Category Archives: Oil producers

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.

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    Canadian railways sign deal for more tar-sands crude by rail

    Repost from Reuters
    [Quote: “Increased crude shipping by rail…would represent progress in moving more Canadian oil to U.S. refineries.” ]

    Cenovus inks deal to move more crude on Canadian National Railway -source

    by Julie Gordon, Rod Nickel, September 7, 2018 / 11:18 AM

    VANCOUVER/WINNIPEG (Reuters) – Cenovus Energy Inc (CVE.TO), a major Canadian oil producer, has signed a deal to move more crude with the Canadian National Railway Co (CNR.TO), a source with direct knowledge of the matter told Reuters.

    Rail cars including crude tankers are seen at the Canadian Nationals (CN) Thornton Railroad Yards in Surrey, British Columbia, Canada, June 21, 2012. REUTERS/Andy Clark/File Photo

    The deal is one of many being quietly signed that, along with the expedited deliveries of new locomotives, will help boost Canada’s crude-by-rail shipments 50 percent by year end, a government consultant told Reuters separately.

    The source said the Cenovus-CN deal was inked days before a Canadian court last week overturned the approval of the Trans Mountain oil pipeline expansion.

    Shipper commitments put CN and smaller rival Canadian Pacific Railway Ltd (CP.TO) in position to collectively move more than 300,000 barrels per day by December, said Greg Stringham, a consultant who mediated talks among oil producers and railways for the Alberta government this year.

    Stringham did not directly address the Cenovus deal, but said new crude-by-rail “contracts are being signed. Not all of those been disclosed yet, but it is continuing.”

    Oil train cars are stopped in their tracks as smoke from a fire rises at the Port Metro Vancouver, British Columbia, Canada, March 4, 2015. REUTERS/Ben Nelms/File Photo

    The railways, burned a few years ago when booming demand for crude-by-rail vanished as oil prices fell and pipeline space opened, are now seeking rich multi-year, take-or-pay deals from producers.The 300,000 bpd would be 50 percent higher than June’s record 200,000 bpd and double 150,000 bpd achieved in December 2017. It is expected to further increase in 2019 as locomotive orders start to catch up with demand.

    The two railways and Cenovus declined to comment. The source declined to be identified as the deal is not public.

    Cenovus CEO Alex Pourbaix said in July that he was considering a multi-year commitment to move 50,000 to 60,000 bpd by rail.

    Cenovus shares rebounded to trade up as much as 0.86 percent soon after the news. Earlier in the day, they had fallen 6.4 percent after Goldman Sachs downgraded the stock to sell.

    CN shares were down 0.5 percent.

    SAFETY CONCERNS

    Increased crude shipping by rail, while still far short of Western Canada’s rail-loading capacity of nearly 1 million bpd, would represent progress in moving more Canadian oil to U.S. refineries. It remains a tiny fraction of the total 3.3 million bpd on average exported, mostly to the U.S., in 2017.

    But as crude shipments increase, so do safety concerns. In 2013, a runaway train carrying crude exploded in the Quebec town of Lac Megantic killing 47 people. In June, some 230,000 gallons of crude spilled into an Iowa river after a train derailed.

    The head of Canada’s transportation regulator said last month that stronger tank cars for transporting flammable liquids should be required sooner than a 2025 deadline.

    Enbridge Inc’s (ENB.TO) oversubscribed Mainline pipeline rations space each month as oil producers expand production, driving a bigger discount in Western Canada’s heavy crude compared to the North American benchmark CLc1.

    The increased crude by rail volumes could not happen without new locomotives that the railways are placing into service faster than before.

    “Probably the biggest constraint that was identified was the lack of locomotives being available,” said Stringham, adding that the railways went to their suppliers and were able to cut delivery times from 24 months down to nine to 12 months. CN said on Wednesday that it had ordered an extra 60 locomotives from General Electric Co (GE.N), adding to a previous deal for 200 locomotives over three years. The original order will now be completed in two years, and the additional 60 are due in 2020, CN spokesman Patrick Waldron said. Those locomotives will be used for energy transport, along with intermodal, coal and agricultural products. Western Canada’s crude inventories reached 36.3 million barrels for the week ending Aug. 31, a record level since Genscape began monitoring in 2010 as oil production expands faster than transport capacity, analyst Dylan White said.

