Category Archives: North American light crude oils

"Rolling storage", Crude By Rail, Fracking, Insurance and liability, North American light crude oils, Oil storage, Rail Safety, Rail tank cars, Shale oil

WALL STREET JOURNAL: The New Oil-Storage Space: Railcars

Repost from the Wall Street Journal

The New Oil-Storage Space: Railcars

U.S. market is so oversupplied with oil that traders are experimenting with a new place for storing excess crude
By Nicole Friedman and Bob Tita, Feb. 28, 2016 9:09 p.m. ET
Rail tanker cars sat on tracks at the Red River Supply Inc. rail yard in Williston, N.D., in February 2015.
Rail tanker cars sat on tracks at the Red River Supply Inc. rail yard in Williston, N.D., in February 2015. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

The U.S. is so awash in crude oil that traders are experimenting with new places to store it: empty railcars.

Thousands of railcars ordered up to transport oil are now sitting idle because current ultralow crude prices have made shipping by train unprofitable. Meanwhile, traditional storage tanks are running out of room as U.S. oil inventories swell to their highest level since the 1930s.

Some industry participants are calling the new practice “rolling storage”—a landlocked spin on the “floating storage” producers use to hold crude on giant oil tankers when inventories run high.

The combination of cheap oil and surplus railcars has created a budding new side business for traders. J.P. Fjeld-Hansen, a managing director for trading company Musket Corp., tested using railcars for storage last year and found he could profit by putting the oil aside while locking in a higher price to deliver it in a later month.

The company built a rail terminal in Windsor, Colo., in 2012 to load oil shipments during a boom in U.S. oil production. Now, Mr. Fjeld-Hansen says, “The focus has shifted from a loading terminal to an oil-storage and railcar-storage business.”

Energy Midstream, a trading company based in The Woodlands, Texas, stored an ultralight oil known as condensate on Ohio railcars last month for about 15 days before shipping it to a buyer in Canada.

Dennis Hoskins, a managing partner at Energy Midstream, says there are so many unused tank cars that he is constantly hearing from railcar owners hoping to put them to use. “We get offers everyday for railcars,” he said.

The use of railcars for storage could be limited by the cost of track space and safety and liability concerns that have followed a string of high-profile transport accidents. Issues range from leaky cars to the risk of collisions and fires.

Federal regulations require railroads that store cars loaded with hazardous materials like oil to comply with strict storage and security measures to keep the cars away from daily rail traffic. Railroads and users face responsibility for leaks, collisions or other mishaps.

“I don’t want the liability,” said Judy Petry, president of Oklahoma rail operator Farmrail System Inc. “We prefer not to hold a loaded car.”

Still, the oil has to go somewhere. The surge in shale-oil production has created a massive glut that the industry is struggling to absorb. BP PLC Chief Executive Bob Dudley joked in a speech this month that by midyear, “every storage tank and swimming pool in the world will be filled with oil.”

Khory Ramage, president of Ironhorse Permian Basin LLC, which operates a rail terminal in Artesia, N.M., said he hears regularly from traders looking to store crude in his railcars.

Crude-storage costs “have been accelerating, just due to the demand for it and less room,” he said. “You’ll probably start seeing this kick up more and more.”

U.S. crude inventories rose above 500 million barrels in late January for the first time since 1930, according to the Energy Information Administration.

The cheapest form of storage—underground salt caverns—can cost 25 cents a barrel each month, while storing crude on railcars costs about 50 cents a barrel and floating storage can cost 75 cents or more. The cost estimates don’t include loading and transportation.

Railcars hold between 500 and 700 barrels of oil, less than a cavern, tank or ship can store.

The use of U.S. railcars to transport large volumes of oil picked up steam a few years ago as a byproduct of the fracking boom. Fields sprung up faster than pipelines could be laid, so producers improvised and shipped their output to market by rail. Companies soon realized railroads offered greater flexibility to transfer oil to whomever offered the best price. Some pipeline companies even joined the rail business, building terminals to load and unload oil. U.S. oil settled Friday at $32.78 a barrel, down nearly 70% from mid-2014.

The plunge in oil prices brought that activity to a halt. Analysts estimate there are now as many as 20,000 tank cars—about one-third of the North American fleet for hauling oil—parked out of the way in storage yards or along unused stretches of tracks in rural areas.

