Category Archives: Crude By Rail

Oil trains make comeback as pipeline bottlenecks worsen

Repost from the Toronto Star (orig. in the Wall Street Journal)

Crude-by-rail has rebounded across U.S. as production has outstripped pipeline capacity

2 Feb 2019, By Rebecca Elliott and Paul Ziobro, The Wall Street Journal
Much of the recent oil train growth is due to record shipments from Canada, where pipeline expansion projects have stalled. | MATTHEW BROWN THE ASSOCIATED PRESS FILE PHOTO

The use of trains to carry crude is surging after dropping in recent years amid concerns about safety, as drillers in parts of North America produce more oil than area pipelines can accommodate.

An average of 718,000 barrels of crude a day traversed America’s railways as of October, the latest data available, an 88% increase from a year earlier, according to the U.S. Energy Information Administration. That compares with a peak average of about 1.1 million barrels in October 2014.

Much of the recent oil train growth is due to record shipments from Canada, where pipeline expansion projects, including Keystone XL and Trans Mountain, have stalled amid environmental opposition and legal delays. Crude-by-rail shipments also have ticked up from North Dakota’s Bakken region and the Permian Basin of West Texas and New Mexico, according to energy-monitoring firm Genscape Inc.

The crude-by-rail comeback is expected to last through late this year in the Permian, and longer in North Dakota and Canada, as companies struggle to lay new pipe as quickly as drillers are getting oil out of the ground.

Shipping oil by train is more expensive than sending it through a pipeline, so producers often avoid making longterm commitments to rail companies. It costs about $20 a barrel to send oil by rail from Canada to the U.S. Gulf Coast, compared with about $12.50 by pipeline, according to energy investment bank Tudor Pickering Holt & Co.

But pipeline projects typically lag behind growth in oil and gas production, and the gap has lengthened in many parts of the country in recent years as local activism has made it increasingly difficult to complete projects. Meantime, North American oil production topped 15.6 million barrels daily in August, a 17% annual increase, according to the EIA.

Bottlenecks have grown particularly severe in Canada. Heavy crude there was selling locally for more than $50 a barrel below U.S. benchmark prices last fall, reflecting producers’ inability to get it to market due to pipeline problems. U.S. oil prices have since fallen about 24%, closing at $54.23 a barrel on Wednesday.

The congestion in Canada spurred companies including Houston-based ConocoPhillips and Calgary-based Cenovus Energy Inc. to ink rail deals.

“The intention is to bridge us over to the next major pipeline expansion, so a few years,” ConocoPhillips finance chief Don Wallette, Jr. said last fall.

Cenovus’s three-year agreements will allow it to transport about 100,000 barrels of oil daily to the U.S. Gulf Coast, where refiners mix it with lighter crudes to produce fuel.

In October, about half of the oil the U.S. imported by rail from its northern neighbor went to the Gulf Coast, EIA data show, helping to offset a 30% decline in crude purchases from Venezuela over the past two years. Roughly a quarter went to the Midwest, while smaller amounts went to the East and West coasts.

Derailments, notably one in Lac-Mégantic, Quebec, that killed 47 people in 2013, have raised concerns about the safety of transporting oil by trains on a large scale. That prompted federal regulators to impose tougher safety requirements for railcars, though opposition remains in some communities.

The heightened demand for oil train transportation has benefited railroads including Union Pacific Corp., whose petroleum shipments rose 30% last year to 228,470 carloads as the company handled more crude oil. But Chief Executive Lance Fritz said the Omaha, Neb.-based railroad isn’t investing heavily to support crude-by-rail shipping because the demand could evaporate once major pipeline projects come online. “We’re careful to make these commitments because it’s a short-lived phenomenon,” Mr. Fritz said in a recent interview. “It’s just not going to be around for long-term returns.”

Since shipping oil by rail is generally more expensive, pipelines remain a more attractive option when available, analysts say. “People would love to have the optionality to move onto crude by rail whenever they want to, but nobody wants to be signing a check for it,” RBN Energy analyst John Zanner said.

Mr. Zanner said because of limited supply of railcars and other infrastructure he doesn’t expect oil train shipments from Canada to increase significantly as a result of U.S. sanctions on Venezuela’s state-owned oil company.

Oil companies often use trains on an ad hoc basis, and rail provides geographic and financial alternatives for producers wary of committing to new pipes. Pipeline companies typically won’t proceed with a project unless drillers sign multiyear contracts guaranteeing payment regardless of whether they have oil to ship.

Whiting Petroleum Corp. is weighing those trade-offs in North Dakota, where it is evaluating whether to support an additional pipeline or rely on costlier, but more flexible, crude-by-rail transportation. Crude production in the state, once the heart of oil-train transportation, has swelled about 38% since the Dakota Access Pipeline opened in 2017, federal data show, testing the limits of existing pipelines.

In November, oil sold in Minnesota fetched as much as $19 a barrel less than it would have at the main U.S. trading hub in Cushing, Okla., reflecting the bottleneck, according to price reporting agency S&P Global Platts. “You’re always balancing between getting the infrastructure in place versus flexibility,” said Peter Hagist, a senior vice president for Whiting.

