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 66s 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.
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.
Not likely in a multi line haul...
$120,000 each.
And delivery of new cars ordered today would be mid 2014 at the earliest.
The big winner here is Bill Ackman, the largest investor in Canadian Pacific Railway Ltd. -Tom
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.
$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?
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.
So a 50,000 BPD delivery would require about 5,000 dedicated rail car fleet?
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...
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.
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.)
If I recall correctly...BNSF was bot by Buffet in '09....Probably after him and Obanana had a meeting.
Can the super jumbos go east ?
I don’t use anything but 23,500’s.
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...
How can they deliver 50,000 BPD unloading only 15 cars per day. Don't they need to average 100 cars per day?
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.
Now multiply that challenge by at least 10 and you get the volume the Keystone XL would be delivering.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.