North Dakota Bakken Crude Oil

Trinity Industries has bought a facility in Tulsa OK and is hiring/training now for tank car production. The facility was originally built to produce railroad wheel/axle sets but never produced those. It was used to build wind farm tower sections for several years by DMI but that business seems to have collapsed so they left. This will be Trinity's second facility in Tulsa and third in the state with a tank car facility in Oklahoma City.

Bart78 wrote:Trinity Industries has bought a facility in Tulsa OK and is hiring/training now for tank car production. The facility was originally built to produce railroad wheel/axle sets but never produced those. It was used to build wind farm tower sections for several years by DMI but that business seems to have collapsed so they left. This will be Trinity's second facility in Tulsa and third in the state with a tank car facility in Oklahoma City.

Not surprising given that back logs for tank car orders are now being measured in years. Yet another potential sign that the "rail" side of the fracking equation is going to be permanent.

In a twist almost unimaginable a few years ago, Delta's new company owned jet fuel refinery in Pennsylvania has now bought its first load of crude oil from the Bakken formation in North Dakota, which will be transported by rail car to Philadelphia. In a related announcement Delta is also initiating twice-a-day service to Dickinson, ND.

After you head is done spinning you can read more about it here.

Delta Air Lines has received its first shipment of North Dakota crude oil at the Pennsylvania refinery it bought last year.
North Dakota Gov. Jack Dalrymple said in a news release Wednesday that the oil was shipped from the state's Bakken region to Delta's refinery in Trainer, Pa.
Delta bought the Pennsylvania refinery from Phillips 66 last April for $150 million and it spent $100 million to maximize it for jet fuel production. The airline is hoping to cut fuel expenses by $300 million a year. The Delta plant employs more than 400 people.

Not Bakken Oil, but rather Canadian Crude. Credit Suisse is reporting that KCS is in final negotiations with a customer who will build a Rail unloading rack and storage facility on KCS land in Port Arthur, TX. The facility will be able to unload 5 unit trains per day of heavy Canadian crude. This is the reason for the big run up in KCS stock as it would increase KCS traffic by 8%. Sources say that CP will get the biggest piece of this on the north end, interchanging the trains to KCS at Kansas City. Rumored, but not confirmed is that CP will begin to install CTC in the dark territory between Pasqua, SK and Glenwood, MN in anticipation of this and other Oil traffic. The CTC project would take several years, but the installations would fix the bottlenecks first and then infill the rest.

Very interesting.

I have to note that it seems that now more than ever before it seems as if the railroads are basically just waiting around for tank cars to be built and not much else. In fact in this case terminals are being built faster than the tank cars are. Ironic.

I will be interested to learn Mr. O'keefe's "take" regarding this Heard On The Street piece appearing in Tuesday's Journal:

http://online.wsj.com/article/SB1000142 ... 41894.html

Brief passage:

• The Berkshire Hathaway chief executive writes that BNSF, the railroad his company bought in 2010, now transports 500,000 barrels of oil a day. Much of it comes from the prolific Bakken shale, where production growth has outpaced pipelines. The resulting local glut led the discount between Bakken oil and Brent crude to surge beyond $45 a barrel a year ago (it has narrowed to $19 now).
  
  BNSF has driven its trains straight through that price gap, enabling Bakken producers to get their barrels to customers rather than rein in production
  

But on the other hand:

• Canadian oil producers face an even harder battle. Western Canadian Select, or WCS, is a relatively heavy grade of oil, so it should be cheaper than a lighter benchmark like Brent. But the discount, now $38 a barrel, owes much to transportation bottlenecks.
  
  The Canadian Association of Petroleum Producers forecasts production from Western Canada will hit 5.5 million barrels a day by 2020, roughly double 2011's output. When added up, forecasts from individual producers imply even faster growth.
  
  The bottom line: If Keystone doesn't get built, those ambitions will likely have to be scaled back. CIBC estimates current export pipeline capacity from Western Canada of around 3.6 million barrels a day will be virtually full by next year. That is too tight for comfort given maintenance requirements and potential pipeline outages.

