Cushing, Ok has historically been known as the “Pipeline Capital of the World”. That was before the pipelines got congested in 2011 and inventory piled up – creating a discount warehouse for crude. As producers waited for pipeline infrastructure to come to the rescue the railroads took up the slack. Now crude rail loading terminals are being operated and built in every production region in North America and it is reported that crude is being trucked out of Cushing and loaded onto trains. Today we complete our survey of crude loading terminals.
The first episode in this series provides an introduction and overview of the “Year of the Tank Car” (see Crude Loves Rocking Rail). We describe the rapid growth in US crude oil production that put pressure on pipeline logistics and made rail a viable alternative for moving crude to market. The second installment (see Crude Loves Rocking Rail – The Bakken Terminals) began our survey of rail loading terminals with a map and a complete list of facilities in North Dakota. The follow up episodes covered EOG, Hess and Inergy, Plains, Enbridge and Global, Bakken Oil Express, Dakota Plains, BakkenLink and Savage and Bakken terminals north of the Canadian border in A Plethora of Terminals in the Williston Basin. Last but not least we discussed the development of rail terminals loading heavy oil sands bitumen crude in Western Canada in two episodes Heat It! (Bitumen Economics Part 1) and Part 2.
The complete series can be found at the www.rbnenergy.com website under the Daily Energy Post tab. This episode covers rail-loading terminals outside the Williston Basin and Western Canada – in the Niobrara, Eagle Ford, Permian and Anadarko basins as well as Cushing, OK. None of these regions boast the scale of rail infrastructure built in the Bakken but every producing region now has rail loading terminals built or under development.
The Niobrara Basin consists of two tight oil shale plays in Wyoming (Powder River Basin) and Colorado (Denver Julesberg) that currently produce about 185 Mb/d - expected to increase to 235 Mb/d by the end of 2013 (source: Bentek). Crude from the region competes with Canadian and Bakken production for pipeline takeaway capacity. The pipelines that do not serve local refineries in the Rockies are all flowing crude into Cushing, OK where it is price disadvantaged due to ongoing logistic constraints. As a result, a number of crude-by-rail loading terminals are being developed in Wyoming and Colorado to provide producers with greater destination options outside the Midwest.
Table #1 below lists three terminals in the Niobrara basin that are currently active and four planned to be in operation by the end of 2013. The largest terminal operator is Plains All American – that inherited two terminals in Colorado with its purchase of US Development Group assets in 2012. Plains are completing the expansion of the Carr, CO terminal to handle 35 Mb/d by the second half of 2013 and the larger Tampa, CO terminal that will be able to load 68 Mb/d into unit trains. Three new terminals being developed in Casper, Douglas and Guernsey, WY are of particular interest because they are designed to offload crude from pipelines for onward shipment by rail to coastal destinations. This reinforces the thesis that rail can co-exist with pipelines and provide pipeline shippers with additional destination flexibility. The Enserco (Twin Eagle) terminal will be in operation by June 2013, the Granite Peak/Cogent terminal by October 2013 and the Eighty Eight Co (True Companies) Guernsey terminal by year’s end. Crude originating by pipeline from Canada, the Bakken as well as local production trucked from the Rockies region will be loaded. BNSF is the major railroad operator in the region with UP serving one terminal.
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Of all the tight oil shale production regions that we have written about, perhaps the best served by takeaway transportation is the Eagle Ford (see The Eagle Ford Story Part 4 – Transport to Market). Despite the appearance of an excess of pipeline capacity out of South Texas to Corpus Christi or Houston, a number of rail loading terminals have been developed to serve rapidly expanding production. Table #2 below lists 6 terminals in South Texas. The first rail loading facilities were developed at a rail yard in Gardendale, TX that several companies use to service drilling operations and to load crude from trucks and pipelines onto rail. The largest operator at Gardendale is Plains All American with a 40 Mb/d unit train facility, another facility inherited in the US Development Group acquisition. In 2011 one of the largest oil producers in the Eagle Ford, EOG resources built a unit train loading facility at Harwood, TX that can handle 70 tank cars holding 45 MBbl. Howard Energy is finishing the development of a crude loading and rig service terminal in Live Oak, TX, expected to be in operation by the end of March 2013. Hondo Railroad operates a similar all-purpose terminal/rail yard close to San Antonio. Frontier Logistics have announced their intention to build a unit train facility in Elmendorf, TX. A smaller manifest transload facility belonging to Atlas Oil Co is located at La Feria, in Southeast Texas close to the Mexican border. Atlas is typical of small terminal operating companies that have adapted facilities built to handle ethanol to allow crude transloading. Union Pacific (UP) railroad dominate the Eagle Ford region.
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Recent rapid expansion in crude oil production in the West Texas Permian basin has led to the development of multiple takeaway pipeline projects (see New Adventures of Good Ole Boy Permian – Routes to Market). Constraints on existing pipelines into Cushing, OK at the end of 2012 led to discounts over $20/Bbl for Permian crude (e.g. West Texas Intermediate, WTI) at the production center Midland, TX versus WTI delivered to Cushing. The potential for such price discounts to open up as well as the perceived opportunity to deliver crude by rail to West Coast destinations for a higher price led producers to support rail alternatives. At the moment, Permian producers are waiting for new pipelines to Houston (e.g. Longhorn reversal, April 2013) to relieve pipeline congestion. In the meantime they can realize higher crude prices at the Gulf Coast shipping by rail. Even when new pipeline capacity opens up to the Gulf Coast, the possibility of congestion in Houston (as seen after the January 2013 Seaway pipeline expansion) means that rail will still provide shippers with flexible options.
