Tag Archives: Oil producers

Crude By Rail, Oil prices, Oil producers, Rail industry

ABC News: Low Oil Prices Unlikely to Hurt Railroads Much

Repost from ABC News
[Editor: Significant quote: “…even with oil prices falling off a cliff, industry analysts and railroad executives point out that crude shipments still make up just a sliver of the overall freight delivered by rail. What’s more, because fuel is such a huge cost in the industry, railroads are a direct beneficiary of those falling prices.”  – RS]

Low Oil Prices Unlikely to Hurt Railroads Much

By Josh Funk, AP Business News, Jan 5, 2015

The stunning collapse in oil prices over the past several months won’t derail the railroads’ profit engine even if it does slow the tremendous growth in crude shipments seen in recent years.

Carloads of crude oil spiked well over 4000 percent between 2008 and last year — from 9,500 carloads to 435,560 — as production boomed and the cost for a barrel of oil soared into the triple digits.

Those prices have tumbled severely, to just above $50 per barrel Friday, and that has rattled some of the investors who have plowed money into companies like Union Pacific, Norfolk Southern and CSX.

All three of those companies have seen their stock prices slip over the past month, along with major U.S. stock markets.

But even with oil prices falling off a cliff, industry analysts and railroad executives point out that crude shipments still make up just a sliver of the overall freight delivered by rail. What’s more, because fuel is such a huge cost in the industry, railroads are a direct beneficiary of those falling prices.

Crude oil shipments remain less than 2 percent of all the carloads major U.S. railroads deliver. Sub-$60 oil might force producers to rein in spending but railroads ? which spend hundreds of million of dollars every quarter on fuel? will see their costs fall away.

Those falling energy prices have also proven to be the equivalent of a massive tax cut for both consumers and businesses, and railroads stand to benefit from that as well.

Fueled by a rebounding employment as well as rising consumer and business confidence, U.S. economic growth reached a sizzling 5 percent annual rate last quarter, the government reported this month. The rebounding economy is likely to drive even greater demand for shipping.

Edward Jones analyst Logan Purk says the importance of crude oil shipments by rail seems to have been inflated by investors.

“It seems like whatever loss in business they see will be offset by the drop in fuel costs,” Purk said.

The crude oil business has provided a nice boost for railroads at a time when coal shipments were declining. Profits at the major U.S. railroads have been improving steadily along with the economy, reaching $13.4 billion in 2013, up from $11.9 billion in 2012 and $10.9 billion in 2011.

Officials from Union Pacific Corp, Norfolk Southern Corp., CSX Corp. and Canadian Pacific all tried to reassure investors about crude oil shipments during their latest investment conferences.

“I don’t think that we are going to see any knee-jerk reaction. I don’t think we are going to see anything stopped in the Bakken,” said Canadian Pacific CEO Hunter Harrison said of the massive oil and gas fields that stretch from North Dakota and Montana into Canada.

The Bakken region is one of the places where railroads are hauling the majority of the oil because pipeline capacity hasn’t been able to keep up with production.

Through the fall, North Dakota oil drillers remained on pace to set a sixth consecutive annual record for crude oil production.

Justin Kringstad, director of the North Dakota Pipeline Authority, said the lower prices will prompt oil companies to look for ways to reduce costs, but he’s not yet sure how much of an effect it will have on production in the region.

“It’s still a little early to make any firm assessments,” Kringstad said.

Bakken Crude, DOT-111, Fracking, Oil conditioning, Oil producers, Oil stabilization, State regulation, Tank car retirement, Train braking systems, Train speed, Volatile gases

Maclean’s: So it turns out Bakken oil is explosive after all

Repost from Maclean’s Magazine

So it turns out Bakken oil is explosive after all

Producers in North Dakota’s Bakken oil fields have been told to make crude is safer before being shipped by rail
By Chris Sorensen, December 10, 2014

Oil TrainsAfter years of insisting oil sucked from North Dakota’s Bakken shale wasn’t inherently dangerous, producers have been ordered to purge the light, sweet crude of highly flammable substances before loading it on railcars and shipping it through towns and cities across the continent.

State regulators said this week that the region’s crude will first need to be treated, using heat or pressure, to remove more volatile liquids and gases. The idea, according to North Dakota’s Mineral Resources Director Lynn Helms, wasn’t to render the oil incapable of being ignited, but merely more stable in preparation for transport.