All told, it would appear that the Canadian roads are considerably more vulnerable to pipeline competition than is Warren.

Finally, with regards to the rail v. pipe comparative costs of handling crude noted within the article, I wonder to what extent capital costs have been factored.

Part of the Canadian Problem is that Canadian companies were slower to get on the Crude by Rail bandwagon. It seems that they pinned their hopes on various pipelines and had no Plan B. Only belatedly did they see what was happening in the US Bakken and grudgingly start to accept the need to ship their crude by Rail. In the US the earliest Rail terminal was built by a pipeline company, and a Canadian one at that, Enbridge. By way of contrast all of the early Rail terminals in Canada were either built by the Railroads themselves (usually quite small) or the Oil Companies. And of the Canadian terminals none are yet capable of loading a unit train in less than 24-hrs. US producers also had an advantage in that there was an oversupply of Ethanol tankcars available that were suitable for use in hauling Light Bakken Crude. By contrast Canadian producers need a lower liquid capacity tankcar that is insulated and coiled to facilitate unloading at its destination. Also being late to the game means that their orders for tankcars are behind everybody else.

Gilbert B Norman wrote:I will be interested to learn Mr. O'keefe's "take" regarding this Heard On The Street piece appearing in Tuesday's Journal

Mr. Norman,

Thank you very much for the "heads up" regarding the piece in "The Journal". Since I don't subscribe I probably would have missed it. By any measure, perhaps the most impressive aspect of that article was not the quandry of the Canadian producers but BNSF's apparent lockup of much of the Bakken volume. 500,000 barrels per day is an incredible number. Absolutely a ridiculous figure. Here is the basic math: 500,000 barrels / 685 barrels per tank car = 730 tank cars or a little more than 7 unit train equivalents (100+ car trains) every 24 hours without fail.

Having read the recent Trains article about BNSF's Willow Springs facility on the Chicago outskirts the following comparison comes to mind: BNSF has had a facility of similar size and scope spring up basically "from nowhere" in the middle of North Dakota. Sure the oil terminals are not all in one discrete place but that's not the point of my comparison. There is a gusher of rail volume overflowing from the plains of North Dakota and much of it is being handled via BNSF.

So while the behemoth fields in North Dakota continue to be drilled, and while other prospects continue to heat up all over the rest of the Midwestern and Western shale plays now here comes this "Titantic" colossus of Canadian tar sands oil which apparently is going to be a candidate for a rail move as well. If I were E. Hunter Harrison I would be salivating at the prospect of logjammed oil pipelines overflowing with crude pushing a premium "hot" commodity onto the rails. CN is certainly an option as well. Ironically in all of this the old "International Railway of Maine", one of the most god forsaken (and beautiful) stretches of mainline freight track in the Eastern United States apparently now has a major role to play on the world stage moving crude oil to St. John, NB from both the Bakken shale play and the Alberta tar sands.

Nothing short of incredible.

Unspoken in all of this but of relevance to the discussion is the effect that other shale oil plays will have on the Bakken. I believe that some of the shale oil production we will see coming out of Ohio and Pennsylvania has the potential to even further disrupt the ability of Bakken producers to move their crude to market. Some of the "rust belt" shale oil is very close to the primary nexus of the national pipelines and I believe these producers in OH and PA will almost certainly consume capacity between their production hubs and refineries on the East Coast. This has the potential effect of interfering with any plans by Bakken producers to move their product east by pipeline ever. Which, yet again, returns us to rail as the cheapest, most convenient and best available option for moving crude oil from North Dakota.

I think it is entirely possible that BNSF will be moving in excess of 1,000,000 barrels of oil per day within the next 12-24 months. Production figures in North Dakota have yet to stop their upward march and with 180 rigs +/- still actively drilling (with plenty more lease activity as well) there's plenty of reason to believe that we are nowhere near the "ceiling" of production. I believe these implied mammoth transportation figures are so high as to have potential for significantly disruptive impacts on the national rail network east of Chicago. Even with lower volumes of coal headed east I am having a hard time believing that such a rapid increase in traffic will be easily absorbed by railroads which have been so carefully pruned down to rational sizes for volumes shipped.

