Tag Archives: U.S. Energy Department

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)
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    US carbon pollution from power plants hits 27-year low

    Repost from the Associated Press
    [Editor:  Significant quote: “A factor behind all these trends is that the writing is on the wall about the future of coal and thus the future of U.S. carbon dioxide emissions. The regulatory noose is tightening and companies are anticipating a future with lower and lower dependence on fossil fuels and lower and lower carbon dioxide emissions.”  (Princeton University professor Michael Oppenheimer)  For background data, see U.S. Energy Information Administration report on April emissions.  – RS]

    US carbon pollution from power plants hits 27-year low

    By Seth Borenstein, Aug. 5, 2015 5:00 PM EDT

    WASHINGTON (AP) — Heat-trapping pollution from U.S. power plants hit a 27-year low in April, the Department of Energy announced Wednesday.

    A big factor was the long-term shift from coal to cleaner and cheaper natural gas, said Energy Department economist Allen McFarland. Outside experts also credit more renewable fuel use and energy efficiency.

    Carbon dioxide — from the burning of coal, oil and gas — is the chief greenhouse gas responsible for man-made global warming.

    “While good news for the environment, we certainly would not want to assume that this trend will continue and that we can simply relax,” said John Reilly, co-director of MIT’s Joint Program on the Science and Policy of Global Change.

    Electric power plants spewed 141 million tons of carbon dioxide in April, the lowest for any month since April 1988, according to Energy Department figures. The power plants are responsible for about one-third of the country’s heat-trapping emissions.

    April emissions peaked at 192 million tons in 2008 and dropped by 26 percent in seven years.

    Carbon pollution from power plants hit their peak in August 2007 with 273 million tons; summer emissions are higher because air conditioning requires more power.

    In past years, experts said the U.S. reduction in carbon dioxide pollution was more a function of a sluggish economy, but McFarland said that’s no longer the case.

    “You don’t have a 27-year low because of an economic blip,” McFarland said. “There are more things happening than that.”

    The price of natural gas has dropped 39 percent in the past year, he said. Federal analysts predict that this year the amount of electricity from natural gas will increase 3 percent compared to last year while the power from coal will go down 10 percent.

    Those reductions were calculated before this week’s announcements of new power plant rules. The new rules aim to cut carbon pollution from electricity generators another 20 percent from current levels by 2030.

    The pollution cuts in April are because efficiency has cut electricity demand and energy from non-hydropower renewable sources has more than doubled, said Princeton University professor Michael Oppenheimer.

    “A factor behind all these trends is that the writing is on the wall about the future of coal and thus the future of U.S. carbon dioxide emissions,” Oppenheimer said in an email. “The regulatory noose is tightening and companies are anticipating a future with lower and lower dependence on fossil fuels and lower and lower carbon dioxide emissions.”

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      Energy, Transportation departments to study volatility of oil moved by rail

      Repost from McClatchyDC

      Energy, Transportation departments to study volatility of oil moved by rail

      By Curtis Tate, April 28, 2015
      The federal government will conduct a two-year study of how crude oil volatility affects the commodity’s behavior in train derailments, Energy Secretary Ernest Moniz told a Senate panel Tuesday.The Energy Department will coordinate the study with the Department of Transportation, Moniz told the Senate Energy and Natural Resources Committee.

      After a series of fiery train derailments, the Transportation Department concluded early last year that light, sweet crude oil from North Dakota’s Bakken region is more volatile than other kinds.

      But derailments involving ethanol and other types of crude oil have cast doubt on whether Bakken is likely to react more severely than other flammable liquids transported by rail.

      The petroleum industry has been citing its own studies and a recent report from the Energy Department’s Sandia National Laboratory to support its position that there’s no difference. But it’s clear that more crude oil is moving by rail, and an increase in serious accidents has come with that increased volume.

      Moniz said the Sandia report was “the most comprehensive literature survey in terms of properties of different oils” but showed the need for more research to determine their relevance in train derailments.

      The joint Energy-Transportation study would look at other kinds of crude moving by rail, such as light crude from west Texas and heavy crude from western Canada.

