Tag Archives: Crude by rail

Niobrara oil depends on railroads to get to market, say feds

About 64 percent of the crude oil produced in the Niobrara formation, the rock layer at the center of Colorado’s oil boom, gets to market via railroad tank cars, according to a new analysis by the federal Energy Information Administration.

The EIA on Monday said it would start providing monthly data on how much crude oil moves around the nation via rail, in addition to information about pipeline, tanker and barge crude-oil traffic.

“The new crude-by-rail data provides a clearer picture on a mode of oil transportation that has experienced rapid growth in recent years and is of great interest to policy makers, the public, and industry,” said Adam Sieminski, EIA’s administrator.

via Niobrara oil depends on railroads to get to market, say feds – Denver Business Journal.

Critics press North Dakota to make Bakken oil safer, despite costs

North Dakota environmentalists want oil companies to reduce volatile gasses in Bakken crude. Regulators, however, say they’re taking a different tack that’s cheaper for the industry and still improves safety.

The gasses remain a flashpoint for producers, environmental and safety groups concerned about transporting the highly flammable Bakken crude. Oil train shipments from the Bakken have skyrocketed in recent years, heightening the worries.

Environmental groups have been pushing the state to require that producers install equipment to stabilize the crude using a process that heats the oil to a higher temperature to release more gasses.

North Dakota officials, however, say the more stringent heating requirement would cost oil companies as much as $2 per barrel.

Instead, state inspectors starting April 1 will check oil at well sites to make sure the vapor pressure runs no greater than 13.7 pounds per square inch of Reid Vapor Pressure, the measurement standard of volatile gases in crude oil. Oil involved in a recent West Virginia derailment and explosion had a vapor pressure slightly higher, 13.9 psi.

The North Dakota standard is tougher than the 14.7 psi federal standard for crude oil, although it’s still more volatile than gasoline sold in Minnesota in the summer, which has a maximum vapor pressure of 9.

Regulators say their method will maintain safety but cost an estimated 10 cents a barrel, compared to the $2 per barrel for the stabilization gas removal process. Companies found violating the new regulation can be fined $12,500 per day.

via Critics press North Dakota to make Bakken oil safer, despite costs | Grand Forks Herald.

Oil-by-rail economics suffers amid narrowing spreads | Financial Post

Rail was seen as a lifeline for Canadian oil producers in the absence of new pipelines, but narrowing spreads between Canadian oil and global benchmarks in recent months is turning the business model uneconomic in an already depressed price environment.

via Oil-by-rail economics suffers amid narrowing spreads | Financial Post.

Rail companies play down role of crude oil shipments

Investors in the rail industry lately have measured their excitement by the increasing number of carloads of crude oil being shipped from the Bakken oil fields in North Dakota to refineries.

Crude oil shipments in the first nine months of 2014 amounted to about 362,000 carloads — more than double that seen the first nine months of 2012, according to the Association of American Railroads.

Yet the recent plunge in oil prices has chewed away at the stock prices of the major rail lines, as investors fear cuts in oil production could be at hand.

Rail executives say they aren’t dependent just on one industry. They have responded to the share price declines by reminding investors that crude oil is but one of many booming sectors that support rail. What’s more, they argue that rail — along with American drivers — has been celebrating the savings at the gas pump.

CSX Corp. announced last week its fuel costs in the fourth quarter decreased 12 percent from the year-ago quarter almost exclusively on a 49-cent drop in the per-gallon price of fuel. The Florida-based Class I carrier, with rail lines through Pittsburgh and much of the eastern United States, consumed 5.6 percent more fuel, yet saved $63 million directly attributed to the price decline.

“From any indication that we see, it’s a positive experience for the American taxpayer, for the American economy,” Clarence Gooden, CSX chief sales and marketing officer, told investors during the company’s earnings call. “So I think lower crude oil prices is very positive for our economy and very positive for CSX.”

Also positive for CSX were shipments of crude oil to East Coast refineries, as well as sand and chemicals to shale well sites. Railroads have particularly benefited from the fracking boom given the lack of pipeline infrastructure — its main competitor in moving oil and gas to market.

Energy-related carloads now make up nearly half of CSX’s industrial shipments and factored into its record annual revenue of $12.7 billion in 2014.

However, asked what would happen if shale production evaporated, Mr. Gooden downplayed its role and pointed out that crude oil by rail is less than 2 percent of the company’s business. Fuel costs, meanwhile, make up 15 to 20 percent of its annual expenses.

via Rail companies play down role of crude oil shipments.

Bakken Update: Oil Prices In 2015 – Seeking Alpha | Michael Filloon

The United States Oil ETF (NYSEARCA:USO) was one of the top financial topics of 2014. It had performed admirably early in the year, but oil prices crashed and US unconventional economics have come into question. The selloff in oil has made little sense, and when it began many funds were overweight E&Ps, and hit hard trying to get out of those positions. Others have lost considerable investments trying to call the bottom in oil. The question is where will oil find a bottom, and when will this occur? Many think we are already there, but some estimates have oil going lower in 2015. We will go over the reasons we feel why oil is headed lower and how we are trading it.

We have been bearish oil and covered this in several write ups on Bakken operators that may not be economic at today’s oil price. Keep in mind the Bakken faces a more difficult situation as diffferentials are greater than in other US plays. In 2014, the average Bakken differential was approximately $11/bbl or $12/bbl less than WTI. We expect the average in 2015 to be between $13/bbl and $14/bbl. Currently this differential is closer to $16/bbl and we think its possible it will widen more. Differentials, whether Bakken, Permian and Eagle Ford crude, are different from one area to the next as they reflect several things like cost of transport, type of crude, demand, etc. The widening of Bakken differentials are mostly due to transport methods, but also we are seeing a decrease in demand as inventories continue to build in the US.

