Skip to comments.Eastern refiners save on western crude
Posted on 06/12/2012 5:12:20 AM PDT by thackney
Cheap western crude prices are driving the North American oil industry to find creative ways to ship oil east where refineries are struggling to remain competitive.
In recent weeks, the first rail shipment of Bakken crude oil from North Dakota arrived in Saint John amid word Irving Oil Ltd. is close to reaching a deal with an American fuel broker that would involve regular shipments of oil arriving by rail.
The net savings for shipping the crude oil, after accounting for the cost of transportation, are estimated to be about $7 to $10 per barrel, according to Pavel Molchanov, an energy analyst with Raymond James and Associates Inc., in Houston.
"It's obviously not very cheap to ship crude from the mid-section of North America to the far reaches of Atlantic Canada, but it is cheaper than buying imported crude," he said.
The discount between Bakken oil and Brent crude, the European benchmark that east coast refineries rely on for a majority of their stock, has averaged $27.75 a barrel this year, according to data compiled by Bloomberg.
Crude oil from the Bakken oilfields is cheaper than its counterparts because it is easier to extract and to refine into lighter products such as gasoline, diesel and jet fuel.
Marathon Petroleum Corp. (MPC), an independent American refiner with a network of pipelines, barges and rail operations, estimated in November that the cost of moving Bakken crude to the U.S. east coast would be about $18 a barrel.
The savings bode well for both railway companies as well as east coast refineries. Last month, Imperial oil announced its Dartmouth refinery, after years of losing money, would be put on the market.
"Many refineries in Eastern Canada currently import oil from offshore and the opportunity to be able to connect the growing supply of western Canadian oil with refineries and the demand in Eastern Canada is a primary objective of what the industry is trying to do," said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.
"We would like to replace the foreign crude imports that are coming into that market now and they are being looked at through rail proposals as well as pipeline proposals that have been brought to the fore," he said.
According to a report published this week by CAPP, the industry will continue to rely on pipelines as the dominant mode of transportation for crude oil, but in the short-term, crude oil transported by rail will increase sharply due to the ability to use rail capacity relatively quickly and in small increments as needed.
In the span of just one year, rail exports from North Dakota have risen to about 225,000 barrels per day in March from 50,000 barrels per day a year earlier, according to estimates by the North Dakota Pipeline Authority.
According to Statistics Canada, about 8,823 rail cars were loaded with oil and other petroleum products in March 2011, compared with 5,602 rail cars a year earlier.
In addition, TransCanada Corp. recently introduced the concept of a new pipeline system to transport about 625,000 barrels per day of western Canadian crude oil across the country to Montreal and potentially further east to Saint John.
"It would be a substantial benefit to have this infrastructure program because, should it be built, it will create lasting jobs, not only in the manufacturing industry but in the oil-refining business in Saint John," said John Williamson, MP for New Brunswick Southwest.
Tankers on the Great Lakes.
If you first have to use rail to get to a Great Lake port, it likely is cheaper to stay on rail to the refinery.
I don’t think the canal is wide enough for the big tankers.
I wonder if the extra railcars will be from Buffett owned BNSF? Once again a good post by the wizard of Oil and Gas at freerepublic ...thackney
It would pass through the Welland Canal in Ontario from lake Erie to Ontario.
However, once it is loaded into a tanker in North Dakota or Saskatchewan or Manitoba it would be cheaper to rail it via the BNSF, CN or CPRS all the way to New Brunswick.
It did not state in the article which railroute they are using. This will also open up other refineries to this domestic crude.
We heard about this from JD Irving a few weeks ago.
You can thank Obama for blocking the Keystone Pipeline that costly shipments by rail to New Brunswick refineries result.
It would be far cheaper to ship Canada and North Dakota oil to the Texas and Louisiana Gulf Coast via an expanded Keystone Pipeline.
Obama is doing all he can to bankrupt America (and Canada for that matter).
It could be from the BNSF , the CPRS or the CN. The BNSF and CPRS both serve North Dakota. The CN is within 30 miles of the ND border.
Yes, this is one of the main reasons Buffet bought the BNSF.
The CN has the advantage because they own the tracks all the way to New Brunswick. The BNSF and CPRS do not go that far east and would involve the MMA or other regional carriers.
Not to mention the Soo Locks are closed January through March.
Actually the Keystone pipeline is more about getting the heavy crude from the oil sands in Alberta to the refineries in Texas. The crude out of the Balken is much better quality and can go to refineries that the Alberta goop can not.
I will defer to Thackney’s expertise on all other oil matters. I just barley scraped by inorganic chemistry. Please correct me if I am wrong.
The portion to Texas from Cushing is already cut out into a separate project now called the Gulf Coast Pipeline.
Due to a bottleneck of delivery from Cushing, OK to refineries and due to the additional oil flow from Bakken, West Texas, Canada and some others, Cushing needs more pipelines to more refineries. Mostly the Gulf Coast has significant spare capacity (above local oil production) that currently runs on imported oil. The Gulf Coast Pipeline is not the only recent project for this market. The Seaway Pipeline recently reversed directions to bring oil south instead of North from Freeport, Texas. Other projects will continue to add capacity from Cushing to Gulf Coast area including TransCanada’s Cushing Marketlink.
The Keystone XL pipeline project now runs from Hardisty, Alberta to Steele City, Nebraska. There is capacity from this point. One arm of the pipeline runs east through Missouri for deliveries into Wood River and Patoka, Illinois; another arm runs south through Oklahoma for deliveries into Cushing, Oklahoma.
PN Bakken: California refiner loves North Dakota oil
The April 8 edition of The Californian features an article about a strategy being used by a refiner in the heart of California oil country of buying large amounts of crude from North Dakota and paying to have it hauled by train to Bakersfield, Calif., where its turned into mostly gasoline and diesel for the California market.
The ingenious part of this approach is that the company is turning a bigger profit using midcontinent crude than if it were buying roughly the same grade oil strictly in Kern County, Calif., the article by John Cox reported.
More refiners will likely follow
Strange as it may seem to purchase oil from afar when so much crude is produced nearby, theres every reason to believe other refineries will soon follow 26,000-barrel-a-day Kern Oil & Refinings lead,
At least one large West Coast refinery is considering the move. Tesoro Corp. said it was spending $50 million to build new rail loading and unloading facilities at its 120,000 bpd refinery in Anacortes, Wash.
The upgrade would allow it to receive up to 30,000 bpd of North Dakota crude up from 1,000 to 2,000 bpd now. (The project aimed to cut Tesoros use of Alaska North Slope crude. In March, construction began and Tesoro ordered about 800 rail cars, which it said can accommodate another 10,000 bpd of Bakken crude.)
The obvious first choice for western ports would be on lake Mi or Superior. From there it would have to go to lake Heron and into lk Erie.