Tag Archives: BP

Dakota Access pipeline to upend oil delivery in U.S. – Losers to include struggling oil-by-rail industry

Repost from Reuters

Big Dakota pipeline to upend oil delivery in U.S.

By Catherine Ngai and Liz Hampton | NEW YORK/HOUSTON, Aug 12, 2016 12:46pm EDT
Dead sunflowers stand in a field near dormant oil drilling rigs which have been stacked in Dickinson, North Dakota January 21, 2016. REUTERS/Andrew Cullen
Dead sunflowers stand in a field near dormant oil drilling rigs which have been stacked in Dickinson, North Dakota January 21, 2016. REUTERS/Andrew Cullen

It may seem odd that the opening of one pipeline crossing through four U.S. Midwest states could upend the movement of oil throughout the country, but the Dakota Access line may do just that.

At the moment, crude oil moving out of North Dakota’s prolific Bakken shale to “refinery row” in the U.S. Gulf must travel a circuitous route through the Rocky Mountains or the Midwest and into Oklahoma, before heading south to the Gulf of Mexico.

The 450,000 barrel-per-day Dakota Access line, when it opens in the fourth quarter, will change that by providing U.S. Gulf refiners another option for crude supply.

Gulf Coast refiners and North Dakota oil producers will reap the benefits. Losers will include the struggling oil-by-rail industry which now brings crude to the coasts.

The pipeline also will create headaches for East and West Coast refiners, which serve the most heavily populated parts of the United States and consume a combined 4.1 million barrels of crude daily. They will have to rely more on foreign imports.

The pipeline, currently under construction, will connect western North Dakota to the Energy Transfer Crude Oil Pipeline Project (ETCOP) in Patoka, Illinois. From there, it will connect to the Nederland and Port Arthur, Texas, area, where refiners including Valero Energy, Total and Motiva Enterprises operate some of the largest U.S. refining facilities.

“That’s a better and cheaper path than going out West and down through the Rockies,” said Bernadette Johnson, managing partner at Ponderosa Advisors LLC, an energy advisory based in Denver.

CHEAPER THAN RAIL

Moving crude by pipeline is generally cheaper than using railcars. The flagging U.S. crude-by-rail industry already is moving only half as much oil as it did two years ago: volumes peaked at 944,000 bpd in October 2014, but were around just 400,000 bpd in May, according to the U.S. Energy Department.

Rail transport has become less economical for East and West Coast refiners when compared with importing Brent crude, the foreign benchmark, because declining supply out of North Dakota made that grade of oil less affordable.

“If you look at the Brent to Bakken arb, it’s tight,” said Afolabi Ogunnaike, a senior refining analyst at Wood Mackenzie in Houston. “If you look at the spot rate, it’s uneconomical to move crude by rail right now.”

Ponderosa Advisors estimated that the start-up of the pipeline could reroute an additional 150,000 to 200,000 bpd currently carried by rail to the U.S. East Coast and Gulf Coast.

Crude imports into the East Coast are now on the rise, averaging 788,000 bpd this year, with nearly 960,000 bpd in July, the highest level in three years, according to Thomson Reuters data.

On the West Coast, refiners like Shell, Tesoro and BP may have to commit to some railed volumes for longer because of shipping constraints, although it will largely depend on rail economics. They also face declining output from California and Alaska.

Tesoro’s top executive Gregory Goff told analysts and investors last week he expects rail costs to drop as much as 40 percent from the current $9-to-$10 barrel cost to compete with pipelines, in order to move Bakken to its Anacortes, Washington, refinery.

CHANGING TIDES

Rail companies have been trying to adapt. CSX Corp, which runs a network of lines in the eastern part of the country, said it was evaluating potential impacts of the pipeline. BNSF Railway declined to discuss future freight movements, but said that at its peak, it transported as many as 12 trains daily filled with crude, primarily from the Bakken. Today, it is moving less than half of that.

In a recent earnings call, midstream player Crestwood Equity Partners said it was working to capitalize on the pipeline and not be dependent on loading crude barrels onto trains. That includes building an interconnection to its 160,000 barrel-per-day COLT crude rail facility in North Dakota.

