The Rising Influence of Rising Affluence

[DewDiligence]

More and More Oil Moving by…Rail

[Good news for UNP, among others. See #msg-51693423 for a related story.]

http://www.reuters.com/article/2011/02/04/oil-railways-idUSN0423693220110204?feedType=RSS&feedName=companyNews&rpc=43

›Feb 4 (Reuters) - Up to a dozen railroad terminals to load, unload and store oil are sprouting up around the United States as oil shippers turn to railroads to deliver barrels into markets where crude is priced higher.

Growing Canadian and North Dakota oil supplies are heading to Cushing, Oklahoma, in pipelines that can't deliver them further south. Flexible rail routes could allow oil cargoes to move to destinations where oil fetches a premium, and avoid a 38 million barrel glut of oil sitting at Cushing.

Construction of dedicated railroad terminals to handle crude is happening quickly, as Cushing-delivered WTI trades at an $11-a-barrel discount [!] to Europe's Brent.

An even larger price spread has opened between North Dakota Bakken shale crude -- worth $81 at the wellhead -- and similar Light Louisiana Sweet LLS-, worth $104 a barrel on the Gulf Coast this week.

The rail terminals are mostly built to handle oil sent along rail networks run by giant U.S. rail railroads, such as Union Pacific (UNP) and BNSF, a railway bought in 2009 for $34 billion by Warren Buffett's Berkshire Hathaway (BRKa.N) fund.

Shippers who can move barrels from North Dakota to Louisiana by rail -- a journey that costs as little as $7 a barrel -- stand to capture a big arbitrage premium.

Following is a factbox on existing and planned crude-by-rail terminals in the United States:

* U.S. Development Group, already the largest operator of railroad terminals for ethanol, opened a 60,000 barrel-per-day (bpd) crude-by-rail unit train terminal in St. James, Louisiana, this summer. Executive Bill Swann said the terminal is receiving crude from Bakken at full capacity, and will expand to take 120,000 bpd by the end of 2011.

* U.S. Development is also planning to build at least two more crude-by-rail terminals in the near future, and possibly more, Swann said. One of them will likely be located in Texas, he said. The company is looking to build a southern rail terminal specifically designed to handle incoming shipments of heavy crude from Canada, Swann added.

* Industry sources and government officials in North Dakota and Montana say that as many as 10 crude-by-rail terminals are planned in the Bakken area, adding to existing crude-by-rail capacity from the region of about 115,000 bpd.

* EOG Resources (EOG) began early this year to ship crude between its two new crude-by-rail terminals in Bakken and Stroud, Oklahoma, near Cushing. The company has said the terminals will allow it to ship a unit train per day, or 60,000 barrels. The terminals segue into BNSF's railroad network.

* Canadian National Railway (CNR.TO) has touted its ability to move large volumes of Canadian heavy crude as far south as the U.S. Gulf Coast at prices that would be competitive with pipeline rates. So far, the concept remains in trial stage. CN has also said it could ship large volumes to Canada's West Coast if it adds dedicated railcars to its fleet.

* Salt Lake City-based Savage Cos said in January it plans to build a new Bakken crude-by-rail terminal in Trenton, North Dakota, to begin operating by the end of 2011.

* Texas-based Rangeland LLS said in November it plans to build a 60,000-bpd rail terminal and hub in Williams County North Dakota to load crude from Bakken shale. With up to 210,000 barrels of tanking space and a 60,000-bpd railcar loading facility, the terminal would send crude on BNSF's railway and could begin operating at end-2011.

* New York-based oil distributor and producer Hess (HES) is building a 130,000-bpd rail terminal in Bakken to be completed during the first half of 2012 [#msg-51693423].

* NuStar Energy (NS) began sending Bakken crude by rail to its own rail terminal in St. James, Louisiana, earlier this year.

* Musket Corp is among the logistics companies already sending crude by rail out of Bakken Shale to destinations including St. James, Louisiana. The company has been shipping 15,000 bpd to the Gulf Coast by rail, said manager Dan House.‹