    Reporting by Julie Gordon in Vancouver, Rod Nickel in Winnipeg; additional reporting by Allison Lampert in Montreal; Editing by Denny Thomas and David Gregorio
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      SF Chronicle opinion: Mayors urge governor to end fossil fuel production in California

      Repost from The San Francisco Chronicle

      Mayors urge governor to end fossil fuel production in California

      By Elizabeth Patterson and Melvin Willis, Aug. 24, 2018 3:31 p.m.
      FILE – This March 9, 2010, file photo shows a tanker truck passing the Chevron oil refinery in Richmond, Calif. A U.S. judge who held a hearing about climate change that received widespread attention has thrown …

      As San Francisco prepares to host Gov. Jerry Brown’s historic Global Climate Action Summit in September, we, the San Francisco Bay Area mayors of cities impacted by the toxic consequences of fossil fuel production, are standing with elected representatives from frontline communities and throughout California in calling on the governor to phase out fossil fuel production.

      Benicia and Richmond both face the toxic consequences of California’s complicity in one of the most toxic, polluting, dangerous industries on Earth and the primary driver of climate change: the oil and gas industry.

      Benicia is home to the Valero oil refinery, and our residents are regularly exposed to emissions during standard operations. In May 2017, a power outage sent flames, heavy black smoke and toxic gases spewing into the air for two straight weeks. Among the pollutants were nearly 80,000 pounds of toxic sulfur dioxide — five years’ worth of “normal” emissions — and carbonyl sulfide, a highly toxic and extremely flammable gas. Accidents are only the most visible of the toxic pollution that impacts our public health, day after day. Our asthma rates are three times the state average.

      The Valero refinery in Bencia,Ca., as seen on Tuesday June 20, 2017. The Bay Area Air Quality Management District on Wednesday is expected to approve the nation’s first limits on greenhouse gas emissions from …

      The Texas-based petroleum giant’s Benicia refinery employs 480 people and supplies nearly a quarter of our city’s tax revenue, but at what cost?

      When Valero proposed a crude-by-rail project to bring 70,000 barrels of tar sands and Bakken crude oil per day by rail through the Sierra, Sacramento and Davis to Benicia, our residents resisted, and our small, historic town stood up to our biggest employer and taxpayer. After three years of environmental review, national attention and a failed effort by Valero to get the federal government involved, the City Council voted unanimously against it.

      Farther south on San Francisco Bay is Richmond, one of the poorest communities in the Bay Area. Our city of largely Hispanic, African American and Asian residents fought against toxic industrial pollution from Chevron’s Richmond refinery that processes 250,000 barrels of crude oil daily. Chevron is our largest employer and taxpayer. Nonetheless, our community has risen up, defeating Chevron-backed candidates in 2014 that outspent us 5 to 1 in our local election, and elected true champions for our community. Richmond forced major environmental conditions on Chevron as it expands the refinery and strengthened our Industrial Safety Ordinance in response to the refinery’s toxic explosion and fire in 2012 that sent 15,000 residents to seek medical treatment.

      Toxic pollution isn’t the only threat we face. With 32 miles of shoreline, more than any other city on San Francisco Bay, Richmond is at extreme risk from sea level rise that will soon cost our community far more than we can afford. So, Richmond, home to an oil giant, became the ninth city in less than a year to bring major fossil fuel companies to court over climate change. We filed a lawsuit against 29 oil, gas and coal companies — including Chevron, along with BP and Exxon — to hold them accountable for their role in climate change and its impacts on the community.

      The fossil fuel industry’s business plan is destroying not only our health and communities, but also the survival of our species.

      Yet, under Gov. Jerry Brown, the state of California has not only tolerated the fossil fuel industry, but expanded it — granting permits for drilling 20,000 new oil wells.

      The Bay Area has had enough of this climate hypocrisy. It is wrong to make communities sick. As one of the top oil-producing states, it is time to bring the fossil fuel era to an end.

      While our small towns have the courage to stand up to a billion-dollar fossil fuel industry to protect our public health and climate, why hasn’t Brown?

      On the toxic front lines of climate change, we stand with 150 local elected officials from a majority of counties in California that are taking bold steps to stop fossil fuels. We all are urging Brown to make a plan to phase out oil and gas production in California, to clean up our cities, towns and agricultural lands, and protect our people.

      If our cities can say “no” to expanding fossil fuels, Gov. Brown, you can, too — and we’ll have your back.

      Elizabeth Patterson is mayor of Benicia. Melvin Willis is vice mayor of Richmond.
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        Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

        Repost from DeSmogBlog

        Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

        By Justin Mikulka • Tuesday, October 3, 2017 – 13:03
        Oil derrick with 'welfare' spelled on Scrabble tiles.
        Oil derrick with ‘welfare’ spelled on Scrabble tiles. [Main image is a derivative of “Creative Commons Oil Rig” by SMelindo, used under CC BY 2.0]
        new study published in the peer-reviewed journal Nature Energy found that 50 percent of new oil production in America would be unprofitable if not for government subsidies. The study, performed by researchers at the Stockholm Environment Institute and Earth Track, Inc., found that, at prices of $50 per barrel, light oil produced by hydraulic fracturing (“fracking”) was heavily dependent on subsidies.

