Once in High Demand, N.Dakota Oil-by-rail Shunned on East Coast
In
2012, Plains All American bought a shuttered Virginia refinery for $300 million
to use as a terminal and storage hub, betting that East Coast refiners would
need to look beyond their own rail yards to satisfy their thirst for cut-price
inland crude in coming years.
Instead, shale production from North Dakota has been shrinking and those
refiners have resumed buying imported crude. The 140,000 barrel-per-day rail
terminal at Yorktown, Virginia has been sitting idle, according to two sources
familiar with its operations.
The
most recent weekly report from energy industry intelligence service Genscape
reported no traffic at the facility, which the sources said was expected to
remain dormant through next month. Refiners have been booking an armada of
vessels to carry North Sea and West African crude to U.S. shores, the biggest
import binge in years that will all but displace Bakken shale.
Spot shipments of crude by rail have all but vanished. Rail car lease rates have
slumped to half what they were a year ago and oil-by-rail traffic has dropped 17
percent in the first few weeks of 2016, according to the latest data from the
Association of American Railroads.
Rail car traffic at the Eddystone rail facility outside Philadelphia, a joint
venture between a local group and Enbridge, is expected to be the lowest in
years, according to two sources familiar with that facility's operations.
The
terminal typically unloads about 27 unit trains a month, or roughly 65,000
barrels per day (bpd). But its main customer, the refining subsidiary of Delta
Airlines Inc., has turned to oil from Gabon and Nigeria, the sources said.
Monroe Energy, the subsidiary, is cutting back "big time" on rail, one of the
sources said, adding that the only Bakken still coming into the region is
connected to term deals. FerrelGas Partners has an agreement to supply Monroe
Energy with 65,000 bpd of crude oil at the Eddystone facility.
But
Plains has no long-term contract with any customer for its Yorktown facility,
multiple industry sources said. At the time of the purchase, they said, the risk
seemed justified, as refiners like Monroe and Philadelphia Energy Solutions
bought spot barrels through the facility.
Plains has also shut down its 65,000 bpd Manitou rail terminal in North Dakota,
a trading source said, and is seeing very little activity at its nearby Van Hook
facility. The facilities loaded trains headed to the Yorktown location.
Plains did not respond to calls and emails seeking comment.
Last May, U.S. Energy Information Administration data shows, oil-by-rail volumes
peaked on the East Coast, with the region receiving some 472,000 bpd of crude
that way, enough to fill about 40 percent of the region's refining capacity. By
October, the latest data available, that rate had already fallen to 415,000 bpd.
OFF
THE RAILS
Crashing oil prices and the end in December of a four-decade U.S. crude export
ban have whipsawed the economics for East Coast refiners, pushing them back to
imported crude just a few years after foreswearing it in favor of domestic
shale.
This has hammered the oil-by-rail industry. Customers stuck with deliveries of
rail cars they no longer need have chosen to put them in storage instead of in
service.
Refiner PBF Energy, which announced in an October earnings call that it was
relying almost exclusively on foreign crudes at its two East Coast plants, has
begun using some idle tank cars to take deliveries of feedstock for its gasoline
unit, according to a source familiar with the plant's operations.
Current monthly lease rates for the newest, safest tank cars have slid to
roughly $700 from $1,300 early last year and as high as $2,450 in 2014,
according to Tom Williamson, owner of Transportation Consultants.
The
older model tank cars, Williamson said, are going for as low as $300 a month. At
those prices, the lease payments are not enough to cover the cost of building
the cars, Williamson said.
"It's not rock bottom, but it's pretty close," he said.