Tag Archives: U.S. Commerce Department

Federal Regulation (U.S.), Oil exports, Oil imports, Tar sands crude

US eases crude oil export ban; allows trading with Mexico

Repost from Associated Press – The Big Story

US eases crude oil export ban; allows trading with Mexico

By Josh Lederman, Aug. 14, 2015 3:34 PM EDT

AssociatedPressEDGARTOWN, Mass. (AP) — The Obama administration approved limited crude oil trading with Mexico on Friday, further easing the longstanding U.S. ban on crude exports that has drawn consternation from Republicans and energy producers.

Mexico’s state-run oil company Petroleos Mexicanos, or Pemex, had sought to import about 100,000 barrels of light crude a day and proposed a deal last year in which Mexico would trade its own heavier crude for lighter U.S. crude. A major crude exporter for decades, Mexico has seen its oil production fall in recent years.

The license applications to be approved by the U.S. Commerce Department allow for the exchange of similar amounts of U.S. and Mexican crude, said a senior Obama administration official, who wasn’t authorized to comment by name and spoke on condition of anonymity. The official didn’t disclose whether all 100,000 barrels requested would be allowed.

While the Commerce Department simultaneously rejected other applications for crude exports that violated the ban, the move to allow trading with Mexico marked a significant shift and an additional sign that the Obama administration may be open to loosening the export ban. Exchanges of oil are one of a handful of exemptions permitted under the export ban put in place by Congress.

The export ban is a relic of the 1970s, after an OPEC oil embargo led to fuel rationing, high prices and iconic images of long lines of cars waiting to fuel up. But Republicans, including House Speaker John Boehner, have said those days are long gone, arguing that lifting the ban could make the U.S. an energy superpower and boost the economy.

Republicans from energy-producing states hailed the decision, as did trade groups representing the oil industry. Sen. Lisa Murkowski of Alaska, who has pushed for lifting the ban, called it a positive step but added that she would still push for full repeal “as quickly as possible.”

“Trade with Mexico is a long-overdue step that will benefit our economy and North American energy security, but we shouldn’t stop there,” said Louis Finkel, executive vice president of the American Petroleum Institute.

But environmental groups have opposed lifting the ban out of concern it would spur further drilling for crude oil in the U.S. Pemex’s proposal has also drawn criticism in Mexico, where residents are sensitive about the country’s falling oil production despite warnings from officials that Mexico could become a net importer if it doesn’t explore new oil reserves.

The move to trade crude with Mexico comes as the Obama administration weighs a long-delayed decision about whether to approve the Keystone XL pipeline. That proposed project would carry crude oil from Canada’s tar sands to refineries on the Texas Gulf Coast, so the influx of heavy crude from Mexico could play into a decision about whether the controversial pipeline is necessary.

Last month a Senate panel approved a bill championed by Murkowski that would lift the 40-year-old-ban — plus open more areas of the Arctic, Gulf of Mexico and the Atlantic Ocean to oil and gas exploration. No Democrats on the committee voted for the bill. The environmental group Oceana called it “a massive give-away to Big Oil.”

Bakken Crude, Crude By Rail, Massive increase in crude-by-rail

Recent history: the rise of Bakken crude by rail

Repost from Bloomberg
[Editor: Significant quote: “‘The East Coast was left on a figurative island when everyone in the middle of the country got access to low-priced crude coming out of the Bakken, and oil by rail was its lifeline….The next challenge is exports.'”  – RS]

Bakken Rail Bet on a Feeling Pays Off for Global’s Slifka

By Lynn Doan Aug 1, 2014

When Eric Slifka landed in North Dakota’s Bakken shale field three years ago, he says he was overcome by “this feeling of a lot of growth. You could feel the pressure.”

The fervor was so strong that Slifka, chief executive officer of Global Partners LP (GLP) in Waltham, Massachusetts, decided in that single trip to carry Bakken crude on railcars that his company had been using to haul ethanol to New York. His first full trains started a wave of deliveries that rescued East Coast refiners from the brink of closing amid the rising cost of oil imported from Africa and the North Sea.

Shipments of U.S. oil by rail have since doubled to more than 1 million barrels a day, sparking a national debate over safety, and volumes may mount if the government allows more exports of crude, easing a four-decade ban. Global and other midstream carriers are preparing themselves for a chance to serve that market.

“The East Coast was left on a figurative island when everyone in the middle of the country got access to low-priced crude coming out of the Bakken, and oil by rail was its lifeline,” Bradley Olsen, managing director at energy investment bank Tudor, Pickering, Holt & Co., said by phone from Houston. “The next challenge is exports.”

Shale Boom
Global Partners, a tax-exempt master limited partnership with a $1.19 billion market value, was worth half that when Slifka flew into the Bakken in 2011 to meet a local entrepreneur who owned a rail facility along the Canadian Pacific (CP) line. North Dakota’s oil production had surged by a record 42 percent to 310,000 barrels a day. It would go on to surpass 1 million this April, helping turn the U.S. into the world’s largest oil producer.

