transport cost

If you think that yesterday’s 13 year-low CME/NYMEX crude settlement price ($26.21/Bbl – February 11, 2016) is bad news for struggling U.S. producers then try putting yourself in Canadian producer’s shoes! The headwinds facing Western Canada’s heavy oil sands these days would try the patience of a saint. Prices for benchmark Western Canadian Select (WCS) blend in Alberta traded as low as $12.50/Bbl in January 2016 – clawing back to $14.06/Bbl on February 10, 2016. But by the time gathering, transport and diluent purchase costs are subtracted, the netback (market price less transport cost) at the lease is negative for many producers – especially when shipping by rail.  To be clear, that’s below zero at the wellhead!  Yet there are few signs that production is falling off – at least in the short term. Today we lament the ongoing plight of Canadian producers.

The wide scale adoption of crude-by-rail transportation since 2012 means that in the U.S. alone by the end of 2013 more than 740 Mb/d was being shipped to market by railroads or about 11 percent of domestic production (source: American Railroads Association). That percentage will continue to increase.  RBN Energy research indicates that around 171 rail loading and offloading terminals have been built or are under development throughout North America since 2011. Pipeline infrastructure build out and increased regulatory scrutiny of rail tank car safety have not slowed the use of rail in production regions such as the North Dakota Bakken. Today we review the new RBN Energy Drill-Down report on crude by rail.

Refinery yields are an important measure of refinery performance indicating the outputs that running a particular crude through a refinery configuration will produce. When these outputs are matched against refined product prices, the relative financial performance of different refinery configurations in different locations can be compared. Refinery yields are also important inputs to the optimization calculations that refiners use to determine the best mix of crudes to process. Today we review how refinery yields are determined and the part they play in refinery optimization.