Category Archives: Oil prices

Crude oil shipments by rail from Midwest to coastal regions decline

Repost from US Energy Information Administration – TODAY IN ENERGY

Crude oil shipments by rail from Midwest to coastal regions decline

graph of crude by rail receipts from the Midwest, as explained in the article text

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

The movement of crude by rail within the United States, including within Petroleum Administration for Defense Districts (PADDs), reached a high of 928,000 barrels per day (b/d) in October 2014, with most of the shipments originating in the Midwest and going to the East Coast, West Coast, and Gulf Coast regions. Since October 2015, crude-by-rail volumes have declined as production has slowed, as crude oil price spreads have narrowed, and as more pipelines have come online.

The economics of moving crude by rail depend largely on significant domestic crude discounts compared with international crudes. Because domestic crudes such as West Texas Intermediate (WTI) and Bakken, which are priced at Oklahoma and North Dakota, respectively, are no longer priced significantly less than waterborne crudes such as North Sea Brent, there is less of a cost advantage for costal refineries to run the domestic crudes. The narrower the spread between domestic and imported international crude, the more likely costal refineries will choose to run imported crudes rather than domestic supplies shipped by rail.

graph of price spread between domestic crude oils and Brent, as explained in the article text

Source: U.S. Energy Information Administration, based on Bloomberg

Crude supplies carried by rail from the Midwest to the East Coast (PADD 2 to PADD 1) continue to be the largest rail movement, accounting for 50% of total crude oil moved by rail within the United States in December 2015, the latest month for which data are available. However, this flow has been trending downward since reaching 465,000 b/d in April 2015. With a narrowing price spread between domestic and imported crude oil, imports of crude oil to the East Coast, particularly from countries in western Africa, have grown. Increased runs of imported crude in East Coast refineries have reduced the need for rail shipments of domestic crude oil to that region.

The next largest crude-by-rail movement is from the Midwest to the West Coast, which typically goes to refineries in the Pacific Northwest. Although movements from the Midwest to the West Coast fell in the early part of 2015 during planned and unplanned refinery outages, deliveries resumed when refineries restarted in late spring. The West Coast received an average of 139,000 b/d of crude oil by rail from the Midwest in 2015, roughly comparable with 2014 levels.

Movements of crude by rail from the Midwest to the Gulf Coast (PADD 2 to PADD 3) formed the largest inter-PADD rail movement from 2011 to 2013. Midwest-to-Gulf Coast rail movements started to decline in the second half of 2013 as new and expanded pipeline capacity came online. As additional pipeline capacity was added throughout 2013–15, crude-by-rail movements to the Gulf Coast from the Midwest continued to decline, dropping to 38,000 b/d in December 2015, 75,000 b/d less than in the previous year. Other crude oil-producing regions, such as the Niobrara in the Rocky Mountains (PADD 4) and the Permian Basin in Texas and New Mexico (part of PADD 3) also experienced growth in pipeline takeaway capacity to the Gulf Coast refining centers, reducing the need for railed crude supply from the Midwest.

Continued pipeline takeaway expansions and interconnections with existing pipelines in crude-producing regions such as the Bakken and the Gulf Coast will further reduce the need for intra-PADD rail flows within the Midwest and the Gulf Coast, as well as inter-PADD rail flows from the Midwest to the Gulf Coast. However, no crude oil pipeline infrastructure currently exists to move crude to the East and West coasts from the Midwest. Therefore, future crude-by-rail flows from the Midwest to the coasts will depend on the price dynamic between domestic and international crudes, as well as any long-term contractual volume commitments made by refiners.

Principal contributor: Arup Mallik, Mason Hamilton

    Number of crude oil trains declined in 2015 as prices fell

    Repost from the Great Falls Tribune

    Number of crude oil trains declined as prices fell

    The Associated Press, February 25, 2016 8:19 a.m. MST

    OMAHA, Neb. — Freight railroads delivered 17 percent fewer carloads of crude oil last year after oil prices collapsed.

    The Association of American Railroads said Wednesday 410,249 carloads of crude oil were carried across the United States last year, down from 493,126 carloads in 2014.

    But the number of crude oil carloads remains well above the 9,500 carloads railroads hauled in 2008 before the boom took off in the Bakken region of North Dakota and Montana.

    Oil prices have been hovering around $30 per barrel instead of the prices above $100 that were common a couple years ago.

    Tank cars of crude oil have been involved in several fiery derailments in recent years. Rail accidents remain relatively rare compared to the total number of shipments, and the industry is working to reduce them.


      REUTERS: California planners reject Valero oil-by-rail project

      Repost from Reuters – Markets

      California planners reject Valero oil-by-rail project

      By Kristen Hays, Feb 12, 2016 1:29pm EST

      Feb 12 Valero Energy Corp’s proposed oil-by-rail project at its northern California refinery was quashed by local planners this week, the first such facility on the U.S. West Coast to end a years-long wait for permits with a rejection.

      The Benicia Planning Commission late Thursday unanimously renounced Valero’s request to build the project at the conclusion of four consecutive public hearings dominated by scores of opponents.

      Valero first proposed building the rail facility at its 145,000 barrels per day Benicia refinery to offload up to 70,000 bpd of inland U.S. and Canadian heavy crude three years ago.

      Several other West Coast rail projects await such decisions by local or state governments. Those include Tesoro Corp’s proposed 360,000 bpd railport in Washington State – the largest in the nation – and Phillips 66’s newly-trimmed 25,000 bpd facility at its Santa Maria refinery in Arroyo Grande, California.