The flood of domestic crude has put pressure on the federal government to lift a ban on U.S. exports imposed by Congress in 1975 in response to the Arab oil crisis. Crude-by-rail companies will have to compete with pipelines to bring supplies to the coast if the prohibition is lifted, Olsen said.

“Once you’re trying to export, you’re just trying to reach the water, and you don’t care about going to a specific refinery,” he said. “So you’re just as likely to ship it on a pipeline to get it to a dock.”

New Rules
The boom has also ignited regulatory battles from coast to coast. The derailment and explosion of an oil train in Lac-Megantic, Quebec, in July 2013 that killed 47 people thrust rail operations into the limelight.

In New York, Global is facing a ban on expanding its Albany operations to include tar sands. In Oregon, state regulators said in March that Global unloaded more oil than permitted at its Clatskanie terminal that sends Bakken crude along the Columbia River by barge.

Global said the Oregon complex is “in full compliance” with regulations in a March 5 e-mail. It sent a letter to Albany County on March 14 describing the county prohibition as “arbitrary and capricious.”

The U.S. Department of Transportation laid out a plan last week to phase out a generation of tank cars for crude shipments and impose speed limits, braking requirements and route stipulations.

While the industry is working with regulators to determine the safest way to ship oil, Slifka, now 49, said at an energy conference in Washington July 14 that “rail may actually be the safest mode of transportation for crude.”

Refinery Squeeze
On his first visit three years ago, so many companies were racing into the region to squeeze out oil from the Bakken that Slifka couldn’t find a hotel room. He said he stayed in Estevan, Saskatchewan, and drove 30 miles across the Canada-U.S. border to meet Don Bottrell, who owned a women’s clothing business, oil and gas wells and a trans-loading site in the area.

The biggest wave of refinery closings had meanwhile struck the East Coast as the price of North Sea Brent crude, the international benchmark, climbed. Sunoco Inc. was threatening to shut its Philadelphia refinery if it didn’t find a buyer, and it idled the Marcus Hook plant in Pennsylvania. ConocoPhillips halted output from its Trainer complex, and Hovensa LLC closed a plant in the U.S. Virgin Islands that supplied the region.

The North Sea grade cost as much as $8.52 a barrel more than West Texas Intermediate today, the highest premium since June 24. WTI was at $97.21 at about 11:16 a.m. in London and has traded below the international benchmark since the end of 2010.

Crude Champagne
“East Coast plants had the highest costs because they ran the champagne of oils, very light, very low-sulfur crudes predominantly from West Africa,” Kevin Waguespack, senior vice president of energy consulting firm Baker & O’Brien Inc., said by telephone from Houston July 28. “The Bakken reset their feedstock costs by several dollars a barrel. They’ve gone from losing to winning.”

EOG Resources Inc. (EOG), at the time the second-largest oil producer in the formation, moved its first trainload on BNSF Railway Co.’s tracks to Stroud, Oklahoma, on Dec. 31, 2009.

The first dedicated train of Bakken crude arrived at Global’s fuel terminal in Albany, which had handled ethanol and refined fuels such as gasoline, on Oct. 25, 2011.

Others followed. Enbridge Inc. (ENB)’s 80,000-barrel-a-day Eddystone rail complex outside Philadelphia received its first train in May. The Carlyle Group (CG) and Sunoco formed a joint venture to keep the Philadelphia refinery open and are adding a rail track that will take as many as 14 unit trains of Bakken oil a week. Delta Air Lines Inc. (DAL) bought Conoco’s Trainer plant and on July 21 signed a contract for 65,000 barrels a day, more than a third of the plant’s capacity, that will initially arrive by rail.

Global Expansion
Global bought a majority interest in two Bakken terminals after that first delivery to the East Coast, expanded its complex in Albany so it could send barges of oil down the coast, and secured a five-year contract to supply Phillips 66 (PSX)’s 238,000-barrel-a-day Bayway refinery in New Jersey in 2013.

The company bought the complex in Clatskanie, near Portland, the same year. On July 8 Global said it was building its first Gulf Coast oil-by-rail terminal in Port Arthur, Texas, as a destination for heavy crude from western Canada.

“If you look back historically on where oil is coming from and how it was transported, it has completely changed,” Slifka told an oil industry conference in Washington July 14. “You might as well take a pipeline map and turn it upside down.”

With the Port Arthur terminal, Global is positioned for the flood of petroleum that may soon be leaving the nation’s shores should federal policy makers relax the decades-old export ban. In June, the Commerce Department granted Enterprise Products Partners LP (EPD) and Pioneer Natural Resources Co. (PXD) permission to export ultra-light oil known as condensate.

“Nobody can be sure where the market is going or what we will be carrying, but we are sure that we have positioned ourselves to carry whatever it demands,” Slifka said at the meeting in Washington.

Reporter on this story: Lynn Doan in San Francisco.  Editors responsible for this story: Dan Stets and David Marino at Bloomdale, and Alaric Nightingale, Rachel Graham.