As refiners bring in more barrels from overseas, Brent’s premium over U.S. crude will eventually widen. On Thursday, December Brent futures settled at a 97-cent premium to U.S. crude, one of its widest premiums this year.

Separately, Bakken crude, a light barrel, could rise further due to the additional competition, especially as production is still falling. Bakken differentials hit a six-month low earlier this week of $2.65 a barrel below WTI, according to Reuters data, but rose to a $1.80 a barrel discount by Thursday.

(Reporting by Catherine Ngai in New York and Liz Hampton in Houston; Editing by David Gregorio)

    WALL STREET JOURNAL: The New Oil-Storage Space: Railcars

    Repost from the Wall Street Journal

    The New Oil-Storage Space: Railcars

    U.S. market is so oversupplied with oil that traders are experimenting with a new place for storing excess crude
    By Nicole Friedman and Bob Tita, Feb. 28, 2016 9:09 p.m. ET
    Rail tanker cars sat on tracks at the Red River Supply Inc. rail yard in Williston, N.D., in February 2015.
    Rail tanker cars sat on tracks at the Red River Supply Inc. rail yard in Williston, N.D., in February 2015. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

    The U.S. is so awash in crude oil that traders are experimenting with new places to store it: empty railcars.

    Thousands of railcars ordered up to transport oil are now sitting idle because current ultralow crude prices have made shipping by train unprofitable. Meanwhile, traditional storage tanks are running out of room as U.S. oil inventories swell to their highest level since the 1930s.

    Some industry participants are calling the new practice “rolling storage”—a landlocked spin on the “floating storage” producers use to hold crude on giant oil tankers when inventories run high.

    The combination of cheap oil and surplus railcars has created a budding new side business for traders. J.P. Fjeld-Hansen, a managing director for trading company Musket Corp., tested using railcars for storage last year and found he could profit by putting the oil aside while locking in a higher price to deliver it in a later month.

    The company built a rail terminal in Windsor, Colo., in 2012 to load oil shipments during a boom in U.S. oil production. Now, Mr. Fjeld-Hansen says, “The focus has shifted from a loading terminal to an oil-storage and railcar-storage business.”

    Energy Midstream, a trading company based in The Woodlands, Texas, stored an ultralight oil known as condensate on Ohio railcars last month for about 15 days before shipping it to a buyer in Canada.

    Dennis Hoskins, a managing partner at Energy Midstream, says there are so many unused tank cars that he is constantly hearing from railcar owners hoping to put them to use. “We get offers everyday for railcars,” he said.

    The use of railcars for storage could be limited by the cost of track space and safety and liability concerns that have followed a string of high-profile transport accidents. Issues range from leaky cars to the risk of collisions and fires.

    Federal regulations require railroads that store cars loaded with hazardous materials like oil to comply with strict storage and security measures to keep the cars away from daily rail traffic. Railroads and users face responsibility for leaks, collisions or other mishaps.

    “I don’t want the liability,” said Judy Petry, president of Oklahoma rail operator Farmrail System Inc. “We prefer not to hold a loaded car.”

    Still, the oil has to go somewhere. The surge in shale-oil production has created a massive glut that the industry is struggling to absorb. BP PLC Chief Executive Bob Dudley joked in a speech this month that by midyear, “every storage tank and swimming pool in the world will be filled with oil.”

    Khory Ramage, president of Ironhorse Permian Basin LLC, which operates a rail terminal in Artesia, N.M., said he hears regularly from traders looking to store crude in his railcars.

    Crude-storage costs “have been accelerating, just due to the demand for it and less room,” he said. “You’ll probably start seeing this kick up more and more.”

    U.S. crude inventories rose above 500 million barrels in late January for the first time since 1930, according to the Energy Information Administration.

    The cheapest form of storage—underground salt caverns—can cost 25 cents a barrel each month, while storing crude on railcars costs about 50 cents a barrel and floating storage can cost 75 cents or more. The cost estimates don’t include loading and transportation.

    Railcars hold between 500 and 700 barrels of oil, less than a cavern, tank or ship can store.

    The use of U.S. railcars to transport large volumes of oil picked up steam a few years ago as a byproduct of the fracking boom. Fields sprung up faster than pipelines could be laid, so producers improvised and shipped their output to market by rail. Companies soon realized railroads offered greater flexibility to transfer oil to whomever offered the best price. Some pipeline companies even joined the rail business, building terminals to load and unload oil. U.S. oil settled Friday at $32.78 a barrel, down nearly 70% from mid-2014.

