Getting crude oil outta Cushing: it’s not cheap nor fast

Depressed WTI prices and a favorable spread against Light Louisiana Sweet crude are encouraging WTI shipments by land and water from the NYMEX delivery point at Cushing, Oklahoma, to the US Gulf Coast. But as market players are finding out, most routes are less than a bargain.

The WTI/LLS spread, which at one point last week was at a record minus $21/b, has led to market talk that trucks, trains and even barges are heading toward Cushing, or the terminals closest to it, to take crude south as the market hopes for the arrival someday of a route from Cushing to the Gulf, either in the form of the Keystone XL pipeline or the proposed Enterprise/Energy Partners project that is now in open season. (More recently, Platts assessed the spread closer to $13/b).

Rumors of trucks heading to Cushing from Mexico were running rampant recently. And while some rumors were more believable than otters, Abudi Zein, vice president at energy industry data provider Genscape, said a lot of it appears to be just talk. His company collects data during twice-weekly flyovers of the Cushing facilities.

Although Zein said the economics remain highly favorable to move crude from Cushing to the Gulf, the extent of the actual movement is not clear. According to data collected by Genscape, Zein said trucks are loading and/or unloading crude at Cushing daily.

“At the moment that is equivalent to about 32,000 b/d being moved but we have no idea if that is going to the Gulf,” he said. “It could be trucks carrying in crude from gathering systems or it could be going out to local refineries.”

One plan that may come to fruition is that of a terminal operator at the Oklahoma port of Catoosa on the Arkansas River, a major tributary of the Mississippi, who is working a short-term plan to gain from the favorable spread between WTI and LLS. Petro Source terminals is seeking US Coast Guard approval to ship 100,000-150,000 barrels/month to the Gulf Coast from Catoosa, which is about 70 miles east of Cushing.

Rex Gilbreath, a partner at Petro Source, said he was expecting to load his first barge with crude in a couple of weeks. “[The favorable spread] is the only reason we are doing this, but it’s not enough to dampen the spread,” Gilbreath said. “It’s just a market opportunity, not a long-term fix.”

Since no pipeline exists between Cushing and Catoosa, the crude will be shipped via truck to the port. A truck can hold about 200 barrels of crude oil, so demand for trucking remains high.

“Trucks are very tight right now and it’s hard to find drivers,” Gilbreath said.

Market players have even looked to railroads to get crude out of Cushing, but those economics don’t appear too favorable once all of the costs are added up, sources said.

The BNSF Railway, which uses a facility near Cushing at Stroud, Oklahoma, about 23 miles south of the NYMEX delivery point, does ship to the US Gulf Coast but mainly from North Dakota.

But with no pipeline from Cushing to Stroud, shipping on the railroad to the Gulf Coast does not make economic sense, said BNSF spokeswoman Krista York-Woolley.

“You would have to put it on a truck to load it onto a tanker on the train and then get it to the Gulf,” York-Woolley said. “By the time you do all of that you are not saving any money.”

Tom Lange, spokesman for Union Pacific railway, said his company has been fielding a number of inquires exploring Cushing as an option, “but with rail loading/unloading infrastructure still in the development stage near Cushing and at the USGC, movement from Cushing is limited so far.”

“It is more cost-effective to rail crude directly from loading locations in those oil-producing regions than to transport to Cushing, store it, then reload on rail and send to the gulf coast,” he said.

It looks like market players will have to wait for several proposed pipeline projects that are in the works to link Cushing to the Gulf Coast, including a joint venture with Enterprise and Energy Transfer Partners expected operating in late 2012 and with a 400,000 b/d capacity.

While the vast discount of WTI relative to other benchmarks continues, physical traders are attempting to reap the benefits of a favorable spread, said industry experts. However, other factors like a rise in crude production in the Gulf Coast could hamper any plans, other than by pipeline, of getting crude out of Cushing.

“The spread between LLS and WTI is in the double digits and that should be enough to truck crude but the recent growth in local production like at Eagle Ford, which is similar to LLS, is keeping that from happening,” said John Auers, senior vice president at Turner Mason.

For now, the rumors are swirling but crude doesn’t appear to be making its way to the Gulf.

Platts