In particular for NS, CSX and PAR this would appear to imply an almost immediate requirement for some substantial capital spending as appropriate. Assuming that volumes continue to expand PAR in particular will be forced to make enormous investments in their physical plant and they will potentially have to do it at a pace they are substantially unaccustomed to. For the newly "strategic" MMA I have absolutely no idea how they are going to handle this problem. Although I can imagine that if I were a signal maintainer working for them I would be brushing off my ABS circuitry and getting ready to reactivate and turn on the old CP searchlights. But in all reality that is a "half solution" at best. If the Canadian crude, which is heavier and preferred by many refiners (Irving included), ends up turning into these major volumes as expected MMA could end up being the more challenged of the two railroads through Maine.

In the end we will have to wait and see. Irving would likely have to conduct yet another expansion of their rail receiving terminal, which they have not yet announced plans to do so. So it could be quite a while but in the meantime some 80,000 barrels per day of that Bakken crude are coming over the rails to Irving.

Certainly a very interesting time to be watching the transformation of the American railroad system "yet again".

Predictably, The Journal of late has been editorializing in favor of laying the Keystone pipeloine, which would divert much of the traffic now enjoyed by the roads from handling Bakken crude. Equally predictable is The Times' position that the pipeline is unnecessary. Presumably, any railroad stakeholder, such as this author, would be opposed to laying this new pipeline.

Now, the industry is confronted with this incident, which, no matter how trifiling, will result in "hay" for the pro-pipeline interests:

http://online.wsj.com/article/SB1000142 ... 83532.html

Brief passage:

• A Canadian Pacific Railway Ltd train carrying crude oil to Chicago derailed in western Minnesota on Wednesday and spilled up to 714 barrels, state officials said, the biggest recent accident in a growing number of railroad leaks of crude.
  
  As energy companies have turned to trains to move crude from booming North American oil fields not adequately served by pipelines, such railroad-related incidents have risen sharply in the past few years, according to federal data analyzed by The Wall Street Journal.
  
  From 2010 to 2012, 112 oil spills were reported from U.S. rail tanker cars, up from just 10 in the previous three years, according to the Pipeline and Hazardous Materials Safety Administration, a part of the Department of Transportation that tracks most releases of hazardous materials. But the amount of crude leaked in spills has declined since 2008, when a big accident in Oklahoma released more than 1,900 barrels. On August 22, 2008, a BNSF Railway Co. train carrying crude derailed northeast of Oklahoma City; five tanker cars leaked oil that caught fire, leading to an evacuation of nearby residents.

Gilbert B Norman wrote:Predictably, The Journal of late has been editorializing in favor of laying the Keystone pipeloine, which would divert much of the traffic now enjoyed by the roads from handling Bakken crude. Equally predictable is The Times' position that the pipeline is unnecessary. Presumably, any railroad stakeholder, such as this author, would be opposed to laying this new pipeline.

Now, the industry is confronted with this incident, which, no matter how trifling, will result in "hay" for the pro-pipeline interests:

The Keystone XL pipeline will not have a big effect on rail hauled Crude Oil, at 800,000 bpd it is nowhere near adequate to handle Crude Oil production of Bitumen from the Canadian Tar Sands. Even if the Keystone XL, and the other two western Canadian pipelines are built, the market for Crude by Rail will still be larger than it is currently. And the chances that all three will be built are pretty close to zero. The market is that big. And none of the commentators are talking about the need to move Condensate north from the US Gulf Coast to dilute all that Bitumen so that it can flow through a pipeline(well RBN Energy is).

JayBee wrote:

Gilbert B Norman wrote:Predictably, The Journal of late has been editorializing in favor of laying the Keystone pipeloine, which would divert much of the traffic now enjoyed by the roads from handling Bakken crude. Equally predictable is The Times' position that the pipeline is unnecessary. Presumably, any railroad stakeholder, such as this author, would be opposed to laying this new pipeline.