Producers and shippers who signed long-term leases for the cars during the boom are stuck paying monthly rates that typically run $1,500 to $1,700 per car. Traders can pay those prices and still profit. Oil bought at the April price and sold through the futures market for delivery a year later could net a trader $8.07 a barrel, not including storage or transportation costs.

As central storage hubs fill up, oil companies are more willing to pay for expensive and remote types of storage, said Ernie Barsamian, principal of the Tank Tiger, which keeps a database of companies looking to buy and sell oil storage space.

The Tank Tiger posted an inquiry Wednesday on behalf of a client seeking 75,000 barrels of crude-oil storage or space to park 100 to 120 railcars loaded with crude.

Mr. Barsamian likened the disappearance of available storage to a coloring book where nearly all the white space has been filled in.

“You’re getting closer to the edges,” he said.

Crude By Rail, Empty tank cars, Federal Regulation (U.S.), Freedom of Information Act (FOIA), Hazardous cargo transparency, High Hazard Flammable Trains (HHFTs), North American light crude oils, Oil prices, Open-records request, Parked trains, Rail industry, Residue train

Held up in court for a year, Maryland oil train reports outdated

Repost from McClatchyDC

Held up in court for a year, Maryland oil train reports outdated

By Curtis Tate, September 12, 2015

HIGHLIGHTS
•  McClatchy received reports it asked for in 2014
•  Documents contained data previously revealed
•  Economics of crude by rail have shifted since

After more than a year, McClatchy finally got the oil train reports it had requested from Maryland.

And they were badly out of date.

Last year, McClatchy filed open-records requests in about 30 states for the documents, and was the first news organization to do so in Maryland, in June 2014.

Maryland was poised to release the records in July 2014, when two railroads, CSX and Norfolk Southern, sued the state Department of the Environment to block the disclosure.

Finally last month, a state judge ruled in the favor of the release, marking the first time a court had affirmed what many other states had already done without getting sued.

The documents McClatchy and other news organizations ultimately received were dated June 2014, not long after the U.S. Department of Transportation began requiring the railroads to notify state officials of shipments of 1 million gallons or more of Bakken crude oil.

After more than a year, however, the economics of shipping crude by rail had changed substantially.

Amid a slump in oil prices, refineries once receiving multiple trainloads of North American crude oil every day have switched, at least temporarily, to waterborne foreign imports.

The trend is reflected from the East Coast to the West Coast, where long strings of surplus tank cars have been parked on lightly used rail lines, generating rental income for small railroads but also the ire of nearby residents.

The documents released in Maryland show that in June 2014, Norfolk Southern was moving as many as 16 oil trains a week through Cecil County on its way to a refinery in Delaware.

But McClatchy has known that since August 2014, when it received a response to a Freedom of Information Act request from Amtrak.

The Delaware News Journal reported that the PBF Refinery in Delaware City, Del., now receives only about 40,000 barrels a day of crude by rail. That’s about 56 loaded tank cars, or half a unit train, nowhere close to the volume of mid-2014.

The June 2014 Maryland documents also show that CSX was moving as many as five oil trains a week on a route from western Maryland through downtown Baltimore toward refineries in Philadelphia.

But that had been clear since at least October 2014, when the Pennsylvania Emergency Management Agency released its oil train reports showing an identical number of CSX trains crossing from western Pennsylvania into Maryland, then back into southeast Pennsylvania.

CSX told the Baltimore Sun that it had not regularly moved a loaded oil train through Baltimore since the third quarter of 2014. The company had earlier told the newspaper that it moved empty oil trains through the city and state.

Federal regulators never required railroads to report empty oil train movements.

The vast majority of loaded CSX oil trains move to Philadelphia via Cleveland, Buffalo, Albany, N.Y., and northern New Jersey, according to records from Ohio, Pennsylvania and New York.

Bakken Crude, Enbridge, North American light crude oils, Tar sands crude, Valero Benicia Refinery, Valero Energy Corporation

Valero will soon have fifth refinery processing 100 percent North American crude

Repost from the San Antonio Business Journal
[Editor: Note brief reference to Valero’s Benicia Refinery at end of this article.   – RS]

Valero will soon have fifth refinery processing 100 percent North American crude

By Sergio Chapa, Sep 11, 2015, 6:44pm CDT
File photo Valero Energy Corporation's Jean Gaulin Refinery in Quebec City
File photo – Valero Energy Corporation’s Jean Gaulin Refinery in Quebec City

San Antonio-based Valero Energy Corp. is expected to have its fifth refinery capable of processing nothing but North American crude by the end of the year.

