Do Ya Think I’m Waxy? Alternate Routes to Market for Uinta Basin Crudes

Rising Uinta crude production will run into a refining capacity ceiling unless new routes to market are developed. The distinctive black and yellow waxy crudes produced in Utah are largely refined locally in Salt Lake City refineries because of the challenges transporting them. However new refineries, rail load terminals and even a heated pipeline are all being planned to increase takeaway capacity to absorb growing production. Today we continue our analysis of Uinta Basin crudes.

In the first episode of our series covering crudes from northeast Utah (see Do Ya Think I’m Waxy – Handling Increased Uinta Production) we described the peculiar qualities of the yellow and black waxy crudes produced in the Uinta Basin. These crudes have very high pour points, meaning that they do not flow easily without heating. Using lighter hydrocarbons as a diluent the same way that Canadian heavy crude shippers do with bitumen to make pipeline specification dilbit does not work with waxy crudes. So most Uinta production has traditionally been processed at local refineries in Salt Lake City. The crude is stored in heated tanks at the wellhead before being transported to refineries in insulated trailers that become a “candle on wheels” if not delivered in 24 hours. The limited local refining capacity to process Uinta crude has placed a ceiling on production given the difficulty of transportation. However the possibility of rail transportation and additional refinery capacity could now remove the production ceiling.

Last time we covered local refinery capacity additions that will boost waxy crude consumption 35 Mb/d by the end of 2014 if they are completed. In addition to these reasonably certain expansion projects there are also a couple of – let’s call them “ambitious” schemes being proposed that would also increase local consumption of Uinta waxy crude. These projects amount to green field refineries. RBN regular readers will not have forgotten that building new refineries in the US is not for the faint hearted, given the environmental permitting obstacles (see All I Need is The Air That You Cleaned). In fact up until recently no new refineries were constructed in the US since the mid 1970’s. The construction of three new small (20 Mb/d) refineries in North Dakota that we described in a blog back in April 2013 promise to end that precedent (see If You’ve Got The Money).

The first proposed Utah refinery project is the Uintah Resources LLC, Gateway $950 MM upgrader currently under construction at Vernal, UT close to the Green River crude production region. The Gateway upgrader will initially process 40 Mb/d of waxy crude delivered to the plant by truck. Unlike a conventional refinery that processes crude primarily to produce refined products, an upgrader processes crude to enhance its qualities before shipping to market. In this case the upgrader will lower the pour point and part refine Uinta wax crude  – creating a synthetic crude to be called Uintah SynTM that can be transported easily by pipeline. Uintah Resources awarded a construction contract to International Alliance Group in April 2013 and company presentations suggest the upgrader will be operating by 3Q 2015. However, since April there has been no further word in public announcements or website updates of progress.. Perhaps they are just getting down to work.  Or it may be the case that investors have gotten cold feet now that inland crude price spreads to coastal markets have narrowed considerably (more about pricing in our next episode). In any case, although Phase I of this upgrader project is designed to process locally produced waxy crude, the ultimate goal of the investment is a Phase II plant expansion to process heavy oil sand crude (more like the bitumen found in Western Canada) that is abundant close to the surface in this region. In other words waxy crude upgrading is not the ultimate goal of the Gateway project. If Uintah Resources is successful in exploiting Utah oil sands going forward they may forgo waxy crude processing.

The second refinery project is the 15 Mb/d Emery conventional refinery that will process waxy crudes at a site 4 miles west of Green River in Emery County, UT. Construction is expected to start this summer on the $225 MM plant. Emery Refining was formed and funded by Bridgehouse Capital. Rock River Resources, a Houston-based division of Emery Refining, will design, construct and operate the refinery. The State of Utah has already issued an air permit for the refinery and is providing $12 MM of development incentives to Rock River.

Outside of increased refining capacity in Utah, new destinations for growing Uinta Basin production require transport routes to market that keep the waxy crude from turning into giant candles en-route. To this end producers have started to experiment with using rail to haul waxy crudes to markets on the East and Gulf Coast and the possibility exists to rail Uinta crude to the West Coast as well. A number of small transloading operations have developed to transfer waxy crude from insulated tank trucks into insulated and coiled railcars. Once the crude is in insulated rail tank cars it can be transported long distances to market provided that the receiving terminal or refinery has steam heating equipment to heat up the crude for offloading.

A number of small transload locations have sprung up along the nearest railroad to Uinta production. That is the Utah Railroad, owned by Genesee and Wyoming Inc, a 47-mile short line freight railroad that interchanges with BNSF and Union Pacific (UP) Class 1 railroads. The map below shows the route of the Utah Railroad that runs from Grand Junction, CO to Salt Lake City. 

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