Now, the industry is confronted with this incident, which, no matter how trifling, will result in "hay" for the pro-pipeline interests:

The Keystone XL pipeline will not have a big effect on rail hauled Crude Oil, at 800,000 bpd it is nowhere near adequate to handle Crude Oil production of Bitumen from the Canadian Tar Sands. Even if the Keystone XL, and the other two western Canadian pipelines are built, the market for Crude by Rail will still be larger than it is currently. And the chances that all three will be built are pretty close to zero. The market is that big. And none of the commentators are talking about the need to move Condensate north from the US Gulf Coast to dilute all that Bitumen so that it can flow through a pipeline(well RBN Energy is).

That's a pretty good summary of my position as well. The railroads are going to cash in regardless.

Gilbert B Norman wrote:Predictably, The Journal of late has been editorializing in favor of laying the Keystone pipeloine, which would divert much of the traffic now enjoyed by the roads from handling Bakken crude. Equally predictable is The Times' position that the pipeline is unnecessary. Presumably, any railroad stakeholder, such as this author, would be opposed to laying this new pipeline.

Now, the industry is confronted with this incident, which, no matter how trifiling, will result in "hay" for the pro-pipeline interests:

The Pipeline Companies couldn't stand by and watch CP steal all the bad press, so ExxonMobil had a pipeline rupture in Arkansas today, no big deal. a few dozen homes evacuated, lawns and roads covered;

http://www.cbs12.com/template/inews_wir ... .com.shtml

The Journal continues their editorial attack on rail movement of Bakken Crude in favor of the Keystone pipeline:

http://online.wsj.com/article/SB1000142 ... 52848.html

Brief passage:

• The media have played up Friday's discovery of an oil leak in an old Exxon Mobil pipeline near Mayflower, Arkansas. It isn't clear how much oil escaped from the 850-mile Pegasus pipeline, but Exxon says it responded with teams and equipment able to handle as much as 10,000 barrels and that by early Saturday it had stopped the flow and begun cleanup......All of this is in marked contrast to the non-reaction last week when a Canadian Pacific Railway train carrying crude to Chicago derailed in western Minnesota, spilling about 15,000 gallons. Much of the press also ignored the train accident, though the spill was certainly serious and also took place near a town

What the Journal's editorial board "conveniently" overlooks is the response time between a rail incident and that of a pipeline. A pipeline rupture could go days without being detected; possilby as long as a child playing in a backyard and becoming covered with petroleum. When a rail incident occurs, there is immediate knowledge of such, and one can hopefullt presume that "rapid response" to such will move forth.

While possibly I should recognize that the Journal's position is more "pro-pipeline" than it is "anti-rail", nevertheless the most widely circulated business oriented publication is taking this editorial position and this can only be to the railroad industry's detriment.

Gilbert B Norman wrote:While possibly I should recognize that the Journal's position is more "pro-pipeline" than it is "anti-rail", nevertheless the most widely circulated business oriented publication is taking this editorial position and this can only be to the railroad industry's detriment.

I'm not so sure that in this day and age the Journal's editorial opinion carries enough weight for anyone to really care too much. The explosion of publicly available opinion has in my view diluted substantially the weight carried by opinion pieces from the major media. I think of this in much the same way I think of the relative influence of the McLaughlin Group broadcast on PBS in Washington, D.C. It used to be at on time that if Jack Germond, a reporter for the Baltimore Sun said something on that program and said it well, which he often did, policy makers paid attention. Now the answer would be, "Jack who?". I think a shrug of the shoulders is about the average response in many cases these days to editorializing by these outlets.

On the other hand reporting by the Journal of breaking news and events within their area of specialty probably carries as much weight or more than in the past. Especially because of their perceived superior expertise and quality of sources.

Does CP Rail retain an investment share in MMA and/or the Irving lines? Such seems to be a wise business move with the oil boom, just as the partnership with KCS has been fruitful for both parties.