It’s the latest regulatory response to a frightening series of fiery train crashes that stretches back to the summer of 2013. That’s when a runaway train laden with Bakken crude jumped the tracks in Lac-Mégantic, Que., and killed 47 people in a giant fireball. In the accident’s immediate aftermath, many experts struggled to understand how a train full of crude oil could ignite so quickly and violently. It had never happened before.

Subsequent studies have shown that Bakken crude, squeezed from shale rock under high pressure through a process known as hydraulic fracturing, or “fracking,” can indeed have a high gas content and vapour pressure, as well as lower flash and boiling points. However, there remains disagreement about whether the levels are unusual for oil extracted from shale, and whether the classifications for shipping it should be changed.

Still, with more than one million barrels of oil being moved by rail from the region each day, regulators have decided to err on the side of caution and implement additional safety measures. For producers, that means buying new equipment that can boil off propane, butane and other volatile natural gases. Under the new rules, the Bakken crude will not be allowed to have a vapour pressure greater than 13.7 lb. per square inch, about the same as for standard automobile gasoline. Regulators estimate that about 80 per cent of Bakken oil already meets these requirements.

The industry isn’t pleased. It continues to argue that Bakken oil is no more dangerous than other forms of light, sweet crude, and is, therefore, being unfairly singled out. It has also warned that removing volatile liquids and gasses from Bakken crude would result in the creation of a highly concentrated, highly volatile product that would still have to be shipped by rail—not to mention additional greenhouse-gas emissions. It goes without saying that meeting the new rules will also cost producers money—at a time when oil prices are falling.

In the meantime, regulators on both sides of the border are taking steps to boost rail safety by focusing on lower speed limits, new brake requirements and plans to phase out older, puncture-prone oil tank cars. Earlier this year, Transport Minister Lisa Raitt said Canada would be “leading the continent” on the phase-out of older DOT-111 tank cars, which have been linked to fiery crashes going back 25 years. There are about 65,000 of the cars in service in North America, about a third of which can be found in Canada.

Oil prices, Oil producers

Bloomberg: Oil Crash Exposes New Risks for U.S. Shale Drillers

Repost of Bloomberg News  by API SmartBrief – Energy

Shale drillers see new challenges

December 19, 2014

U.S. shale oil production. Photographer: Andrew Burton/Getty Images

The three-way collar strategy that some drilling companies use to hedge oil and natural gas price risks could aggravate a cash crunch in the face of a steep slump in oil prices, according to this analysis. Although this hedge is cheaper than other strategies, it can expose companies to sharp price declines. “Because we’ve had high energy prices for so long, it could have given them a false sense of confidence. They picked a price they thought it wouldn’t go below. It has turned out to be very expensive,” said Ray Carbone, president of Paramount Options.   MORE: Bloomberg (12/19)

 

 

Crude By Rail, Light sweet crude, Oil Industry

Big oil producers in Texas shifting to crude-by-rail

Repost from Midland Reporter-Telegram
[Editor: Significant quote: ““The Permian Basin may be a lot larger than the Bakken and Eagle Ford combined….”  Note: I have added a map of the Permian Basin below this article.  – RS]

Basin operators increase interest in shipping oil by rail

By Mella McEwen. July 31, 2014

Oil Trains

Billions of dollars have been pouring into the Permian Basin in recent years as pipelines rush to help producers move their crude and natural gas to market.

Despite the investment in new pipelines and gathering lines and expansion of existing lines, takeaway capacity remains tight and producers are increasingly turning to the railroads for relief.

Using trains to move crude to market is nothing new, points out Bruce Carswell, West Texas operations manager for Iowa Pacific Holdings. “There has been, over time, crude oil moving by rail out of the Permian Basin almost since the beginning” of oil production, he said.

The increase in pipeline construction has not kept pace with the increase in production from drilling activity, he said, and the railroads his company operators are seeing increased shipments across the board.

Judging by the ringing of his phone, Christopher Keene, president and chief executive officer of Rangeland Energy, says demand for moving Permian Basin crude by rail is growing. His Sugar Land-based company is in the process of constructing the Rangeland Integrated Oil System in the Delaware Basin. A rail terminal is under construction near Loving, New Mexico that will open in October with truck-to-rail transload operations. Initial capacity will be 10,000 barrels a day, eventually growing to high-speed unit train loading capacity of over 100,000 barrels a day. It will be served by the BNSF Railway.