The Bakken doesn’t have the advantages of Texas crude, as there is only one small refinery in Mandan, North Dakota. The Eagle Ford is only a short distance from some of the largest, and most complex US refineries. Since there is limited pipe capacity, rail has become the main driving force to get Bakken crude out of the state. North Dakota production continues to outpace pipeline construction, but Pipelines cost hundreds of millions to billions of dollars to construct. Midstream companies won’t break ground until it has about 80% of the pipe filled via contract. Pipelines also like longer term deals. The rails are much easier, as costs are lower. Rail loading and unloading terminals cost much less and can be constructed quicker. Railroad crude transport deals are much shorter where three year deals are common. The pipeline advantage is cost, as its much cheaper than railing crude. We would expect that once pipeline capacity meet current production, Bakken differentials will tighten to approximately $6/bbl.

Low Oil Prices Unlikely to Hurt Railroads Much

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.

via Carloads of crude oil spiked well over 4,000 percent between 2008 and last year as production boomed and the cost for a barrel of oil soared.

Greenbrier: 3-Point Strategic Plan Launched 3 Years Ago Is Bearing Fruit | Seeking Alpha – Michael Fitzsimmons

The Greenbrier Companies (NYSE:GBX) is a leading provider of railcars, railcar wheels and parts, leasing, and other railroad services. This year, GBX formed a 50/50 joint venture with Watco Companies – GBW Railcar Services, LLC – the largest independent railcar repair shop network in North America. Greenbrier is therefore in an excellent position to benefit from new mandatory vapor reduction and tanker car safety regulations facing the crude oil transport industry. GBX began a strategic transformational plan three years ago. The first and most important initiative of the plan was to implement a flexible and low-cost manufacturing footprint to expand margins. The effort is coming to fruition just in time for a big uptick in orders. The combination means a very bullish outlook for 2015-2016. A recent sell-off in the stock, combined with new tank car safety regulations, increasing revenue growth, and expanding margins makes GBX a STRONG BUY.

via Greenbrier: 3-Point Strategic Plan Launched 3 Years Ago Is Bearing Fruit – The Greenbrier Companies, Inc. (NYSE:GBX) | Seeking Alpha.

Railcar Bottleneck Looms for Oil – WSJ

One-third of the crude oil hauled from North Dakota’s Bakken Shale region by railcars could be forced off the tracks and into expensive truck fleets in the next four years, according to a railcar-industry trade group.The Railway Supply Institute says there aren’t enough shops to retrofit cars carrying flammable liquids in time to meet proposed federal deadlines, and that tens of thousands of cars will be idled as a result. The U.S. Department of Transportation wants tank cars carrying crude oil to be retrofitted with more puncture-resistant features in two years, and those carrying ethanol to be upgraded in three years. Those carrying other flammable liquids, such as heating oil and chemicals, have five years to be upgraded.“They can’t all be modified by the deadline, and the only alternative would be to yank them out of service,” said Kevin Neels, a transportation consultant for the Brattle Group, which studied the impact of the proposed regulations for the railway institute, which represents railcar-leasing companies and car manufacturers. The DOT is expected to complete standards and compliance deadlines for tank cars by early next year.

via Railcar Bottleneck Looms for Oil – WSJ.

EIA plans US condensate, rail data in 2015

The Energy Information Administration expects to report condensate production volumes early next year and movements of crude by rail by the summer, agency head Adam Sieminski said today.The agency is continuing to study new areas in need of reporting, including storage volumes on the Texas coast, he said on the sidelines of the Deloitte Oil & Gas conference in Houston, Texas.EIA expects to begin surveying production data directly, including API gravity information, leaving behind a patchwork of state-level production data on which the agency currently relies.”I think by January, I hope, we’re going to be able to start collecting data,” Sieminski said.Rapidly changing US energy development has exposed gaps in the agency’s data, relied upon by both policy makers and industry to help monitor the sector. Condensate, previously a marginal part of crude production, has received special interest as current US policy allows producers of growing volumes of the high-gravity oil to lightly distill and then export it.EIA will continue to rely on US Commerce Department data to track condensate exports, Sieminski said.The agency also plans to begin offering third-party data next year on crude volumes moved by rail. EIA will evaluate whether it will still need to develop its own surveying for a crude logistics method particularly important to the US Atlantic and west coasts.Federal regulations limit the agency’s ability to survey companies for the information without administrative approval. Third-party data is, at this point, faster, he said.But EIA would need administrative approval to modify surveys to gather more information on available storage in the Houston area on the Texas Gulf coast. Sieminski saw a need for such figures, similar to what the agency collects on the crude storage hub at Cushing, Oklahoma.

via News – Argus Media.

AIG unveils $1-billion railway insurance policy as crude-by-rail soars

As crude-by-rail shipments soar, insurance company American International Group Inc. AIG is offering rail companies a $1-billion U.S. cushion against catastrophic derailments.The casualty-liability policy offered by the New York-based company is believed to be the largest available, and is a sign of the perceived risks involved in the burgeoning business of moving oil by train.

via AIG unveils $1-billion railway insurance policy as crude-by-rail soars – The Globe and Mail.