Oil by Rail - Part 2

Trains Magazine General Discussion
1

I couldn’t find the earlier thread by that name, so I thought I would start a new version with some news from today June, 19.

While I’m not sure of the significance of this news in the bigger industry picture, I though forum members might be interested in the back story. First the news:

Cenovus Energy Inc. (TSX:CVE) said Tuesday that it plans to massively increase the amount of oil it ships by rail by the end of 2014 as the fates of contentious pipeline projects remain undecided. It expects to move 30,000 barrels per day by rail by the end of 2014 – triple the 10,000 it’s anticipating by the end of 2013.

Read more: http://www.ctvnews.ca/business/toronto-stock-market-drifts-lower-ahead-of-word-from-u-s-fed-1.1331947#ixzz2WhRXuMBg

Cenovus Energy is the current modern day holder of the mineral rights on the land that was given to the Canadian Pacific Railway in 1881 to build the Transcontinental line across Canada. After the

2

Some pipeline projects will inevitably get built and price railroads out of those lanes as long as there is capacity. Oil is a very volatile business, much more so than coal.

3

Oil by Rail sounds like a great TRAINS feature article considering all the activity going on in North Dakota and the stalled Keystone pipeline.

4

The TRAINS I got in the mail today has an article on it.

5

From Bloomberg’s Businessweek, last issue, Companies/Industries section, page 21 and 22.

Article about moving crude oil by rail, titled

“All Aboard the Crude Express”

………”The rail industry is now hauling more crude than at any time since the days of John D. Rockefeller’s Standard Oil”

Interesting numbers from the article….

“97,1135 carloads of crude in the first quarter of 2013. That’s 166 percent more than during the first quarter of 2012 and 922 percent more than trains hauled during all of 2008.”

Union Pacific “tripled the amount of crude it moved last year, helping boost the company’s profits to a record $3.9 billion for fiscal year 2012.”

BNSF is “now transporting about 650,000 barrels of crude per day, vs. almost none five years ago.”

“Canadian Pacific expects to haul 70,000 carloads of crude in 2013, up from 500 in 2009.”

According to a June report by Bloomberg Industries, 71 percent of the Bakken crude now leaves the region by train, compared to only 25% in 2012.

Only 21% now travels by pipeline, down 61% from 2011.

Some pretty impressive numbers.

Also from the article.

Plains All American Pipeline spent $500 million to buy four rail terminals in North Dakota, Texas, Colorado and Louisiana.

A pipeline company is buying crude oil rail terminals?

Yes, they are not just the railroads competition, but the railroads customers also.

Kinder Morgan is investing in a crude by rail terminal in Houston, (yup, on the PTRA, right between Highway 225 and the ship channel in Deer Park) capable of taking delivery of 210,000 barrels of oil per day.

We, (the PTRA) are building a new receiving track at North Yard, capable of holding two 125 to 135 car length trains and their motive power nose to tail for just this reason, our bulk petroleum train /ethanol train busines

6

The PTRA tidbit is pretty impressive too Ed.

7

Nine unit trains a day can haul what the Keystone pipeline will be able to haul. Not much when you consider there are about 100 trains a day out of the Powder River Basin.

8

Oil by rail is trending down recently as the oil prices are tending to level (Bakkan vs Brett vs WTI). Oil moves to where the total cost makes it attractive (and refineries can crack it).

Ed

9

No doubt the presence of rail-transported Bakkan oil in the marketplace affected the price leveling to some extent.

10

Bakken crude by rail is still increasing on BNSF. Brent crude(North Sea) is the oil source that has been having to compete against Bakken crude. Much of the Bakken crude travels by rail to east coast refineries and is competitive to the Brent crude shipped in via ocean tanker. WTI pricing is still the ‘gold’ standard in the US, but there is limited refining capacity in Cushing, as well as transport issues(something Bakken crude ran into very early).

The rail cost of delivery to Cushing, OK makes Bakken a poor choice for the oil producer in ND. The rail cost to East Coast refineries is about the same, but the oil producer can get more for his barrel of oil. IIRC, the cost of rail shipped oil to the East Coast is about $15-16/barrel if you get a quote from BNSF. The actual price is negotiated, with delivery terms and quantities affecting the actual shipping cost.

Jim

11

Cushing, OK is more of a pipeline hub than a refining center, though the pipelines headed south connect to the TX & LA refining centers. The competition there is from all the new Texas crude. However, Gulf Coast refineries that process heavy crudes may be looking to replace Venezuelan with Tar Sands oil.

12

That is the biggest selling point the Keystone people use. The US would no longer be dependent on oil from places governed by people like the late Hugo Chavez. And that is why your State Department is saying the effect on greenhouse gasses is a wash. I don’t know what planet your EPA is on.

The oil market fluctuates daily. Today the concern is unrest in Egypt, raising the price of Brent, making Bakken Crude more competitive than is was yesterday. This is what makes oil by rail interesting. It can’t respond to changes in delivery points as quickly as pipelines, to refineries connected to pipelines, but it can go to the refineries dependent solely on water borne delivery. So I don’t see a downturn in oil by rail anytime soon, the next trainload just might not go to the same location as the last one did.

Bruce

13

The Venezuelan heavy crude is more heavy oil rather than the Canadian Tar Sands bitumen. I would guess less energy intensive to produce and refine. The EPA is the expert on environmental concerns rather than the State Dept., and considered more environmental factors than State did.

14

The EPA is on the anti-fossil fuel planet.

15

Not significantly different.

I don’t want to go into an oil exploration lesson, but as you head south from Fort McMurray you pass through an area known as Lloydminister Heavy Oil. South of there is where the lighter crudes begin to occur.

The Keystone pipeline begins at Hardisty, AB. This was already a refining centre dealing with Lloydminister Heavy Oil since the late '80’s, and was therefore chosen as the ideal location to handle both Lloydminister Heavy Oil and Oil Sands bitumen, as well. This is where they turn the bitumen into a product that can be shipped by any common carrier pipeline. And it can be blended to meet any spec. the Gulf coast refineries require.

Hardisty is on the CPR northern mainline and there is a significant increase in business on that line. Both hauling oil out and the necessary refining equipment in. This line is also a major route for Potash coming from northern Saskatchewan mines on its’ way to the coast. They just finished spending millions up there, and they may have to do all over again if this keeps up.

Bruce

16

Bucyrus, I don’t want anyone to accuse me of stealing someone else’s thunder, The quote from the original post is attributed to AgentKid.

17

Sorry MIDLANDMIKE, I will attibute the comment to AgentKid. I messed up the quote.

18

I always enjoy a lesson about oil fields besides the ones I’m familiar with. The Lloydminister Heavy Oil sounds more like the Venezuelan Heavy Oil. I presume it’s produced thru the wellhead, perhaps with some form of EOR. I think US EPA is worried about energy involved in Tar Sand mining/processing or exotic in situ extraction methods.

19

Hi everyone!

Here in the NW, we are getting lots more oil trains, and so, there is lots of NIMBY reaction. Most want an “environmental impact statement” just to allow BNSF to operate oil trains along the Columbia River, believing an oil spill that will kill all the salmon is inevitable. Most articles seem to take an anti-rail bent, such as this one:http://www.king5.com/news/business/185072141.html. What are your thoughts?

20

Where is a good Hot Potato icon when you need one?

The oil companies, the Canadian Government, agencies of the US government, environmentalists, and NIMBY’s are all saying the same things, and different things, all at the same time. There are extraction issues certainly, but will they be offset by not needing/requiring Venezuela and the Mid-East countries to produce their oil for the US market.

If everybody’s right, how come everybody’s wrong?

Bruce