Genesis Energy

According to the latest Energy Information Administration (EIA) monthly Drilling Productivity Report, crude production from the Niobrara shale in Colorado and Wyoming peaked at 491 Mb/d in April 2015 and is forecast to decline by ~100 Mb/d to 388 Mb/d through March 2016 – in response to falling crude prices and lower drilling activity. Meantime midstream companies are still building new pipeline capacity out of the region with the Saddlehorn and Grand Mesa projects set to add 350 Mb/d of takeaway capacity this year (2016). The pipeline build out has already caused a shift of crude shipments away from crude-by-rail (CBR) that peaked in December 2014. Yet as we describe today - rail terminals and infrastructure are still under construction in the region.

Refineries located close to booming Eagle Ford shale production have nameplate capacity to process over 900 Mb/d of crude but can only consume 375 Mb/d of local output today. That is because the larger refineries in Corpus Christi were built to process heavy sour crude oil instead of ultra light Eagle Ford. New additions will expand light crude capacity by 100 Mb/d in 2015 (in addition to planned condensate splitters). Today we detail Devon and Genesis pipeline projects as well as regional refining capacity.

New crude pipeline capacity being added in the Rockies to ease congestion will compete directly with rail terminals built or planned in the region. Some of these rail terminals are purpose built to take barrels off the pipelines for delivery to West Coast refiners or perhaps to facilitate blending of heavier Canadian grades with lighter shale crudes. The competition between pipelines and rail in the region underlines a key accomplishment of the post-shale crude distribution system - the advent of greater choice for producers. Today we describe growing rail alternatives in the Rockies.

Last month (March 4, 2014) the first unit train shipment of railbit blend bitumen crude from Southern Pacific Resources Western Canadian oil sands project arrived at Genesis Energy’s Natchez, MS terminal in the Eastern Gulf Coast region. This is the first railbit unit train to hit our radar screen.  Railbit has less light hydrocarbon diluent blended with it than the 30 percent required for making heavy Canadian bitumen crude flow in pipelines. So using rail to ship railbit saves some of the “diluent penalty” that pipeline shippers incur by buying diluent for blending and shipping it with their crude. Today we look at the logistics behind this ground-breaking shipment.

Midstream companies are expanding their infrastructure in Edmonton, Alberta. Kinder Morgan is adding over 5 MMBbl of storage at the origin terminal for its Trans Mountain pipeline to the West Coast. However new investment is also being piled into rail infrastructure – including Kinder’s JV unit train loading terminal with Keyera. Canadian producers are shopping for routes to market that offer them optionality that can help mitigate congestion and discounting.  Today we describe five company’s infrastructure plans in the Edmonton region.