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Phillips 66 moving Bakken oil by rail in $1B deal
Fuel Fix ^ | January 9, 2013 | Zain Shauk

Posted on 01/09/2013 8:51:51 AM PST by thackney

Phillips 66 has begun shipping crude by rail from North Dakota to a refinery in New Jersey in an effort estimated at more than $1 billion.

The company said this week it had signed a five-year deal with Global Partners to move oil produced in the Bakken shale play to its Bayway refinery.

The Bayway refinery, the largest on the east coast, is already receiving crude through the deal, which will move 91 million barrels of oil over the contract term, or about 50,000 barrels a day, Phillips 66 spokesman Dennis Nuss said. The refinery is expected to receive crude on a daily basis, except during maintenance or other interruptions in activity, Nuss said.

The oil will be moved by rail from North Dakota to a terminal in Albany, N.Y., where it will be loaded onto barges and shipped down the Hudson River to the Bayway refinery.

Phillips 66 did not reveal the price of the contract.

Based on the cost of shipping oil by rail at that distance and then moving it by barge, estimated at between $13 and $15 a barrel, the contract is likely worth between $1.1 billion and $1.5 billion, said Greg Haas, manager of research at Hart Energy in Houston.

The deal will leave Bayway in a strong position, with a steady stream of crude that is priced well below oil imported to east coast refineries from overseas, Haas said.

“Bayway is going to have strong crude purchasing fundamentals because of this rail deal, in addition to the strong energy price fundamentals,” Haas said.

Haas said Bakken crude was trading Tuesday at around $87 a barrel, which compares to close to $112 for Brent crude, which is used as a benchmark for world oil prices.

If Bakken oil continues to sell at a discount to Brent, the price difference will result in a savings for Phillips 66, even with a shipping fee of as much as $15 a barrel, Haas said.

“This refinery has a pretty positive outlook in my opinion,” he said.

The contract will use Global Partners’ network of loading facilities and offloading terminals, according to a Phillips 66 announcement.

“Global has established a ‘virtual pipeline’ for the reliable transportation of Bakken crude,” said Tim Taylor, Phillips 66’s executive vice president of commercial, marketing, transportation and business development. “Our five-year agreement with Global assures us long-term access to advantaged crude for our Bayway refinery through what we believe is a cost competitive origin-to-destination supply system to the east coast.”


TOPICS: News/Current Events; US: New Jersey; US: New York; US: North Dakota
KEYWORDS: energy; globalpartners; oil; oilrail; oin; phillips66; rail
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To: railroader

Would look like it takes the Canadian route from Winnipeg to Montreal, then south to Albany, NY.

As a NJ resident, happy to see BayWay find a long term contract that is under market costs, the refinery is old and inefficient and prone to breakdowns, (and hurricane flooding ), it’s future is always in doubt due to a myriad of problems and a regulatory environment run by pinheads.

The equivalent costs to take a pipeline to TX/LA is not the total transportation cost of end use refined products, TX/LA refineries still have to load the products on tankers and move them tobarges to move them to Albany/Newburgh/Linden/Carteret/Port Reading gas terminals to get the products to the NYC metro market.


21 posted on 01/09/2013 10:48:24 AM PST by JerseyHighlander
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To: railroader

Not likely in a multi line haul...


22 posted on 01/09/2013 10:49:51 AM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: woodbutcher1963

$120,000 each.


23 posted on 01/09/2013 10:50:55 AM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: Eric in the Ozarks

And delivery of new cars ordered today would be mid 2014 at the earliest.


24 posted on 01/09/2013 10:53:31 AM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: Mr. Lucky
Mr. Buffett owns Burlington Northern. This movement is on the Canadian Pacific.

The big winner here is Bill Ackman, the largest investor in Canadian Pacific Railway Ltd. -Tom

25 posted on 01/09/2013 10:54:54 AM PST by Capt. Tom
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To: Eric in the Ozarks

The haul across country on a typical flatbed railcar is about $6000-7000. I am not sure what the railroads get for a tanker. However, I would think it is similar. Therefore, the revenue pay off is about 20 trips. I am not sure of the costs to haul it across on a train with 100 other cars. I would think they would pay off a capital investment like new tanker cars in a 2-3 year period.


26 posted on 01/09/2013 11:12:53 AM PST by woodbutcher1963
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To: woodbutcher1963

$13~15 per barrel seems to be in line with that cost to transport. But that cost is not all profit. Do you know the typical margin in rail traffic?


27 posted on 01/09/2013 11:29:40 AM PST by thackney (life is fragile, handle with prayer)
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To: woodbutcher1963

I think you’re right about the rate. Rental is $750 to $1,000/month (most cars are leased) plus about $9 to $10/bbl for the haul. Figure +/- 500 bbls per car.

I work with tank cars and freight rates every day. Unit train or no unit train, I don’t think a cross country run is doable in two weeks however. More like 6-8 weeks round trip.


