellow and black waxy crudes produced from the Uinta Basin in Utah since the 1950’s resemble shoe polish at room temperature. Because of the complexity of transporting these waxy crudes over long distances, they have traditionally been consumed by close by Salt Lake City refineries. However, just like many other US production basins these days, Uinta production is increasing – up from 53 Mb/d in January 2011 to an estimated 88 Mb/d this month (August 2013 - source Bentek). Continued production expansion depends on finding new refining capacity or routes to distant markets. Today we begin a series on crude from the Uinta Basin.