      Sen. Maria Cantwell, D-Wash., a member of the Senate Energy panel who requested the departments work together on a study, noted that there had been four derailments of oil trains in the U.S. and Canada since the beginning of the year.

      “A number of high-profile incidents have underscored major safety concerns,” she said.

      On April 1, North Dakota began setting vapor pressure limits for crude oil loaded in tank cars at no more than 13.7 pounds per square inch.

      But the crude oil tested in many serious derailments had a lower vapor pressure than the new standard…..  [MORE]

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        US running out of room to store oil; price collapse next?

        Repost from The Associated Press

        US running out of room to store oil; price collapse next?

        By Jonathan Fahey, AP Energy Writer, Mar 4, 1:01 PM EST
        Older and newly constructed 250,000-barrel capacity oil- storage tanks north of Cushing, Okla. Extra crude is flowing into storage tanks now, especially in Cushing. (Michael Wyke/AP)
        Older and newly constructed 250,000-barrel capacity oil- storage tanks north of Cushing, Okla. Extra crude is flowing into storage tanks now, especially in Cushing. (Michael Wyke/AP)

        NEW YORK (AP) — The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.

        For the past eight weeks, the United States has been producing and importing an average of 1.1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, according to the Energy Department.

        If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude – and probably gasoline, too – plummeting.

        The supply growth may even be speeding up.  U.S. crude supplies rose 10.3 million barrels last week, the government said Wednesday, the largest weekly increase since October 2002.

        “The fact of the matter is we are running out of storage capacity in the U.S.,” Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York.

        Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.

        The national average price of gasoline is $2.44 a gallon. That’s $1.02 cheaper than last year at this time, but up 37 cents over the past month.

        Other analysts agree that crude is poised to fall sharply – if not all the way to $20 – because it continues to flood into storage for a number of reasons:

        – U.S. oil production continues to rise. Companies are cutting back on new drilling, but that won’t reduce supplies until later this year.

        – The new oil being produced is light, sweet crude, which is a type many U.S. refineries are not designed to process. Oil companies can’t just get rid of it by sending it abroad, because crude exports are restricted by federal law.

        – Foreign oil continues to flow into the U.S., both because of economic weakness in other countries and to feed refineries designed to process heavy, sour crude.

        – This is the slowest time of year for gasoline demand, so refiners typically reduce or stop production to perform maintenance. As refiners process less crude, supplies build up.

        – Oil investors are making money buying and storing oil because of the difference between the current price of oil and the price for delivery in far-off months. An investor can buy oil at $50 today and enter into a contract to sell it for $59 in December, locking in a profit even after paying for storage during those months.

        The delivery point for most of the oil traded in the U.S. is Cushing, a city of about 8,000 people halfway between Oklahoma City and Tulsa at an intersection of several pipelines. The city is dotted with tanks that can, in theory, hold 85 million barrels of oil, according to the Energy Department, though some of those tanks are used for blending or feeding pipelines, not for storing oil.

        The market data provider Genscape, which flies helicopters equipped with infrared cameras and other technology over Cushing twice a week to measure storage levels, estimates Cushing is two-thirds full.

        Hillary Stevenson, who manages storage, pipeline and refinery monitoring for Genscape, says Cushing could be full by mid-April. Supplies are increasing at “the highest rate we have ever seen at Cushing,” she says.

        Full tanks – or super-low prices – are not a sure thing. New storage is under construction at Cushing, and there are large storage terminals near Houston, in St. James, Louisiana, and elsewhere around the country that will probably begin to take in more oil as prices fall far enough to cover the cost of transporting the oil.

        Also, drillers are quickly cutting back because oil prices have plummeted from $107 a barrel in June. And demand is showing signs of rising.

        Despite the enormous increase in crude stocks reported Wednesday, inventories of gasoline did not rise and diesel fuel inventories have fallen slightly over the past two weeks. That leads some to conclude that demand for crude could soon pick up, easing the surplus somewhat.

        But many analysts believe oil prices will fall through the spring, before summer drivers start to relieve the glut.

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