unit train

Data from the new Energy Information Administration (EIA) monthly report on crude-by-rail (CBR) shows that shipments from Canada increased from less than 10 Mb/d two years ago in January 2012 to over 130 Mb/d in January 2015. The increase in CBR movements mirrors increasing Canadian crude exports to the U.S. – the majority of which are still pipeline movements. Today we look at the destination markets for Canadian CBR in the light of congested pipeline capacity out of Western Canada.

If 2012 was “the year of the tank car” in North Dakota then 2014 could turn out to be the year when crude by rail economics turned sour for producers. New pipelines are coming online to deliver increased volumes of crude to the Gulf Coast with more projects on the drawing board. Safety issues and traffic congestion are raising the cost of rail freight. But the biggest challenge to rail is the pressure from narrowing crude price differentials between North Dakota and coastal markets. Producers can now get better returns shipping barrels by pipeline and in a falling price market they are more incented to make the switch. Today we explain why rail may be losing its edge.

Over the past two years the volume of crude oil shipped by rail from Canada has increased ten-fold.  Data from the Canadian National Energy Board (NEB) for the whole of Canada indicates that average rail crude exports in the first quarter of 2012 were about 16 Mb/d. That volume grew to at least 160 Mb/d in the first quarter of 2014. The increase in rail exports of crude is primarily being driven by pipeline capacity constraints. Today we introduce findings from RBN Energy’s latest Drill Down Subscriber report.

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.

RBN Energy estimates that by 2015 rail terminal capacity to load heavy bitumen “dilbit” crude in Western Canada will be about 800 Mb/d. Unload terminals hoping to receive that crude on the Gulf Coast will have about 1 MMb/d capacity by 2015. Moving that crude by rail will compete directly with planned pipelines expected to be in service by 2015. Yet the details show only about 25 percent of Canadian rail terminals will be able to load railbit crude, which has less diluent. And the terminals that do handle railbit will not be handle larger unit trains. Today we continue our analysis of Canadian crude transport options.

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.

Just like every other kind of mechanical equipment, rail tank cars require maintenance every once in a while. Valves can leak.  Linings wear down.  Railings, platforms, and brake equipment need periodic repairs.  And not surprisingly, the more miles you put on a tank car, the more maintenance it is going to need.  As the crude-by-rail phenomenon has grown, so has the rate of ‘bad orders’ – rail cars that must be taken out of service for maintenance.  Handling bad orders is a new issue for many producers and refiners just now getting their feet wet in the business. Everyone agrees that this is a very important issue, and the rail industry is not taking it lightly. Today we explore the implications of bad orders in the crude-by-rail market and how progressive solutions are on their way.

Crude-by-rail has had a huge impact on the market for tank cars.  Currently there are 53,000 tank cars on back order and more orders are coming in. That’s up from a backlog of 48,000 just a couple of months ago. The tank car manufactures are enjoying every bit of it but for the first time since the ethanol boom, they can’t keep up. In the old days it took 9 months to deliver a new car. Now, there is such a backlog that manufacturers can’t deliver a new car for 24 - 30 months.  Today we will review the rapidly evolving tank car situation based on a recent presentation made by Travis Brock from Strobel Starostka, a construction and rail services firm deeply involved in in the crude-by-rail markets.

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.

Over the past two years oil terminal operators in St. James, LA have built rail receipt facilities that handle over 150 Mb/d of crude oil – most of it from North Dakota. That crude is chasing Gulf Coast prices that can be $20/Bbl higher than the Midwest.  Today we explain how NuStar Energy has expanded their St James crude oil terminal to capitalize on those price differentials.