[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'M')ile-Long Crude-Laden Trains Ride Rails Toward Delaware City. From: http://www.downstreamtoday.com/news/art ... a_id=39475

“Mile-long trains, sometimes two a day, carrying brand-new tankers filled with crude oil from the tar sands region of Canada have begun snaking along the Susquehanna River through Lancaster County. The trains, usually carrying about 118 tankers of crude, are beating a path to the Delaware City Refinery in Delaware, one of the largest refineries on the East Coast. And then the empty trains head back to the oil fields on the same route, usually the next day.”

Heck! Not only are the dang Chinese trying to steal “our” Canadian oil but so are some Yankees!

[ROCKMAN]

Tanada – In one way we might contribute the rails taking over from the pipelines as part of the POD. As mentioned before big capex projects like pipelines and LNG plants require a very secure long term throughput. Many can take 5+ years just to recover the initial investment with no profit margin. Just as what happened in the shale gas play in east Texas p/l companies were hesitant to spend a lot of $’s without being sure enough NG would flow for many years. As it turned out their concerns were justified when the drilling bust cam. Same potential dynamic for the Bakken et al. Given the size of the reserves they probably feel more secure about the Canadian oil sands. Their hesitance gave the rail roads an opening. And now the chicken/egg factor kicks in: with tankers and rail terminals built it’s easier to expand.

As an example, If the Bakken drilling slows up significantly it would only reinforce the switch to rail IMHO.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')anada – In one way we might contribute the rails taking over from the pipelines as part of the POD. As mentioned before big capex projects like pipelines and LNG plants require a very secure long term throughput. Many can take 5+ years just to recover the initial investment with no profit margin. Just as what happened in the shale gas play in east Texas p/l companies were hesitant to spend a lot of $’s without being sure enough NG would flow for many years. As it turned out their concerns were justified when the drilling bust cam. Same potential dynamic for the Bakken et al. Given the size of the reserves they probably feel more secure about the Canadian oil sands. Their hesitance gave the rail roads an opening. And now the chicken/egg factor kicks in: with tankers and rail terminals built it’s easier to expand.

As an example, If the Bakken drilling slows up significantly it would only reinforce the switch to rail IMHO.

[ROCKMAN]

Tanada – Actually how long they are drilling the Bakken isn’t a key factor. It’s the volume thru put that counts. When a company proposes a p/l they’ll often advertise for “subscriptions”: a number of producers agree to ship X amount of oil/NG thru the line for Y years. And it’s not just a promise: subscriptions usually carry big financial penalties if those companies fail to deliver. Sorta like selling condos before they break ground.

A west Texas to L.A. oil pipeline failed because they couldn’t enough subscription so they are planning to use rail. And once the RR lines/tankers are established it will typically be more difficult to subscribe a p/l because the RR can offer short term discounts to kill the completion. Consider the Keystone: when the eventually get that last permit they may not be able to charge as much to run oil thru it: the rail/trucking systems may have already paid out and need only charge a smaller fee to still make a nice profit.

[ROCKMAN]

Just a reminder of how clever rich folks become even richer: Buffett has been trying to build Berkshire through larger acquisitions, such as the $26.5 billion purchase of railroad Burlington Northern Santa Fe in 2010. Earnings from the railroad and other acquisitions have boosted the company’s cash hoard to $49.1 billion at the end of March and its market value to almost $280 billion yesterday.

Referring to a $5.6 billion acquisition of a utility company: “It’s amazing that it’s not a huge transaction for Berkshire anymore,” Cook, who oversees shares in Buffett’s company, said by phone. “That’s how big Berkshire has become.” So did Warren just get lucky buying a RR just before a huge surge in oil transport via rail? Probably…one has to be just lucky to become the 3rd richest person on the planet. LOL. Someone was joking about the Chinese eventually buying North Dakota. Maybe Warren is planning on beating them to it.

[Pops]

I thin Warren Baby bought the railroad because he knew that PO was around the corner and rail is the most efficient transport.

From Feb 2008
http://peakoil.com/geology/warren-buffe ... on-on-cnbc

[ROCKMAN]

Pops - that's the thing ain't it: we all have ideas about what will happen down the POD path and what someone should/could do. But that's just idle chatter for the most part. Ole Warren put his ass and money on the line. Like I just told loki - actions talk and BS walks. All us armchair POD experts (especially the Rockman) can dish up what ever clever thoughts we have but at the end of the day there's not much opportunity to back up our words with meaningful actions.

