Crude by rail is shifting to the West Coast in a big way. By the end of 2012 unit trains carrying light sweet Bakken crude had begun to flow to Washington State refineries. In 2013 West Coast refiners and terminal operators have continued investment in terminals to receive oil from the Bakken and Western Canada. Today we survey developing West Coast crude rail terminals.
The first episode in this crude by rail 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. 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 last episode on rail loading covered terminals built outside the Bakken and Canada in the Niobrara, Eagle Ford, Permian and Anadarko basins as well as Cushing, OK (see Load Terminal Craze). Last time we began our survey of rail destination terminals with the East Coast (see East Coast Delivery Terminals).
The complete series can be found at the www.rbnenergy.com website under the Daily Energy Post tab. In this episode we continue our survey of destination terminals with a look at installations built to receive crude at or provide terminal distribution to refineries on the US West Coast.
West Coast Crude Pricing
The West Coast Petroleum Administration for Defense District (PADD) 5 includes Alaska, Washington, Oregon, California, Arizona and Nevada. Outside of Alaska, PADD 5 has 2.35 MMb/d of active refining capacity in Washington State and California. Most of those refineries were built to consume a diet of heavy crude from California and the Alaska North Slope (ANS) as well as imports from Western Canada and Latin America.
Because there are no pipelines linking supplies east of the Rockies to the West Coast the crude oil market operates separately to the rest of the US. As we discussed in a post this January (see After The Gold Rush) the benchmark regional crude is ANS (delivered to Long Beach, CA). ANS prices are currently set by reference to the international Brent benchmark rather than to the NYMEX and US domestic benchmark West Texas Intermediate (WTI) crude. On average during 2012 ANS delivered to California was priced at a slight discount of $0.60/Bbl to Brent futures. Because of supply disruptions in the Midwest caused by a glut of new crude production in Canada and North Dakota being unable to reach coastal markets over the past two years, the price of Brent (and with it delivered ANS) averaged about $20/Bbl above WTI. Although the days of $20/Bbl ANS premiums over WTI appear to be over for the moment (the discount was $13.50 on Monday April 8, 2013), ANS price premiums over inland crudes still justify the cost of rail shipments. North Dakota Bakken crude is currently priced at a slight discount of ~$1/Bbl to WTI and -$14.40/Bbl to ANS. Rail transportation costs between North Dakota and Washington State are about $10/Bbl (source: Tesoro). In addition to inland domestic crudes like Bakken the West Coast is also an attractive market for Western Canadian crudes. These supplies are even cheaper than Bakken crude because of the lack of pipeline capacity to get them beyond Midwest markets. Western Canadian Select (WCS) heavy crude is currently discounted to ANS by about $27/Bbl. Estimated rail costs from Alberta to the West Coast are $13/Bbl (source: Valero). Since many California refineries run on heavier sour crudes, WCS delivered by rail represents a very attractive alternative.
Refinery Terminals
As the crow flies the distance from North Dakota to Washington State makes the Northwest a closer refining center than the East Coast we discussed in our last episode. Given growing Bakken production and the large number of rail load terminals developed in North Dakota, shipments to Washington State refineries are no surprise. Tesoro made the first rail shipments of Bakken crude oil to their Anacortes, WA refinery during 2012. By the end of the year, Tesoro had built a dedicated receipt terminal at Anacortes to handle unit trains delivering 40 Mb/d. Other refineries in Washington have followed suit with plans for receiving terminals. Table #1 below shows RBN Energy’s survey of refinery receipt terminals in Washington and California State as of April 2013.
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Next in chronological order after Tesoro’s Anacortes facility, US Oil Refining built a receipt terminal at their Tacoma, WA refinery to unload 40 Mb/d from unit trains of Bakken oil. Both of these terminals are up and running. Tesoro is also sending 5Mb/d in manifest shipments to its Martinez, CA refinery. The rest of the terminals in Table #1 are all still in the permitting, planning or drawing board stages. Shell has announced an intention to build a 100 car unit train receiving facility at its Puget Sound, WA refinery. Phillips 66 have started the permitting process to build their own 40 Mb/d rail unloading terminal for their Ferndale, WA refinery. Phillips also entered into an agreement with Targa to transfer 30 Mb/d of Bakken crude by rail onto barges at the latter’s Tacoma terminal for waterborne delivery to Ferndale. Finally in Washington State, BP has had at least some permits approved for a 60 Mb/d rail terminal to be completed by the end of 2014. The Washington refineries are all served by BNSF rail that has direct connections to North Dakota.