28 posted on 01/09/2013 12:12:55 PM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: Eric in the Ozarks

So a 50,000 BPD delivery would require about 5,000 dedicated rail car fleet?


29 posted on 01/09/2013 12:37:02 PM PST by thackney (life is fragile, handle with prayer)
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To: thackney

With a continuous movement like this one, the RR tend to improve switching, etc., so it might not take a full 5,000 cars. I’d bet it would take all of 4,000 though...


30 posted on 01/09/2013 12:48:02 PM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: Eric in the Ozarks

A straight through train will make it from SK to NY or VT in 4-5 days or less. These trains do not stop except to change crews.
They operate similar to a coal train where all 100 cars on the train carry the exact same commodity and are all going to the same power plant. There are no stops along the way to interchange and remove cars that are to be deliverd in Winnipeg, Thunder Bay, Toronto, or Montreal. It is about 2300 miles from Portal, SK to Albany, NY. Keep in mind these trains travel 24 hours a day.

Once they are in NY, the backup is how long does it take to unload the cars and get them turned around. I am sure they do not have a siding to unload more than 10-15 cars a day. It may take a week just to unload the train once it is in port. Hey its logistics.


31 posted on 01/09/2013 1:00:08 PM PST by woodbutcher1963
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To: Eric in the Ozarks
Not likely in a multi line haul...

The originating railroad's locomotives run through to destination. Or exchange of power at the interchange point is well-coordinated. In any case, transit times are likely no more than a week in each direction (and could be as little as four or five days). Only stops made are for crew changes and to wait for other train traffic.
32 posted on 01/09/2013 1:12:54 PM PST by railroader
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To: woodbutcher1963
Coal trains fly via continuous welded rail and on a one line haul out of Gillette. Moving from ND to the east will not be as easy.
To your question on weights, tank cars are 263,000 pounds gross, with typical 188,900 pounds net. The difference is the weight of the car.

My business deals in the heavy oils; asphalts, residuals, roofing flux and similar products. Much of the product I move is negative gravity (0 to -4 API.) A tanker load of flux might contain 22,000 gross gallons but be sold as 19,900 net gallons (corrected to 60 F.)

33 posted on 01/09/2013 1:19:26 PM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: thackney
The Keystone XL includes loading points for the Bakken area. It certainly would move a lot of Alberta oil/bitumen, but it plans to move oil out of ND as well. There are several other pipelines planned as well, not to mention the majority of the Bakken Crude moves out on existing pipelines already.

Exactly. A lot of the pipeline capacity will be used by the Alberta oil sands, so Bakken production will always exceed pipeline capacity, present or future. Since Bakken ships to more than just Texas and Louisiana refineries, and that there is little or no pipeline capacity to northeastern points, the railroad is the only way to go in some cases.

Warren Buffet's opposition to the Keystone XL pipeline may or may not have to do with him owning BNSF, but the railroads were getting crude oil business before the pipeline was even announced. They were able to do this because a lot of 30,000 gallon tank cars intended for ethanol service in the mid-2000s were left in storage. Now that the Bakken oil business is good for the railroads and shippers, new tank cars built for crude oil shipments are being purchased by leasing companies and at least one shipper (Phillips 66).
34 posted on 01/09/2013 1:23:02 PM PST by railroader
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To: railroader
CNI has been a good stock to own.....

If I recall correctly...BNSF was bot by Buffet in '09....Probably after him and Obanana had a meeting.

35 posted on 01/09/2013 1:41:00 PM PST by Osage Orange (MOLON LABE)
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To: railroader

Can the super jumbos go east ?

I don’t use anything but 23,500’s.


36 posted on 01/09/2013 2:14:34 PM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: woodbutcher1963

I have always wanted to take a trip down this canal. Something in the order of a 52 foot Sea Ray with a pilot would be to my liking...


37 posted on 01/09/2013 2:35:43 PM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: woodbutcher1963
I am sure they do not have a siding to unload more than 10-15 cars a day.

How can they deliver 50,000 BPD unloading only 15 cars per day. Don't they need to average 100 cars per day?

38 posted on 01/09/2013 3:25:44 PM PST by thackney (life is fragile, handle with prayer)
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To: thackney

I’m rooting for them to succeed but the volume in all this is a bit intimidating.

I keep seeing the proposed 100 car trains being loaded every day, slamming into the reality of railroading in the eastern US.

What this proposes is much more than utility supply unit trains (where the utility owns the cars and wants to see them move.) The eastern rail lines have too many choke points for the proposed 100 cars/day.


39 posted on 01/09/2013 8:00:05 PM PST by Eric in the Ozarks (In the game of life, there are no betting limits)
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To: Eric in the Ozarks

Now multiply that challenge by at least 10 and you get the volume the Keystone XL would be delivering.


40 posted on 01/10/2013 5:01:01 AM PST by thackney (life is fragile, handle with prayer)
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