        In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers.

        In addition, the study highlights what this additional fossil fuel production means for impacts to the climate:

        …continued subsidies for oil investment could produce oil (and associated gas) that, once burned, will yield CO2 emissions equivalent to nearly 1 percent of the remaining global carbon budget for all sectors of all economies.”

        At current oil prices, perhaps the most effective “keep it in the ground” strategy might be to stop subsidizing oil production.

        But what happens with these subsidies when the price of oil is over $100 per barrel, as it was several years ago? The authors of the study report that, under such a scenario, government subsidies are simply “transfer payments” to oil investors. The oil would be profitable without the subsidies, which become, at that point, simply free cash for investors.

        While this study provides valuable insight into how subsidies affect oil production and the climate, it notes that its conclusions are not unique. The authors point out: “As others have found regardless of the oil price, the majority of taxpayer resources provided to the industry end up as company profits.”

        US Taxpayers Subsidizing Oil Exports to China

        Since the U.S. crude oil export ban was lifted in 2016, exports have risen much faster than most purported experts predicted, with volumes recently topping 1.5 million barrels per day. Much of these exports are the heavily subsidized light sweet oils produced by fracking in the oil fields of Texas and North Dakota.

        And while major oil producers such as Harold Hamm, CEO of Continental Resources and major Trump donortestified in Congress that it was unlikely U.S. oil would be exported to China, that has quickly proven to be false.

        Bloomberg recently reported that Wang Pei, an executive for Chinese oil and gas company Sinopec, said, “Our refining system really likes U.S. crude.”

        That appetite for oil in China and other nations like India isn’t shrinking, spurring the U.S. oil and gas industry to ramp up production to export far greater amounts.

        Why are U.S. oil producers so keen to export their oil to other countries? Terry Morrison of Occidental Petroleum recently made the answer clear, saying, “It’s an alternative outlet for your production, i.e. better prices.” Better prices. At this point, American taxpayers are now subsidizing oil production so that oil companies can sell it to other countries like China for higher prices.

        As the Midland Reporter-Telegram notes, “analysts are forecasting Permian Basin crude production will increase between 400,000 and 700,000 barrels per day in the coming years,” with the majority likely for export. However, as the Nature Energy study pointed out, 40 percent of that production is dependent on subsidies making it economically viable in the first place.

        Taxpayer-funded subsidies don’t just incentivize oil production for export. As previously noted on DeSmog, taxpayers are also subsidizing the expansion of ports in Texas to provide access for loading oil onto the largest oil tankers, also destined for foreign shores.

        India just received its first shipment of American oil and as DNA India reported, “Officials here said the U.S. crude supply will help India to keep oil prices low and stable to benefit consumers.” Then, U.S. taxpayers are ponying up money for oil production to benefit foreign consumers. This seems like a bad deal for U.S. taxpayers and a horrible deal for the climate — but another big win for the oil industry.

        Subsidies Impact Everything

        The oil industry, led by its lobbying group the American Petroleum Institute, has long denied that it receives anything akin to a “subsidy.” In January former ExxonMobil CEO and now Secretary of State Rex Tillerson repeated this industry talking point during a Senate confirmation hearing. In response to a question from Sen. Jeanne Shaheen (D-NH), Tillerson said, “I’m not aware of anything the fossil fuel industry gets that I would characterize as a subsidy.”

        Yet this new study notes that subsidies aren’t simply cash being handed to oil companies. Subsidies often come in the form of tax breaks, which is just one of the many ways oil companies receive government handouts.

        Another subsidy of sorts noted in the report relates to the fact that the oil industry isn’t required to have nearly enough insurance to cover accidents like the deadly crude oil train explosion and fire in Lac-Megantic, Quebec. The study notes that “the July 2013 crude oil train explosion in Lac-Megantic, Quebec involved a Class II railroad with only $25 million in liability insurance. Costs of $2 billion or more will likely be shifted to the public.”

        However, some of the main impacts of this ongoing support of the oil industry are the ongoing impacts to the climate, the environment, and public health. Should America be subsidizing oil for India and China, two countries that have crippling air pollution issues? What additional costs will be incurred due to climate change thanks to these subsidies?

        Increased oil and gas production in the U.S. also means increased water consumption, increased contaminated fracking wasteincreased spills, increased oil trains, increased earthquakes, and increased flaring.

        newly released poll from the University of Chicago and The Associated Press-NORC Center for Public Affairs Research found that 61 percent of Americans “think climate change is a problem that the government needs to address.” This latest study points to one major way the government could do that: by making the oil and gas industry pay the true costs of production instead of relying on U.S. taxpayers to insure its profits.

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