Canadian producers trying to get their crude to market have come under pressure from two directions at once. US regulators have extended the deadline to make a decision on the Keystone pipeline that would relieve ongoing pipeline congestion out of Western Canada. Canadian regulators have increased pressure on crude by rail development plans, designed to bypass pipelines, by implementing new standards for rail tank cars. With no other apparent alternatives and despite some delays, rail terminal development plans in Canada are proceeding. Today we detail the progress of rail unloading terminals that can handle heavy Canadian crude at the US Gulf Coast.
In the first episode in this series we distinguished between oil sands producers that are able to deliver their bitumen crude to market direct from the production plant as pipeline quality dilbit via feeder pipelines and smaller producers that mostly do not have that luxury (see Keystone Kops Chase Oil Onto Trains – Challenges for Smaller Oil Sands Producers). We pointed out that it is often more convenient for small producers to deliver their crude by truck to rail terminals because of the overhead costs associated with blending up their crude to pipeline specifications and securing scarce capacity on pipelines out of Alberta. However, we also noted that such small producers are unable to justify shipping their crude on unit trains of 100 cars or more even though doing so would achieve economies of scale. Until these smaller producers are able to ramp up production and invest in improved infrastructure, they are essentially price takers. In the second episode (see Will Oil Sand Producers Stay on the Rails?) we looked at the unit train rail loading options available to larger Canadian oil sands producers. We noted that the large terminals being built in Edmonton, Hardisty and Kerrobert are designed to carry pipeline quality dilbit. That means producers still have to pay the “diluent penalty” incurred by carrying up to 30 percent additional light hydrocarbons blended into bitumen crude to allow it to flow in pipelines. That reality will not change until railroad operators build diluent recovery units (DRUs) that can remove some or all of the diluent before loading crude onto tank cars – a prospect not expected to be realized until 2015. The continued diluent penalty has not deterred the development of rail loading capability – reflecting the sense of urgency felt by producers unable to find adequate pipeline capacity to get their crude to the Gulf Coast markets where their heavy crude is in demand. It remains to be seen if the new Transport Canada tank car safety regulations will slow crude-by-rail development further. In this episode we review progress in building rail unload destination facilities.
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We last looked at crude by rail unloading terminals targeted to receive Canadian oil sands crude at the Gulf Coast in August and September of 2013 as part of our “Go Your Own Way” series. The majority of these terminals are set up to transload crude from rail cars onto barges for marine shipment to Gulf Coast region refineries. The principal differentiation between these terminals is whether they can handle the unloading of railbit crude (bitumen with 17-20 percent diluent) that requires steam heating equipment and whether they can handle 100 rail car “unit train” shipments. Our analysis in this blog series shows that railbit is not generally loaded onto unit trains but rather is shipped in fewer than 100 cars as part of a manifest shipment. Larger unit train shipments are still primarily pipeline quality dilbit.
In that earlier survey we first looked at the network of terminals that the Canadian National (CN) railroad encouraged midstream operators to develop in the Louisiana/Mississippi/Alabama region (see Offloading Heavy Canadian Crude on the Gulf Coast). CN is the only railroad that runs all the way (2800 miles) from the oil sands production region of Alberta to the Gulf Coast so it is a natural choice for Canadian producers shipping by rail. Of the seven rail unload terminals in the Eastern Gulf Coast region that CN listed as operational last year, only one so far appears to have developed into a terminal capable of handling unit trains and/or unloading railbit crude with steam heating equipment. That is the Genesis Energy facility at Natchez, MS that was designed to handle unit trains and unload railbit requiring steam heating. The terminal is now operational and receiving unit train shipments of pipeline quality diluent (March 2014) but it is unclear if they are handling railbit yet.
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Another CN rail terminal that was in the planning phase last year has not made as much progress as Natchez (at least as indicated by publically available sources). ARC Terminals planned to build out a large unit train unloading operation at a terminal near Mobile, AL by the end of 2013 but do not appear to have made that development yet. The company’s 2013 10 K filing indicates that they still only operate two smaller terminals at Chickasaw and Saraland, AL which transload an average of 17 Mb/d of crude. However, US refiner Valero has developed a rail unloading terminal at its 250 Mb/d St Charles, LA refinery that can unload up to 20 Mb/d of “neat Canadian bitumen” using their own rail cars according to an April 2014 company presentation. Valero is also shipping up to 35 Mb/d of Canadian dilbit crude from a barge terminal in Hartford, IL (likely transferred from the Keystone pipeline at Wood River). But there has been little public sign of further development at several other CN railroad terminals we have mentioned previously including LBC Sunshine St. Gabriel, LA, Crosstex Geismar, LA (now part of Enlink Midstream – majority owned by Devon Energy), IMTT St Rose, LA and the Port of Manchac. Although some of these facilities have heating equipment to handle manifest shipments of railbit oil they do not appear to be developing unit rail unload capabilities yet.
Further north on the Mississippi River at St Louis, MO is the Gateway terminal owned by Seacorp Holdings (see Figure 1). The terminal serves all Class 1 railroads (BNSF, UP, CN, CP, KCS) via the Alton and Southern short line. Gateway can unload 120 car unit trains onto barges for delivery to refineries on the Mississippi and Ohio rivers. The facility has four 98 MBbl storage tanks, and rail infrastructure to store up to 130 rail cars. The terminal throughput capacity onto river barges is 50 Mb/d. Gateway have built a steam heat boiler system (now operating) that will heat coiled and insulated tank cars carrying dilbit crude for unloading. They expect to make additional modifications to give the terminal the capability to transfer both railbit (17 -20 percent diluent) and purebit (2 percent diluent) onto barges. Gateway has already successfully transferred two unit trains of dilbit to barges that originated at the Bruderheim Canexus rail load terminal north of Edmonton. Because the Gateway Terminal is further up the Mississippi than the CN terminals we described above, the company says the one-way unit train trip time (including unloading) from Edmonton is 10 days versus up to 20 days for rail shipment all the way to the Gulf Coast. The shorter rail journey cuts down the time that tank cars are in use (reducing the cost per trip and the number of rail cars needed to keep oil flowing in regular shipments).
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