      Others gave up with U.S. crude prices down more than 70 percent since mid-2014 on global oversupply. That decline squeezed discounts of inland U.S. crude to global crudes, eroding oil-by-rail’s profitability.

      Global Partners LP last month laid off workers and said the company would drop crude handling at its ethanol terminal in Oregon in the fallout of the oil rout.

      Valero can ask the Benicia City Council to override planners and approve a permit for the project. A spokeswoman said on Friday that the company would “evaluate our options for appeal.”

      The staff for Benicia’s planners recommended approval.

      When Valero first proposed the project, oil-by-rail was growing fast and U.S. and Canadian crudes were much cheaper than global crudes, even with added transportation costs of moving via train. Rail also gave West Coast refiners a way to tap those crudes as no major oil pipelines cross the Rocky Mountains.

      Not anymore. Shipments originating on top U.S. railroads fell 23 percent by the third quarter last year from the peak of 1.02 million bpd in the third quarter of 2014, according to the American Association of Railroads.

      The Tesoro project remains under review by a state council in Washington, which will hold hearings in June and July.

      San Obispo County planners are expected to decide on the Phillips 66 project next month, the company said. Staff for those planners recommended rejecting the facility.


        Why cheap oil is the key to beating climate change

        Repost from The Guardian

        Why cheap oil is the key to beating climate change

        Keeping the price of a barrel of crude at $75 or less will devastate the profitability of fossil fuel extraction – as the shelving of three tar sands projects demonstrates

        By Mitchell Anderson, 11 December 2015 11.59 EST
        ‘If the Canadian tar sands investments that were halted this year stay dead, the world will avoid another 1.6tn tonnes of dangerous carbon emissions.’ Photograph: David Levene for the Guardian

        As world leaders enter the home stretch of the Paris climate negotiations they should keep in mind a key measure of success in limiting carbon emissions: cheap oil. The lower the global price of oil, the more it stays in the ground – due to the brutal, if counterintuitive, logic of the petroleum marketplace.

        Most of the easily extracted oil deposits are long gone. What’s left are high-cost, high-risk long shots such as the Alberta tar sandsdeep-water reservoirs off Brazil, and drilling the high Arctic. Companies hoping to profit from the last dregs of the petroleum age need to convince their investors to part with massive amounts of capital in hopes of competitive returns often decades down the road.

        Billions have already fled the Alberta oil sands in the last year as the global price of oil collapsed from over $100 per barrel to below $40. Shell has just called a halt to its Carmon Creek project in Northern Alberta, writing off $2bn in booked assets and 418 million barrels of bitumen reserves. A barrel of bitumen will release about 480kg of carbon dioxide from extraction, refining, transport and combustion. This head office write-down means that 200m tonnes of carbon will not be released into the atmosphere.

        Two other tar sands projects were also shelved this year with reserves of about 3bn barrels. If these investments stay dead the world will avoid another 1.6tn tonnes of dangerous carbon emissions. Together the cancellation of these three projects alone amount to the equivalent of taking more than 14m cars off the road for the next 25 years.

        There a simple correlation between future emissions and the price of oil needed to make that profitable. Such a graph has been compiled by Carbon Tracker, a UK-based non-profit organisation set up to educate institutional investors on the increasing financial risks of the fossil fuel sector.

        Its message to investors is simple: the world must limit additional emissions to below 900 gigatons to avoid potentially catastrophic climate consequences – and 40% of this future carbon budget – about 360 gigatons – is projected to come from the oil sector. Anything more than that must stay in the ground – the so-called unburnable carbon.

        And what’s the price of oil that could save to world? Anything below $75 a barrel of Brent crude means that companies cannot profitably extract more than 360 gigatons of the world’s remaining reserves – no messy policy solutions required.

        Just last year the price of Brent crude was about $110 a barrel, a price that would gainfully produce about 500 gigatons of carbon emissions by 2050. Now it is less than $50, which would only produce 180 gigatons over the same period. If prices stay where they are, the world will avoid some 320bn tonnes of carbon emissions by 2050 in precluded production from uneconomic oil fields.

        To put this in perspective, that is 25 times larger than reductions the Kyoto protocol was supposed to achieve if it had worked (it didn’t), and 180 gigatons below the oil emissions limit scientists say we need to avoid a world with more than two degrees of warming. Economic turmoil aside, the global commodities market just served up massive progress on an issue in desperate need of some good news.

        Carbon Tracker recently revised its calculations to include the turmoil in the oil market, but the basic correlation is the same: lower fossil fuel prices devastate the economics of future extraction.

        Seen through this lens, a key measure of our success in controlling carbon emissions should be keeping commodity prices of fossil fuels low. And while the main driver of the current slump in prices is the current glut of supply, it’s important to realise that almost every policy intervention to avert climate disaster is directly or indirectly aimed at lowering the price or profitability of fossil fuels such as oil and coal.

        Efficiency and conservation incentives reduce demand, as do vehicle emission standards and investing in public transit. Carbon pricing means that fossil fuel companies can no longer use the atmosphere as a free dumping ground for CO2, so also lowering profitability.

        But doesn’t cheap gas mean that people just use more of it? Not really. While there is a weak economic link between declining prices and increasing consumption, key producers like Saudi Arabia are in fact fretting that slowing growth in Asian markets and already peaked demand in developed countries will lead to a long-term decline in the world’s appetite for oil.

        I dearly hope that world leaders can somehow negotiate transformative change. But perhaps the best they can do is nudge economic indicators like crude prices in the right direction and get out of the way. The unstoppable forces of the global marketplace will hopefully do the rest.