[ROCKMAN]

Pops - And regarding folks backing their words up with more than hyperbole: Looks like Morgan Stanly isn't as optimistic about the current drilling boom being all that sustainable. Might be right...might be wrong. But they are making their bet known publicly:

"Halliburton (HAL) and Baker Hughes (BHI) are downgraded to Underweight at Morgan Stanley, part of the firm's dim view of the oil services drilling and equipment sector due to concerns about revenue growth seen slowing to 5% from 16% for the rest of the decade."

HAL and BHI are two of the very big dogs in the oil patch.

[ROCKMAN]

Found this rather extensive coverage of the switch to crude transport via rail. From http://www.rbnenergy.com/crude-loves-ro ... e-tank-car

"The US energy midstream sector will remember 2012 as the “Year of the Tank Car”. Venerable pipeline companies were reduced to investing in rail terminals. Although reluctant at first, coastal refiners embraced the margin boost that crude by rail provides them. Producers signed up to move landlocked crudes by rail to coastal destinations in search of higher prices. Petroleum shipments increased 46 percent from 370 M carloads in 2011 to 540 M carloads in 2012. Rail car manufacturers struggled to meet an order book of 40,000 rail cars and the backlog for new delivery is 18 months. Today we begin a crude by rail series."

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'F')ound this rather extensive coverage of the switch to crude transport via rail. From http://www.rbnenergy.com/crude-loves-ro ... e-tank-car

"The US energy midstream sector will remember 2012 as the “Year of the Tank Car”. Venerable pipeline companies were reduced to investing in rail terminals. Although reluctant at first, coastal refiners embraced the margin boost that crude by rail provides them. Producers signed up to move landlocked crudes by rail to coastal destinations in search of higher prices. Petroleum shipments increased 46 percent from 370 M carloads in 2011 to 540 M carloads in 2012. Rail car manufacturers struggled to meet an order book of 40,000 rail cars and the backlog for new delivery is 18 months. Today we begin a crude by rail series."

[ROCKMAN]

TANADA – there’s a long rail line that runs from the Mexican border up to Houston I’ve driven along for decades going to my wells. About 15 years ago they removed most of it. But about 6 years or so ago they began rebuilding it with some serious bridge work. They also built a big siding yard along the way. Now there’s a lot more traffic running than ever before.

And typical for Houston: a portion of that rail ROW that ran into Houston was removed years ago and the highway was widened in its place.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')ANADA – there’s a long rail line that runs from the Mexican border up to Houston I’ve driven along for decades going to my wells. About 15 years ago they removed most of it. But about 6 years or so ago they began rebuilding it with some serious bridge work. They also built a big siding yard along the way. Now there’s a lot more traffic running than ever before.

And typical for Houston: a portion of that rail ROW that ran into Houston was removed years ago and the highway was widened in its place.

[ROCKMAN]

Tanada - Very interesting. The train is just hauling frac sand and such right now. Depending on the oil pipeline situation in the area maybe moving crude could be next. It might be just the cure for transport problems in areas where there isn't enough production to justify a pipeline. For all I know this is exactly how the rail movement started in the Williston Basin: taking old under or unused lines and connecting them into a bigger system.

[h2]

man, rockman, I had a near panic attack when I read that rockman had 'gone' from tod, my first thought of course was that mother had grabbed you back for herself, which would have been a major drag, but thankfully a bit more poking around shows you'd just moved on, to here. Glad to see I can still get my dose of reality checks somewhere. I don't follow these things closely enough to know what made you leave that other site, and I suppose it really doesn't matter in any larger sense.

Sorry for the offtopic, just wanted to express my relief, nothing further to report.

[ROCKMAN]

Howdy h2...welcome to the dark side. LOL. Different than TOD in these parts but both are great sites. But I've been one of those monogany types so just one warm spot for me. Just ask any of my ex's.

[AirlinePilot]

I do believe you can thank my airline (Delta) for revitalizing the Trainer facility just down river from KPHL I am VERY interested in what the rail costs are per barrel here. Rail from the Bakken is being used for the transport. There isnt really any other way to get it there at the moment. The Trainer plant is optimized for jet fuel right now and I do know there have been some teething problems with it since Sandy hit last year.

