There are a number of reasons why certain U.S. refineries might want to include waxy crude oil from Utah’s Uinta Basin in their crude slates — the highly paraffinic oil has a lot of neat qualities. But waxy crude can be a hard sell, mostly because, like bacon fat, it needs to be kept warm to remain in a liquid, flowable state. As a result, the vast majority of the waxy crude produced is driven in insulated tanker trucks to refineries in nearby Salt Lake City. Uinta producers have been making progress of late, however, in sending regular shipments of waxy crude in coiled and insulated railcars to a couple of Gulf Coast refineries. Existing terminals would support incremental growth, and a proposed new railroad out of the basin would allow far larger volumes to be efficiently railed to market. In today’s RBN blog, we continue our look at the prospects for a most unusual type of crude oil.
By now, many longtime readers of RBN blogs know the basics of Uinta waxy crude as well as they know the Rod Stewart classic behind the title of all our waxy crude blogs. As we said in Part 1 of this series — and in earlier blogs on waxy crude — the heart of Uinta production is Utah’s Duchesne and Uintah counties, which are located more than 100 miles east/southeast of Salt Lake City. The vast majority of the crude produced in the basin is either “black wax” oil with an API gravity of 30 to 34 degrees or “yellow wax” crude with an API gravity of 38 to 44 degrees, making them suitable for blending with a wide range of other crudes to achieve desired feedstock specs. These crudes also have admirably low sulfur content (0.01%), low acid content (TAN, or total acid number, of less than 0.1%), and low metals and nitrogen content, also making them desirable for blending.
We’ve also been driving home the fact that there’s plenty of waxy crude still in the ground, and that Uinta Basin producers have been turning increasingly to horizontal drilling and multi-stage hydraulic fracturing. We’ve heard that since 2016 the use of horizontal laterals of up to two miles and large-scale stimulation in over-pressured areas within the Uinta’s Greater Altamont-Bluebell area (light-green-shaded area in Figure 1) has resulted in favorable initial production (IP) rates and shallow decline curves. Waxy crude is also being produced in the Uinta’s normally pressured Greater Monument Butte and Red Wash areas (tan- and red-shaded areas, respectively). A lot of recent drilling activity and new production has been occurring between the Altamont-Bluebell and Monument Butte areas (dashed red oval).
Figure 1. The Uinta Basin and Its Key Sub-Areas. Source: RBN
As we said last time, the challenges associated with transporting Uinta-sourced crude to distant markets have kept a lid on production — in recent months, the basin’s output has rebounded to about 70 Mb/d from its COVID-impacted 2020 lows, with waxy-crude groupies asserting that the 2021 ramp-up in drilling activity should push production by XCL Resources, Ovintiv, Uinta Wax, and other basin players past 80 Mb/d and maybe 90 Mb/d over the next few months.
More than 80% of the waxy crude produced in the Uinta Basin is transported at elevated temperatures in insulated tanker trucks to the five refineries in the Salt Lake City area (combined capacity, 200 Mb/d), where it is stored in heated tanks. The balance of basin production — maybe 15 Mb/d — is trucked over a 9,100-foot mountain pass (again in insulated tanker trucks) to either the Price River Terminal (pink railcar icon in Figure 2) near Wellington, UT, or the Wildcat Terminal (blue railcar icon) near Helper, UT. Both terminals are capable of loading unit trains — at Price River via a rack system and at Wildcat by directly transloading waxy crude from trucks to railcars.
The unit trains then move south/southeast to Gulf Coast refineries on Union Pacific, BNSF and other connecting rail lines. Our understanding is that Motiva’s 630-Mb/d refinery in Port Arthur, TX, and ExxonMobil’s 517-Mb/d refinery in Baton Rouge, LA, have both been receiving at least semi-regularly railed deliveries of waxy crude from the Uinta Basin. That makes sense when you consider that Motiva is a large producer of base oil for use in synthetic motor oil and lubricants — something for which waxy crude is said to be particularly useful — and both refineries have other reasons for liking waxy crude. (More on why some refineries like waxy crude in a moment.)
From what we’ve seen and heard, it seems reasonable to believe that the Price River and Wildcat terminals could handle at least modest increases in throughput, perhaps to a total of 40 Mb/d or even 45 Mb/d (versus the 15 Mb/d they’ve been moving lately). That would support the continued expansion of Uinta Basin production of waxy crude beyond the 85-Mb/d level that seems likely by the end of this year. However, further growth in waxy crude production — to 110 Mb/d, 120 Mb/d, or higher — likely would require the development of the proposed 85-mile Uinta Basin Railway.
Figure 2. Existing and Proposed Crude-by-Rail Infrastructure. Sources: U.S. Surface Transportation Board and RBN
The prospective short-line, common-carrier railroad (red rail line in Figure 2), which is being advanced by the Seven County Infrastructure Coalition, Drexel Hamilton Infrastructure Partners, Rio Grande Pacific Corp., and the Ute Indian Tribe, would run through the heart of the Uinta Basin production area in western Uintah County and Duchesne County to an interconnection with an existing Union Pacific/BNSF rail line (black rail line) near Kyune, UT, which is located a few miles north/northwest of Helper. There would be two loading terminals along the new railway: one near Leland Bench (yellow railcar icon) and one near Myton (green railcar icon).
