rail terminal

With the bottom falling out of the crude oil market these days there is one basin where production continues to grow – the West Texas Permian. The sweet spots in the play’s Midland and Delaware basins are still the center of new drilling and production. As a result producers are looking for infrastructure to ship crude (and increasingly – condensate) to market. So while the midstream business has taken a beating in financial markets lately – there are still signs of life in the field. Today we round out our series on new Permian gathering systems with a look at two brand new projects.

Crude by rail (CBR) shipments from North Dakota to West Coast destinations peaked in January 2015 at 170 Mb/d – falling since then to average 140 Mb/d in 2015, January through May. The vast majority of these shipments have moved to four refineries in Washington State – providing a cheaper alternative to the Alaska North Slope (ANS) crude staple these refineries have run for decades. There is big potential to expand CBR shipments to West Coast Ports and to California but building the infrastructure has proven painstakingly slow. Today we discuss the long term fate of West Coast CBR.

According to the U.S. Department of Agriculture, this year’s corn crop was 94 percent harvested by November 24, 2014. Unlike the 2013 harvest season,  related crop drying activity by farmers to extract moisture from harvested corn has not led to shortages of propane- the main fuel used to power dryers. A wetter than usual crop last year started a Midwest propane shortage that morphed into a crisis by January when Polar Vortex winter weather spiked demand again and pushed prices above $4/Gal. This year the Midwest propane market has to cope with the loss of a major transport artery – the Cochin pipeline that used to bring Canadian propane supplies to the Midwest but has now been reversed to carry U.S. diluent to Canada. Today we examine  new Midwest propane delivery infrastructure.

A recent SEC filing to register a proposed Initial Public Offering (IPO) for their Master Limited Partnership (MLP) by terminal operator USD Group - whose principal asset is a unit train crude loading terminal in Hardisty, Alberta - reveals long-term commitments to rail by Canadian shippers. That development reflects frustration with continued delays to the expansion of congested pipeline capacity out of Western Canada but also indicates a new maturity in crude-by-rail transport. Today we discuss crude-by-rail’s coming of age in Canada.

A recent proposal from Questar could bring part of a pipeline that once shipped crude to Long Beach from Four Corners in the 1950’s back into service. Questar plans to convert the western segment of its Southern Trails pipeline to crude and rename it the Inland California Express. The pipeline origin would be a rail load terminal in Central California from where crude would flow to Long Beach refineries with over 1 MMb/d capacity. The Questar proposal will likely attract support from shippers in the Rockies as well as Western Canada but still be a stretch for crude loaded onto railcars in the Permian. Today we review the proposal.

Hardisty is the largest oil storage hub in Canada with over 21 MMBbl of tank capacity owned by seven companies. The largest player Enbridge has more than 12 MMBbl of storage with the majority being leased to third parties including a sizeable chunk to investment bankers JP Morgan. Western Canadian Select (WCS) the benchmark Canadian heavy crude is blended at Husky’s Hardisty terminal. Today we detail these two companies’ operations at Hardisty.

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 latest crude production estimates from North Dakota show continued growth to a new record of nearly 770 Mb/d in December 2012. The North Dakota Pipeline Authority estimates that 64 percent of that crude was transported to market by rail in December – up from 58 percent in November. Today we continue our survey of North Dakota crude rail loading terminals with an in-depth look at three facilities that between them can load 250 Mb/d of crude.

PBF Energy Inc is a private company that bought three US refineries with 0.5 MMb/d capacity in the past two years and now plans to go public. Two of the refineries are on the East Coast where many larger players have abandoned the refining business. The third is in the Midwest sweet spot. Today we look at how the company plans to keep these refineries profitable for investors.

Move over old dog ‘cause a new dog’s moving in.  That dog would be crude oil from North America producers -- mostly light-sweet crude from the Bakken – moving by rail to Albany and on to other points east.  Not only is it a good market for Bakken oil, it might just be the ticket out of financial meltdown for East Coast refiners.