Valero (NYSE: VLO) revealed in an investors’ presentation released earlier this week that its Jean Gaulin Refinery in Quebec will be processing 100 percent North American crude oil by the end of the year.

Company figures show that the refinery was 100 percent dependent on foreign crude oil in first quarter 2013, but production from the tar sands region of Canada and the shale plays of the United States has dramatically changed the situation.

The Jean Gaulin Refinery is processing about 80 percent North American-sourced crude oil but will be at 100 percent once a project to modify the Enbridge Line 9B Pipeline is completed in the fourth quarter. The project will reverse the flow of the pipeline to enable oil from the tar sands region of Alberta to flow east to Valero’s refinery in Quebec.

Most refineries were built decades ago and were configured to process to Middle Eastern oil, but Valero spokesman Bill Day told the San Antonio Business Journal that the Jean Gaulin Refinery is lined up to be the fifth of the company’s refinery capable of processing 100 percent North American crude oil.

Day said Valero’s Ardmore, McKee, Memphis and Three Rivers refineries can already process 100 percent North American crude oil, while other plants are processing an increasing amount of North American crude.

The investors presentation shows that Valero is expanding its capacity to process a total of 185,000 barrels per day of light sweet crude from the Eagle Ford and other shale plays at the company’s McKee, Houston and Corpus Christi refineries in Texas.

Day said that the addition of the Keystone XL Pipeline would enable Valero to replace foreign heavy crude with heavy crude from Canada. He also noted that a proposed rail terminal at the company’s Benicia refinery in California, would enable Valero to offset foreign crude brought in by ship with North American crude brought in by rail.

Bakken Crude, Canadian refineries, Export of North American crude, North American light crude oils, Oil prices

U.S. exporting more crude oil to Canada

Repost from Bloomberg Business News

Canadian Refiners Set to Buy More U.S. Oil With Wider Discount

By Robert Tuttle, March 18, 2015 4:14 PM PDT 

(Bloomberg) — Cheaper North American oil is poised to replace West African and Middle East cargoes at eastern Canadian refineries with U.S. crude prices at the lowest level compared with the international benchmark in 14 months.

Imports to Canada from outside North America averaged 244,089 barrels a day this month through March 15, down 27 percent from a year earlier, according to New York-based ClipperData, which tracks tanker shipments.

Canada, the world’s fifth-largest oil supplier, produces most of its oil in the western province of Alberta and exports it south to the U.S. A lack of pipelines means Canada’s eastern refineries depend on imports by tanker and train.

U.S. export “volumes have been growing pretty exponentially,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone Wednesday. U.S. oil is “going to Eastern Canadian refineries and displacing waterborne light crude.”

U.S. crude oil exports averaged 478,000 barrels a day the week ended March 13, up almost eightfold from a year earlier, preliminary data from the Energy Information Administration show. Canada, the only country that U.S. producers can export to without restrictions, receives the bulk of the shipments.

Oil has flowed north as West Texas Intermediate crude’s discount to Brent averaged $9.43 a barrel this month from $2.41 in January as U.S. stockpiles rose to a 458.5 million barrels, the most in decades.

The U.S. displaced Algeria in 2013 as Canada’s biggest source of imported oil and accounted for about half of imports in the first eight months of last year, the country’s National Energy Board said in a November report. The trend was driven by availability of tight oil from North Dakota as well as Texas, New Mexico and Colorado.

Bakken crude from North Dakota traded at about $40 a barrel today versus $55 for oil from West Africa, according to data compiled by Bloomberg.

“Especially with lower prices, a difference of a dollar or so in transport costs is significant,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Wednesday. “If you can bring it in from the U.S. rather than West Africa, it’s a little closer and cheaper.”

Expanded rail capacity has linked U.S. oil producers with Canada, Spector said. The movement parallels the movement of Bakken crude to U.S. East Coast by rail, which cut the region’s imports of crude from Nigeria by half in two years and from Algeria by 81 percent, EIA data show.

“The maritime provinces of eastern Canada do resemble the U.S. East Coast in many ways,” Antoine Halff, head of the International Energy Agency’s oil industry and markets division, said in a March 18 phone interview. “When Bakken crude started being railed to the U.S. East Coast in significant quantities, it displaced imports from West Africa.”