Railroad

Five large-scale rail terminals planned or being constructed in Western Canada will be able to ship up to 550 Mb/d of crude by 2015. Most of that crude will be headed to the Gulf Coast. If crude by rail shipments from Canada are going to compete with pipeline alternatives then the ability to ship bitumen crude raw without diluent will be an important advantage. Yet only about 170 Mb/d of rail terminal capacity is currently built or being developed on the Gulf Coast that can offload raw bitumen using special heating equipment. Today we complete a survey of CN railroad unloading facilities at the Gulf Coast.

The proposed $2 Billion Kinder Morgan Freedom pipeline project is conducting an open season for shipper commitments from West Texas to California. The California refining market has long operated like an island within the US and has so far received few supplies from new domestic production. To proceed with the project Kinder need shippers to make long term commitments but today’s unsettled markets place a premium on flexibility. Today we conclude our two-part analysis of the chances that the pipeline will get built.

Last week (April 29, 2013) the economics of crude-by-rail began to get real interesting as the differentials between inland crudes priced against West Texas Intermediate (WTI) and coastal crudes priced against Brent narrowed to less than $9/Bbl. The Brent/WTI differential traded at about $17/Bbl on average during 2012 and helped to justify the expansion of crude by rail to allow producers to reach higher priced coastal markets. Now the spread is less than the cost of rail transport from the Bakken to the East Coast. Today we delve into the costs of rail transportation and build a netback comparison for Bakken producers.

Henry Hub natural gas futures prices are up 90 percent since their 10 year low of $1.907/MMBtu on April 19, 2012 – closing at $3.872/MMBtu on Friday. Over the same period the price of Gulf Coast ultra-low sulfur diesel fell by 4 percent to $3.027/gal.  Nevertheless if you use liquefied natural gas to power a rail locomotive the equivalent fuel cost is about $0.48/gal (before adding in liquefaction and other costs). That is the reason why BNSF is taking a second look at LNG powered locomotive technology and Shell is building LNG plants in Louisiana and Sarnia.  In today’s blog we review the appeal of gas-powered locomotives.

Unlike pipelines that take a long time to build and only deliver to a handful of destinations, rail freight cars offer the flexibility to deliver anywhere across North America. The rail freight industry can load, store and transport different NGLs (including those NGL products that must be transported under high pressure) as well as crude and petroleum products. Rail infrastructure is mostly already in place so new routes can easily be brought on line. That’s why rail freight has been used successfully by the energy industry for over 100 years as - a “pipeline on wheels”. Today we look at the rail tank car business for moving NGL and petroleum products.