A final environmental impact statement (EIS) for the project was issued by the U.S. Surface Transportation Board’s Office of Environmental Analysis in August 2021. If the Surface Transportation Board approves plans for the Uinta Basin Railway this fall, construction of the new rail line could begin as soon as the spring of 2022. By 2025, the project would enable Uinta waxy crude to be loaded directly into unit trains of coiled and insulated railcars near where the crude is produced, and eliminate the need for truck deliveries of crude over that treacherous mountain pass to the Helper and Price River terminals. The new railway also would be used to transport aggregate, fertilizer, and other commodities and materials into and out of the basin.
According to a study sponsored by the Seven County Infrastructure Coalition in the early days of the rail project’s development, easier, most cost-efficient crude-by-rail access would support both increased production of waxy crude in the Uinta Basin and the expanded use of that crude by a number of Gulf Coast refineries. (A handful of West Coast refineries would also be potential customers, but California in particular has been opposing efforts to expand crude-by-rail deliveries.)
As for why a refinery might want to add — or expand the use of — waxy crude in its crude slate, there are a few primary reasons. One is that the amount and quality of the vacuum gas oil (VGO) yielded from Uinta Basin waxy crude makes it a great feedstock for the production of base oil for motor oil and other lubricants. So refineries that produce a lot of base oil would be candidates for using at least some waxy crude. Also, the high paraffin content in Uinta’s black and yellow waxy crude make them useful to refineries with a high proportion of fluid catalytic cracker (FCC) capacity relative to their distillation capacity — some waxy crude advocates say it can be fed directly into an FCC without distillation.
Further, waxy crude can help a refinery bypass the bottlenecks that can come with shifting to a crude slate dominated by light crude — the kind predominantly produced from the major shale basins. One of the most common bottlenecks is that refineries cannot process any more naphtha and light-ends without making major physical changes to their distillation columns. At the same time, their upgrading units (FCCs, cokers, and hydrocrackers) have been challenged to stay full because of the lack of heavy material in most shale oil — that is, material like heavy gas oil and residual fuel oil that is distilled at temperatures of 650 degrees Fahrenheit and above. We’ve heard that at least a few refiners would like to round out their crude slates with a heavier grade (such as Western Canadian Select) but they either have poor access to these grades, they can't handle their high sulfur and TAN content, or the low API of most heavies preclude them from being processed at their sites. Enter waxy crude — and especially yellow wax, whose 40-ish API fits with other shale oils, but whose yield curve addresses the too-much-naphtha/not-enough-bottoms problem that WTI, Bakken, and many other light oils present for many Gulf Coast refiners.
Our understanding is that to support the estimated $1.35 billion cost of the new Uinta Basin Railway, the project would require long-term commitments from producers and/or offtakers for about 130 Mb/d of crude-by-rail shipments — the equivalent of about two 100-car, 65-Mbbl unit train deliveries per day. Given that the waxy crude railed out of the Uinta Basin would be bound for refineries along the Gulf Coast the 130 Mb/d figure would be additive to the 75 Mb/d of current production in the Uinta Basin that would continue to be trucked to Salt Lake City-area refineries. In other words, Uinta Basin production would have sufficient takeaway capacity to support production of more than 200 Mb/d (130 Mb/d plus 75 Mb/d). The proposed rail line could transport as much as an additional 220 Mb/d (for a total of 350 Mb/d) of crude-by-rail shipments if demand warrants, but production gains of that proportion seem unlikely.
There’s no way for us to predict the Surface Transportation Board’s decision on the project — the new rail line would spur economic development, create jobs, and help the 3,000 members of the Ute tribe, which is an equity participant in the railroad project and which leases to oil producers acreage where about one-third of the basin’s waxy crude is produced. At the same time, the rail project is opposed by many environmental activists, who assert the line would encourage development of fossil fuels just as the U.S. is trying to reduce its own greenhouse gas emissions. We should know soon which way the board swings.
"Da Ya Think I'm Sexy" was written by Rod Stewart, Carmine Appice and Duane Hitchings, and appeared as the first cut on side one of Rod Stewart's ninth solo album, Blondes Have More Fun. Released as a single in November 1978, the song went to #1 on the Billboard Hot 100 chart. Co-writer Duane Hitchings in a 2007 interview said the song "was a spoof on the lounge lizards of the ‘Saturday Night Fever’ days." As a side note, the late Ian McLagan — Rod Stewart's bandmate and keyboardist in The Faces — hated the song and refused to play it when he was the keyboardist in Stewart's touring band. He would stand behind his organ with his arms crossed as the band performed the song. He said of the song, "It's an insult to the mentality of any musician." Personnel on the record were: Rod Stewart (lead vocals), Gary Grainger and Billy Peek (guitars), Jim Cregan (guitar, backing vocals), Phil Chen (bass, backing vocals), Carmine Appice (drums, backing vocals), Duane Hitchings (keyboards, synthesizer) and Del Newman (string arrangements). Blondes Have More Fun was produced by Tom Dowd. It went to #1 on the Billboard Top 200 Albums chart and has been certified Platinum by the Recording Industry Association of America.
Sir Rod Stewart — he was knighted in 2016 — is a British singer and songwriter. He was the lead singer in The Jeff Beck Group and The Faces, making two albums with the former and four studio LPs and one live album with The Faces. As a solo artist, Sir Rod has released 31 studio albums, four live albums and 147 singles. He has won one Brit Award, one Grammy Award and an ASCAP Founders Award, and has been inducted into the Rock and Roll Hall of Fame twice — once as a solo artist, and once as a member of The Faces. Stewart has sold more than 100 million records worldwide; he still records and tours, and for the past few years has been a regular performer at The Colosseum at Caesars Palace in Las Vegas.