Delta has taken a pretty big gamble with this refinery and if Bakken oil slows in any nearer term, they lose their edge if they have to be exposed to Brent prices in the future. Right now we are saving the crack, and ensuring a large supply of jet fuel in the N.E. given what has gone on with the refinery picture there over the last few years. I BELIEVE that ensuring our own supply was a very big piece of this acquisition even though it wasn't hyped on that idea.

I wonder how this is going to play out down the road just a bit.

[ROCKMAN]

AP - Originally I thought it was a very risky move. Makes me wonder if they were paying close attention to the developing change in the oil transportation system. It reminds me of the clever move SW Airline made years ago buying a huge volume of jet fuel futures just before prices started shooting up. One thing to make predictions when you don’t have skin in the game…different when you put your own money on the table.

It will be interesting to see if the govt steps in and tries to alter this pricing advantage the Canadian refineries have. Lots of voters in NY et al. Need to get the public Engaged.

[ROCKMAN]

Finally some numbers that indicate the economics of the sudden turn around for east coast refiners.

“PBF Energy Inc. (PBF) is betting that shipping discounted crude by rail from Canada and North Dakota can make its East Coast refineries profitable. The refiner can unload 70,000 barrels a day of light crude and 40,000 heavy oil at its Delaware City plant, and will add 40,000 barrels a day more of heavy oil unloading capacity by the end of the year. PBF, which has the largest share of East Coast refining capacity at 28 percent, is trying to avoid the fate of other refiners who have shut or sold plants in the region. The loss of refining capacity has tightened fuel supplies near the New York Harbor, the delivery point for gasoline and heating oil futures.

Rail Cars - By the end of this year, PBF will have unloading racks in Delaware City able to take 70,000 barrels a day of light crude from the Bakken shale formation in North Dakota, 40,000 barrels a day of bitumen from oil-sands formations in Alberta, and 40,000 barrels a day of Western Canada Select, a heavy crude made by diluting bitumen. The company also has ordered 3,600 coiled and insulated rail cars to carry the heavy Canadian crude. PBF’s 182,200-barrel-a-day Delaware City refinery will run all the heavy crude brought in by train, in addition other heavy oil shipped on tankers from Mexico and Venezuela. The Bakken crude will be shared by the Delaware plant and a 185,000-barrel-a-day refinery in Paulsboro, New Jersey. The smaller crude unit at Paulsboro will run all Bakken crude. The larger crude unit will run about 100,000 barrels a day of Saudi Arab Light.

The NUMBERS

Bakken crude in Minnesota, was at a discount of $22.77 a barrel to Brent crude yesterday. It cost PBF $12.50 a barrel to ship Bakken oil by rail to the refinery. Western Canada Select cost $47.98 a barrel less than Brent yesterday. The cost to ship heavy Canadian oil by rail is about $17.50 a barrel. The Bakken shipments can replace higher-priced waterborne imports of light crude from West Africa and the east coast of Canada. In addition to the lower cost, PBF would expect to see a greater benefit to profit margins because Bakken is higher-quality crude for PBF’s system.

A side note: notice how no one is referring to the lack of the permit for the border crossing section of Keystone as even a consideration in any of these plans let alone a hindrance.

[John_A]

$this->bbcode_second_pass_quote('ROCKMAN', '
')A side note: notice how no one is referring to the lack of the permit for the border crossing section of Keystone as even a consideration in any of these plans let alone a hindrance.

[ROCKMAN]

John – I’ve never been much of a conspiracy believer. Besides not looking good in a tin foil hat I’ve never really felt there were that many folks out there really capable of carrying out such complex diabolical plots. I actually think some of TPTB like folks thinking they are that good at manipulating the system. But I do think that different groups share similar self-interest goals that overlap with each other. The POTUS saw no benefit in approving the Keystone permit before the election. I’ll give him credit for understanding that imports of Canadian oil would increase whether he did or not. Likewise the Canadian politicians who complained and threatened to send the oil to the west coast knew the oil flow would keep increasing into the US and the oil sands development would continue. Both govts knew the interests of their people would be served. Maybe low level bureaucrats on both sides discussed it…maybe not. It really didn’t have to be a coordinated conspiracy. Just folks separately doing what was in their best interest.