Rangeland is also planning its RIO Pipeline, which will connect the new RIO Hub in Loving to the RIO State Line Terminal and then Midland, which will provide connections to various terminals and interstate pipelines to Cushing and the Gulf Coast.

Carswell’s company operates two railroads, the Texas-New Mexico from Monahans to Hobbs and Lovington and the West-Texas Lubbock, which runs from Lubbock to Seagraves and a line that runs from Levelland to Whiteface.

While new pipelines will come online later this year and into next year, Carswell said, “But my observation is they’re drilling a lot more wells, too.”

Producers, observed Khory Ramage, president of Ironhorse Energy Partners, didn’t expect as big an increase in production as has been seen.

“It just accelerated,” said Ramage, whose company is building a rail terminal at Artesia. The company, which he founded with brother Kyle, already has laid 7,000 feet of track and connected to the BNSF main line. The first phase of the development calls for 18,000 feet of track to accommodate rail cars unloading proppants. By the time development of the unit train terminal is done, there will be nine-and-a-half miles of track with a loop track to hold 200 loaded railcars at once.

“The Permian Basin may be a lot larger than the Bakken and Eagle Ford combined,” he said. “Bringing production into and out of the market is vital.” He reported that his company is talking to two different entities about moving their production.

Keene said his company “just landed the 800 pound gorilla out there in the Permian Basin,” a name he was not yet ready to announce.

The rising use of rail to move crude production has caught the public’s attention recently in the aftermath of the derailment in Canada that killed over 40 people as well as derailments that have resulted in spills. New safety regulations are being proposed by the federal government, something Carswell said the industry welcomes because it has been waiting for the federal government to approve new standards for awhile.

“There’s been a fair amount of effort to improve the safety aspect of moving any flammable liquid,” he said.

Keene said he is glad there is a conversation about safety and said he sees three areas where change is occurring or needed: Safer rail cars need to be designed, the railways themselves need to be maintained and speed in certain areas should be addressed.

“I’m a firm believer rail is here to stay,” Keene said, “if it’s done the right way, in a safe and environmentally friendly manner. I think the industry is going to continue getting better.”

For his part, Ramage sees a need for both rail and pipelines, saying there will always be options for rail. He saw the impact on rail demand with the rise in production from the Bakken in North Dakota and Wyoming. That prompted him and his brother to form Ironhorse.

Keene said the Delaware Basin is different in that the crude seems to want to move by pipeline, but when it can’t, for whatever reason, producers are turning to railroads.

Another benefit of railroads, Carswell said, is they offer producers flexibility as to where to send their commodities, especially given the price differentials. “This week, shipments may go to the Gulf Coast but next month they may go to the West Coast or the East Coast.”

“What’s predominantly driving this is the price differentials” between West Texas Intermediate-Midland, West Texas Intermediate Cushing and even Louisiana Light Sweet, Keene said, a gap that has reached as much as $20. “That’s huge,” he said.

Another driver, he said, is pipeline constraints, and even though significant new and expanded capacity is expected in the coming year, he said price differentials are still playing a role.

Ramage said flexibility is important, especially as traditional pipeline destinations like Cushing, Oklahoma and the Gulf Coast are becoming inundated with light sweet crude. In the 1990s, he noted, refineries were retrofitted to process heavier, more sulfur-laden crudes that were being imported, making them slower to respond to the rise of light sweet crudes from unconventional shale plays.

That quality, Keene said, is the third driver in rail demand. “A lot of the new crude is outside pipeline specifications” of 42 API Gravity, though some pipelines have inched that up to 44 API Gravity. Much of the crudes now coming from shale plays are 45 to 55 API Gravity, he said and can even be considered condensate or natural gasoline.

Producers then have three options, Keene said: Rail the crude to a splitter, where the condensate is split into different components like distillates and naphtha, send it by rail to Canada for use as diluents or send it by rail to coastal terminals where, hopefully, the government will classify it as stabilized condensates that can be exported overseas.

Allowing exports could be key to the industry’s future, Ramage said.

“The only concern is if the government doesn’t consider the importance of lifting the export ban,” he said. “We may see prices decrease and the energy revolution we’re experiencing slow down.

Map of the Permian Basin: