Crude oil throughput volumes at Sunoco Logistics’ Nederland Terminal on the Texas Gulf Coast increased by 35 percent from 690 Mb/d in Q2 2012 to 932 Mb/d in Q2 2013 – that’s nearly a million barrels a day! (Source: Sunoco Logistics earnings call). By the end of 2014 another 1 MMb/d of crude will be flowing through Nederland, as it becomes a pivotal storage and distribution terminal for Gulf Coast refineries. Today we describe Nederland’s growing crude advantages.
Daily Energy Blog
Monday, 8/19/2013
At least 5 large-scale rail terminals are being planned or constructed in the heavy oil sands region of Western Canada to increase the volume shipped to the US by rail from about 100 Mb/d this year to more than 550 Mb/d by 2015. Current shipments are mostly small manifest batches but the new terminals will load unit trains with 50 MBbl plus of crude. Successful development of large loading terminals in Western Canada requires the build out of similar scale unloading terminals close to heavy oil demand in the Gulf Coast region. Today we review destination terminal developments.
Sunday, 8/18/2013
The recent dramatic narrowing of the WTI discount to Brent to around $3/Bbl (from $23/Bbl in February) took place at the same time as Cushing, OK crude inventories fell by 23 percent. Both these events have been trumpeted as signaling an end to the three-year logjam preventing landlocked crude supplies from reaching the Gulf Coast by pipeline. Yet the turnaround in Cushing inventories owes as much to declining inflows to Cushing from Canada and West Texas as it does to a flood of crude to the Gulf Coast. An uptick in refinery consumption in the Midwest and falling prices on the CME NYMEX West Texas Intermediate (WTI) futures market (backwardation) have also played an important part in the drop in Cushing inventories. Today we look at what lies behind the crude inventory slide.
Thursday, 8/15/2013
The Transpanama Pipeline (TPP) currently ships up to 600 Mb/d of crude from the Atlantic coast of Panama to the Pacific. The pipeline was originally built to facilitate Alaskan crude shipments to the US Gulf Coast but was reversed in 2009 to move Atlantic basin crudes to South American and Far East markets without going through the Panama canal. Could the TPP be utilized to move US crude production from the Gulf Coast to West Coast refineries? Today we review that possibility.
History
The TPP is an 81 mile crude oil pipeline that runs across Panama from the Port of Chiriqui Grande, Bocas del Toro on the Atlantic (Caribbean) coast to the port of Charco Azul on the Pacific coast (see map below). The TPP was opened in 1982 as an alternative to the Panama Canal, to carry crude oil from the Pacific to the Atlantic Ocean. The primary purpose was to ship Alaska North Slope (ANS) crude transported down the Pacific coast to Panama from Valdez, AK to US Gulf Coast refineries. Between 1982 and 1996 the pipeline transported 2.7 billion Bbl of ANS to Gulf Coast refineries. The pipeline was then closed in 1996 as Alaskan crude volumes declined (see After the Oil Rush). In 2003, the TPP was re-opened to move Ecuadorian crude from the Pacific to Gulf Coast refineries.
Source: Tesoro Presentation (Click to Enlarge)
In 2008, pipeline owner Petroterminal de Panama, S.A. signed an agreement with BP to upgrade the pipeline and reverse it’s direction to flow from the Atlantic to the Pacific. The upgrading included building an additional 5 MMBbl of storage at terminals at either end of the pipeline. After the reversal, Petroterminal signed long-term (7 year) commitments with BP and Tesoro for pipeline capacity and storage utilization. BP initially committed to ship 65 Mb/d in 2008 and lease 5 MMBbl of storage but increased their commitment to 100 Mb/d in a 2012 agreement. Tesoro committed to shipping 107 Mb/d and leasing 4.4 MMBbl of storage under a 2009 agreement.
The Government of Panama (40 percent), Swiss oil trader Gunvor (17 percent) and the pipeline operator, Northville Industries, own Petroterminal. The three companies that currently own capacity on the pipeline are BP, Tesoro and Gunvor. Current capacity is 600 Mb/d. There is little public information available about the flow of oil but in 2012 Argus reported that BP was shipping 300 Mb/d and Petroterminal has reported a 4-fold increase in shipments since 2010.
Significance
The TPP route reduces transport time and shipping costs between Atlantic and Pacific Coast ports by avoiding a trip around Cape Horn at the tip of South America. The pipeline competes directly on this route with the Panama Canal although the latter has some disadvantages. The Canal has restrictions that limit maximum vessel size to “Panamax” capacity of 50 thousand MT or about 380 MBbl of light sweet crude. The Panama Canal has also been subject to periodic delays from traffic congestion. As we previously explained in September 2012 (see Panama Tailored to Fit Larger Vessels), the Panama Canal is currently being expanded so that by 2015 larger vessels including oil tankers carrying 600 MBbl will be able to pass through. However, the TPP provides shippers with a more flexible alternative because port terminals at either end of the pipeline can berth very large crude carrier (VLCC) vessels that carry up to 1 MMBbl. That means a VLCC on the Atlantic side carrying crude from (say) North Africa or Europe can offload crude to the TPP to be reloaded onto another VLCC on the Pacific side. Economies of scale in moving crude by VLCC make this an attractive alternative to using smaller vessels and facing possible delays using the Canal.
Large onshore storage at both ends of the TPP also provide for crude oil blending and the optimizing of crude distribution to West Coast refiners. Different crudes can be blended to meet refinery needs at the PTT terminals and VLCC cargoes delivered at the Atlantic end can be broken down into smaller batches for shipment to West Coast refineries that do not have adequate storage to cope with VLCC size shipments.
The primary significance of the TPP is that it facilitates the increased flow of crude between Atlantic and Pacific markets. The pipeline makes it feasible to ship a variety of Latin American and West African crudes to West Coast refineries. For example it cuts the shipping distance from Nigeria to Los Angeles by about 3,400 miles – reducing the journey time by about 30 days. Other improved journey times include those for Venezuelan crude to Far East markets (14 days faster), Russia to West Coast South America (11 days faster) and North Sea to US West Coast (35 days faster).
Wednesday, 8/14/2013
Last week (August 7, 2013) the 3-2-1 crack spread based on NYMEX CME crude and refined product prices that is seen as a proxy for the performance of US refinery margins, reached a two year low. The 3-2-1 crack has fallen 56 percent this year from its high in March. At the same time refineries are still processing crude like there’s no tomorrow – at over 90 percent of capacity. Can the party continue? Today we peak through the cracks to uncover what’s going on.
Tuesday, 8/13/2013
With TransCanada repurposing their Mainline gas pipeline to ship crude from Western Canada to the East and two new unit train crude loading terminal projects underway in Edmonton and Hardisty, competition between rail and pipelines is intensifying. The scale of the investments being made by companies such as Kinder Morgan and Gibson Energy suggests that producers and refiners believe that crude by rail is here to stay. Today we continue our review of rail terminal infrastructure developments in Western Canada.
Sunday, 8/11/2013
The Houston crude oil distribution system is gearing up to handle a flood of new supplies from over 1.7 MMb/d of pipeline capacity delivering into the region by the end of Q2 2014. A trading market is also developing for producers and shippers selling that crude to Gulf Coast refiners. New grades of both light and heavy crude are showing up – principally from the Eagle Ford, the Permian Basin, North Dakota and Western Canada. Will a new crude trading market develop in Houston to rival those at Cushing, OK and St. James, LA? Today we look at the evolving Houston crude market.
Sunday, 8/04/2013
The battle between pipeline and rail transport alternatives to get growing crude supplies out of Western Canada is heating up. On Thursday (August 1, 2013) TransCanada confirmed plans to proceed with repurposing their Mainline gas pipeline into the Energy East crude pipeline that will now carry up to 1.1 MMb/d from Alberta to Eastern Canadian refiners and the export market. A day earlier Kinder Morgan and Keyera announced plans to build a unit train loading terminal in Alberta to increase crude by rail capacity to the US. Today we review Canadian rail infrastructure investment plans.
Thursday, 8/01/2013
Mining, processing and delivering over 30 million metric tonnes (MT) of frac sand proppant to US oil and gas shale drilling sites is a serious business. Speedier drilling, increased lateral length and more fraccing stages are driving demand for the critical proppant that holds open fractures to let hydrocarbons flow to the well. Large companies with efficient distribution logistics and agreements with the railroads dominate the business – helping to bring down completion costs per well. Today we take a closer look at the frac sand business.
Wednesday, 7/31/2013
Houston crude storage and distribution terminals are getting busy fast these days as a flood of new crude begins to show up from inland production basins. Crude tank storage rates in Houston are double those at Cushing. Houston is now a trading hub for light sweet crude – as witnessed by the launch of a new Platts assessment last week. The Magellan East Houston terminal is the front line receipt point for incoming crude from the Permian Basin. Today we spotlight Magellan’s expanding Houston storage and distribution facilities.
Tuesday, 7/30/2013
New pipeline capacity from Cushing to the US Gulf Coast, expected online at the end of 2013 and early in 2014, will ease the congestion that has stranded a lot of Western Canadian crude in the Midwest. There will subsequently be more opportunity for Canadian oil sands crude to reach Gulf Coast refineries by pipeline. Yet at the same time Canadian bitumen producers, rail terminal operators and railroad companies are jointly developing unit train loading terminals in Alberta - including one announced yesterday by Kyera Corp and Kinder Morgan Energy Partners. These terminals plan to load Canadian crude for delivery to the Gulf by rail. Today we ask how rail can compete with pipelines on this route.
Sunday, 7/28/2013
One of today’s hottest boutique oil shale plays in Texas is located northeast of the Eagle Ford shale and south of the Woodbine Sand basin. This play has been dubbed the “Eaglebine” by one of its principal acreage holders – ZaZa Energy Corporation. Another part of the play – operated by Halcón Resources - is known as “El Halcón” (the Hawk). Both companies are confident that positive early drilling results will translate into high rates of return. Today we examine the Eaglebine play.
Wednesday, 7/24/2013
Just like every other kind of mechanical equipment, rail tank cars require maintenance every once in a while. Valves can leak. Linings wear down. Railings, platforms, and brake equipment need periodic repairs. And not surprisingly, the more miles you put on a tank car, the more maintenance it is going to need. As the crude-by-rail phenomenon has grown, so has the rate of ‘bad orders’ – rail cars that must be taken out of service for maintenance. Handling bad orders is a new issue for many producers and refiners just now getting their feet wet in the business. Everyone agrees that this is a very important issue, and the rail industry is not taking it lightly. Today we explore the implications of bad orders in the crude-by-rail market and how progressive solutions are on their way.
Monday, 7/22/2013
The Brent premium to WTI has traded as wide as $23/Bbl this year but was down to 2 cnts/Bbl on Friday July 19, 2013. At one point during trading nearby WTI prices rose above Brent – the first time that’s happened in three years. Yesterday (July 22, 2013) WTI August expired at 106.91 - $1.14 lower than Brent September. Today we look at why the spread has narrowed so rapidly and whether it will stay that way.
Sunday, 7/21/2013
The latest available Energy Information Administration (EIA) data for April 2013 indicates that imports into Houston and Port Arthur region refineries on the Texas Gulf Coast included 425 Mb/d of light and 425 Mb/d of medium quality crudes. Seventy three percent of the imports that month were heavy crude. Domestic and/or Canadian supplies fed only 43 percent of the region’s 3.18 MMb/d crude demand. That balance of refinery crude supplies will change significantly by 2014 as increased domestic production finds a path to the Houston and Port Arthur regions via new and expanded pipeline capacity. Today we extend our Permian series by digging into the import data and building a Houston/Port Arthur refinery supply demand balance.