    Valero increased Canadian tar sands oil trains to and from Gulf Coast in 2018

    Repost from S&P Global Platts
    [Editor: You can be sure that if Benicia hadn’t succeeded in stopping Valero Crude By Rail in 2016, we would be seeing these monstrous oil trains every day now.  Many thanks to all who contributed to our David & Goliath effort!  NOTE: “USGC” in this story refers to the US Gulf Coast.  – R.S.]

    Valero looks north to replace Venezuelan heavy crude

    By Janet McGurty and Keiron Greenhalgh, 31 Jan 2019, 22:04 UTC

    New York — Valero Energy increased the volume of heavy Canadian crude processed in its refining system in the fourth quarter of 2018, including crude arriving by rail, a trend that is likely to continue as recent sanctions cut into shipments from Venezuela.

    Valero CEO Joe Gorder said the company needs to replace Venezuelan crude at two of its US Gulf Coast refineries – the 215,000 b/d St. Charles facility in eastern Louisiana and the 335,000 b/d Port Arthur, Texas, complex.

    Valero’s systemwide heavy crude throughput was 445,000 b/d in Q4 out of 3.0 million b/d overall. About 20% of that was from Venezuela, Gorder said on the Q4 results call.

    Valero imported about 50,000 b/d of heavy Canadian crude in October for its USGC system, compared with 126,000 b/d of Venezuelan crude, US Energy Information Administration data showed.

    “We did 43,000 b/d of heavy Canadian by rail in Port Arthur [in Q4] and those were very discounted barrels,” said Gorder. Continue reading Valero increased Canadian tar sands oil trains to and from Gulf Coast in 2018

      Open letter to Rep. Thompson, Sens. Feinstein & Harris – Oil and Flammable Material Rail Transportation Safety Act

      By Roger Straw, January 30, 2019

      Dear Rep. Thompson, Sen. Feinstein and Sen. Harris:

      Roger Straw, The Benicia Independent

      I read today that U.S. Rep. Jaime Herrera Beutler, Washington 3rd District, reintroduced her 2018 bill to undo the reckless action of the Trump Administration’s Department of Transportation.  (See article from The Columbian reposted at right (or below).

      Please review this important legislation,  H.R.851, the Oil and Flammable Material Rail Transportation Safety Act(Link goes to Congress.gov.)

      Recall that my city, Benicia, California, is traversed by a major Union Pacific rail line that transports hazardous materials to and from refineries in the Bay Area.

      During Benicia’s  lengthy and successful 2013-2017 opposition to Valero Refinery’s “Crude by Rail” proposal, Benicia residents and officials became highly aware of the need for “Positive Train Control,” (PTC), or electronically controlled pneumatic braking systems.  This essential safety measure was initiated after a horrific crash in our state in 2008, and has suffered long delays due to railroad intransigence.  Background from the Sacramento Bee:

      The federal government first mandated the PTC system for major railroads after a Metrolink passenger train engineer became distracted by text messages on his cell phone, causing the train to go through a red signal and crash head-on into a freight train. The 2008 crash killed 25.

      Railroads have been slow to install the system, complaining it is complicated and costly. The federal government has repeatedly extended the deadline for railroads to have the system fully up, tested and running. The initial deadline of 2015 was first extended to the end of 2018, but that deadline, too, was extended for some railroads to 2020.

      As you may be aware, last September the Trump administration gutted previously adopted rail safety regulations calling for PTC and other rail safety measures.  See background from the Associated Press and several others.

      Also please be aware of an investigation initiated by Sens. Wyden and Merkley of Oregon.

      Please review this important legislation, H.R.7076, the Oil and Flammable Material Rail Transportation Safety Act and consider joining with Rep. Herrera Beutler in support.

      Roger Straw
      Benicia, California
      The Benicia Independent

      Repost from The Columbian

      WA Rep. moves to reinstate rail safety rules – Trump admin rolled back Obama-era regulations last year

      Rep. Jaime Herrera Beutler, R-Battle Ground, has reintroduced a bill to reinstate oil train safety regulations. The rules, implemented by the Obama administration in 2015, were rolled back last year.

      The regulations required trains carrying oil or other flammable materials to update air-controlled braking systems with electronic brakes. But the U.S. Department of Transportation previously determined the cost to outfit trains with new braking systems outweighed the safety benefit.

      Herrera Beutler first introduced the bill, known as the Oil and Flammable Material Rail Transportation Safety Act, to bring back the safety requirements in October.

      “With trains carrying hazardous materials through Southwest Washington, it is paramount we increase safety for the nearby communities,” Herrera Beutler said in a press release. “I’m committed to reversing the decision by the U.S. Department of Transportation to ease this critical safety regulation, and reinstating the braking upgrade requirement for trains carrying flammable liquids.”

      The Washington State Department of Ecology classifies Southwest Washington as a major oil train corridor, with hundreds of millions of gallons of crude oil moving through the region each year.

      “As a community that has oil trains regularly running through our commercial areas, neighborhoods and downtown, Vancouver is very supportive and appreciative of Congresswoman Herrera Beutler’s efforts to reinstate the requirement that oil trains transition to the much more effective electronic pneumatic brakes,” Vancouver Mayor Anne McEnerny-Ogle said in a press release.