The California permitting process to build a rail unloading terminal is more complex than anywhere else in the US and so development plans in that state have been slower off the drawing board. Alon USA Energy shut down its complex of three connected asphalt refineries in Bakersfield, CA in November of 2012 because they were losing money. Alon is building a 70 Mb/d rail unloading terminal and reconfiguring their 94 Mb/d refinery to handle lighter Bakken crude. The refinery is expected to restart by the end of this year and the unit train rail terminal should be complete by then. Otherwise in California, only Valero has announced plans to build rail receiving terminals at its Benecia, CA and Wilmington, CA refineries. Valero is investing $30 MM in 2013 to build a 70 Mb/d unit train terminal at Benecia to handle both Bakken and Western Canadian heavy crude. The project is expected to be complete in 2014. Valero also announced plans to add a rail terminal at Wilmington to receive up to 30 Mb/d of heavy Canadian bitumen. The majority of California refinery terminals are on Union Pacific (UP) railroads although the short line rail that runs through the Port of Los Angeles at Wilmington also has BNSF connections.
Merchant Terminals
Just as we saw on the East Coast a number of midstream companies are developing merchant terminals on the West Coast to complement individual refinery facilities. These are listed in Table #2 below. We have already mentioned the Targa Sound terminal at Tacoma, WA that is feeding Phillips 66 at Ferndale by barge. The Targa terminal is a refined products terminal redeveloped to handle crude oil – including heavy Canadian bitumen that requires heating equipment to unload. Three of the other rail terminals in the list – Gray’s Harbor, WA, Global Cascade Kelly, OR and NuStar Selby, CA are also marine terminals that will be able to redeliver crude to refineries by barge. Grays Harbor in Puget Sound is a deep water port that can accommodate ocean going tankers and could potentially export Canadian crude railed there from Alberta. Westway terminals have a rail to barge dock in place at Grays Harbor and two other companies Plains All American and Imperium Terminals have floated plans for similar facilities at Grays Although US crude exports are not allowed by Department of Commerce regulations, there is no such restriction on Canadian crude.
Global Partners, LP, acquired the Cascade Kelly terminal in Portland, OR in January 2013. That terminal includes an ethanol plant as well as rail and marine facilities. Global are already moving unit trains through Portland from their Beulah loading terminal in the Bakken. The NuStar terminal at Selby, Ca only handles manifest rail shipments and is primarily a refined products distribution facility. Plains All American is in the process of building out the terminal at Bakersfield, CA that they acquired as part of US Development Group’s assets in December 2012. Plains plan to have the terminal completed to handle 65 Mb/d by mid-2014.
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Aside from rail unloading terminals along the US West Coast there are a couple more projects worthy of mention in our survey although neither has so far made it off the drawing board. These two projects aim to deliver Western Canadian crude to the West Coast of Canada and Alaska respectively. They are listed in Table #3 below. The Nexen proposal to move crude by rail from Alberta to the deepwater Port of Prince Rupert, BC terminal on the west coast of Canada uses an existing Canadian National Railroad (CNR) line to Prince Rupert. This project is a tangible alternative to West Coast crude pipeline plans that have come under fire from native and environmental groups (see West Coast Pipe Dreams). The Chinese CNOOC Company recently acquired Nexen. With the railroad already built, the biggest project challenge is getting State approval to develop the port for crude oil exports. The UNRail Company project to build a railroad to transport heavy bitumen crude from Fort McMurray, AB to the Port of Valdez in Alaska would be a far larger infrastructure undertaking. The Alberta government is currently considering a feasibility study for the project. The success of initiatives like these will depend largely on the fate of the Canadian West Coast pipeline expansions.
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