    The plunge in oil prices brought that activity to a halt. Analysts estimate there are now as many as 20,000 tank cars—about one-third of the North American fleet for hauling oil—parked out of the way in storage yards or along unused stretches of tracks in rural areas.

    Producers and shippers who signed long-term leases for the cars during the boom are stuck paying monthly rates that typically run $1,500 to $1,700 per car. Traders can pay those prices and still profit. Oil bought at the April price and sold through the futures market for delivery a year later could net a trader $8.07 a barrel, not including storage or transportation costs.

    As central storage hubs fill up, oil companies are more willing to pay for expensive and remote types of storage, said Ernie Barsamian, principal of the Tank Tiger, which keeps a database of companies looking to buy and sell oil storage space.

    The Tank Tiger posted an inquiry Wednesday on behalf of a client seeking 75,000 barrels of crude-oil storage or space to park 100 to 120 railcars loaded with crude.

    Mr. Barsamian likened the disappearance of available storage to a coloring book where nearly all the white space has been filled in.

    “You’re getting closer to the edges,” he said.

      Officials: Oil train didn’t speed before Montana derailment

      Repost from Yahoo News (AP)

      Officials: Oil train didn’t speed before Montana derailment

      By Matthew Brown, July 20, 2015

      BILLINGS, Mont. (AP) — A train that derailed and spilled 35,000 gallons of oil in northeastern Montana was traveling within authorized speed limits, federal officials said Monday as they continued to probe the accident’s cause.

      The Burlington Northern Santa Fe Railway train loaded with crude from North Dakota was traveling 44 mph before Thursday’s wreck, U.S. Federal Railroad Administration spokesman Matthew Lehner said.

      Officials have said the maximum authorized speed in the area is 45 mph.

      Twenty-two cars on the BNSF train derailed near the small town of Culbertson. Lehner said the tank cars were a model known as the “1232,”which is built under a 2011 industry standard intended to be more crash-resistant than earlier designs.

      But several recent oil train crashes, including some that caught fire, also involved 1232s, and federal officials said in May that the older cars must be phased out. The oil industry has challenged the timeline for the phase-out in federal court.

      The stretch of track where last week’s derailment occurred is inspected at least four times a week, said Matt Jones, a spokesman for the Fort Worth, Texas-based company. Jones did not immediately respond to a request for details on the latest inspection.

      The accident triggered a temporary evacuation of nearby homes and a camp for oil-field workers.

      No one was hurt, and no fire or explosion occurred. But oil leaked from four of the cars. Officials said the spill was quickly contained, and there was no immediate evidence that any crude reached a waterway.

      Federal Railroad Administration spokesman Michael Cole said Monday the train was bound for the Cherry Point refinery, operated by oil company BP near Ferndale, Washington. The agency had said previously that the shipment was headed to a refinery in Anacortes, Washington.

      The spill marked the latest in a series of wrecks across the U.S. and Canada that have highlighted the safety risks of moving crude by rail.

      In recent years, trains hauling crude from the Bakken region of North Dakota and Montana have been involved in fiery derailments in six states. In 2013, a runaway train hauling crude from the Bakken derailed and exploded in Lac-Megantic, Quebec, incinerating much of its downtown and killing 47 people.

      North Dakota regulators in April began requiring oil producers to treat their crude before it can be loaded onto rail cars, to reduce the concentration of volatile gases that can trigger an explosion. Statoil, which was shipping the oil involved in last week’s crash, was in compliance with the new regulations, company spokesman Peter Symons said.

      Cleanup work along the BNSF line near Culbertson continued Monday, said Daniel Kenney, an enforcement specialist with the Montana Department of Environmental Quality.

      BNSF has been asked to sample underground water supplies in the vicinity of the crash as a precaution, Kenney said. For most spills, the state expects cleanup work to be completed and a final report submitted to regulators within 90 says, Kenney said. He added that might not be the case with Thursday’s derailment given the large volume of oil spilled.

      Speed restrictions put in place following the derailment were lifted Monday on nearby U.S. Highway 2, the region’s main artery.