Table #3 below lists rail terminals in the Permian Basin. Most are still under development with only the EOG Barnhart, TX and the Watco/Kinder Morgan/Prism Midstream Pecos, TX facilities currently loading unit trains. EOG have led the market in building terminals (including the first unit train facility in the Bakken). Kinder Morgan’s investment in the Pecos Valley rail terminal is interesting because the company has recently championed development of the Liberty Pipeline that would repurpose part of the West Texas El Paso pipeline to ship crude to California – perhaps to the detriment of Pecos rail traffic. Genesis Energy, Cetane Energy and Rangeland are all developing new unit train facilities in the Permian. As we mentioned earlier, former ethanol terminal operator, Atlas oil has adapted its transload facilities in the Permian as well as South Texas. Atlas has small manifest loading facilities at Odessa, TX, Monahans, TX and Albuquerque, NM. The Crosstex rail loading terminal at Mesquite, TX was originally built to takeaway natural gas liquids (raw make) for processing but has been adapted to handle crude oil.
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Anadarko and Utica
We previously reported on growing oil production in the Anadarko basin located in the Texas and Oklahoma panhandles (see Panhandle Hogshoot). The Anadarko basin is quite close geographically to the oil trading hub of Cushing, OK but the nearest pipeline that would provide access to Cushing (the EOG owned line from Stroud, OK to Cushing) is full to capacity. In any case, trucking crude over any distance these days is constrained by a severe shortage of tank truck drivers. The longer the distance, the greater the number of drivers required. As a result, the State of Oklahoma invested in repairs to the Farmrail railroad that runs north south in western Oklahoma close to the Texas Panhandle and interconnects with UP and BNSF railroads. Several logistics companies have built rail loading and drilling rig supply offloading facilities at the rail yard in Sayre, OK on the Farmrail network. One of those companies, Logimarq can load “mini” unit trains with 30 Mb/d of crude.
In the Eastern Ohio oil region of the Utica basin there has been considerable drilling interest and much speculation about the extent of the reserves that can be exploited. The region is expected to see significant production development in the coming years and is currently not served by any crude oil pipelines. The obvious market for Utica crude is East Coast refineries in Pennsylvania currently being served by imports or crude railed from Canada or North Dakota. Our research turned up one company, Crosstex that is developing a crude oil and condensate rail loading facility at Black Run, OH that will begin service in 3Q 2013. Table # 4 below lists the Sayre, OK and Black Run, OH terminals.
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The rail terminal at Stroud, OK is located 17 miles from the Cushing oil trading hub. It was to this terminal that EOG resources shipped the first oil unit train from North Dakota on New Year’s Eve 2009. EOG own the 90 Mb/d offload capacity terminal as well as the pipeline that they built from Stroud to Cushing in 2009. The Stroud terminal is on the Stillwater Central railroad that links to BNSF and UP. Watco (part owned by Kinder Morgan) operate the Stroud terminal for EOG. For a couple of years EOG shipped Bakken crude to Cushing from their load facility in Stanley, ND. After EOG developed the Stroud terminal crude discounts developed at Cushing when inventories swelled because incoming new production exceeded Midwest refining demand and pipeline takeaway capacity. EOG therefore built another destination terminal at St. James, LA on the Gulf Coast together with NuStar Energy and diverted production to that more lucrative market (see Back to the Delta).
Nowadays we believe that the terminal is being used to load crude onto rail tank cars and ship it out of Cushing. That is why we included Cushing in our survey of rail loading terminals. According to press reports, at least one large trading company is trucking crude out of storage in Cushing and loading it onto rail cars at the Stroud terminal. From there the crude is shipped to the Gulf Coast where it can be sold for $15 to $20/Bbl more than the Cushing price.. This classic physical crude arbitrage trade demonstrates the flexibility of crude-by-rail. The trade is possible because of the low cost of transloading crude onto rail tank cars and moving it to wherever prices justify the cost of transport.
And Finally on Loading Terminals…
Surveying the North American crude oil production basins we can see that what EOG started in 2008 as a crude-by-rail experiment has become a nationwide craze today. Crude loading terminals are popping up in every production region – not quite at the pace that we saw in 2012 in the Bakken but still basically part of the furniture for any crude oil producer’s development plans. The speed and ingenuity with which producers, shippers and railroads have adapted to this new world has been refreshing to observe. Looks like the railroads are here to stay even after the current pipeline infrastructure logjams subside. The example of Cushing, OK sums up what happened to crude transportation logistics over the past two years. In 2010 this storied oil trading hub was the “Pipeline Capital of the World” - where any self-respecting crude needed to be. That was before it caught “pipeline congestion” in 2011 and became an oversupplied discount warehouse. Now in 2013 rail tank cars are being used to bypass that pipeline congestion and sneak crude out of Cushing onto trains headed to the Gulf Coast.
Next up in our all points crude-by-rail survey – we start our analysis of the destination terminals being built in refining regions across North America.
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