Railcars increasingly transporting crude from oversupplied U.S. Midwest to Gulf of Mexico; daily rail cargoes of crude could triple to 300,000 barrels by late 2012, several new crude-by-rail terminals planned, say industry sources

Bdebbie Garcia

LOS ANGELES , August 24, 2011 (Industry Intelligence) – Rail transport of crude oil from the U.S. Midwest to the Gulf of Mexico has been increasing lately, and cargoes could triple to 300,000 barrels daily by late 2012, according to industry sources, reported Reuters on Aug. 24.

In recent months, the shipments have grown to 100,000 barrels/day as companies attempt to alleviate the glut of crude oil in the Midwest, which has led to discounts of US$24 per barrel on U.S. oil futures relative to oil in the Gulf Coast or Europe.

Plans for several new crude-by-rail terminals have been announced by logistics firms in the past four months.

There isn’t any data from the Dept. of Energy (DOE) on how much crude is moving by rail, Reuters reported.

However, the Association of American Railroads (AAR) reported that total U.S. crude and petroleum product shipments by rail hit a record weekly high last month of about 780,000 barrels/day, up 15% from a year ago.

The AAR data on crude, however, is not broken out from oil products like gasoline, diesel or asphalt.

Historically, less than 1% of crude has been transported in the U.S. by rail; but companies are being forced to use alternatives to pipelines, which are congested.

Major pipeline projects, too, are being pushed back to 2013 or beyond, reported Reuters.

Plans for a 450,000 barrels/day pipeline between Cushing, Oklahoma, and Houston, proposed by Enterprise Products Partners LP and Energy Transfer Partners LP, were dropped last week because the companies couldn’t get shipper commitments.

Another pipeline to southern Texas, called Keystone XL, is proposed by TransCanada Pipelines Ltd.; but the project has been delayed by permitting and strong opposition from environmental groups, Reuters reported.

In May, some 166,000 barrels/day of crude moved in pipelines between the Midwest and the Gulf Coast, triple the average in 2009, according to DOE data. Another 28,000 barrels/day moved south by barge or truck.

Two rail terminals in St. James, Louisiana are receiving much of the crude, while other sites like Houston are taking additional crude, said industry sources. “Railroads are already filling the gap,” said JP Morgan oil analysts in a note to clients on Friday.

In North Dakota’s Bakken Shale, crude-by-rail loading capacity is expected to increase next year to 500,000 barrels/day from 130,000 barrels/day, reported Reuters.

The primary source of this article is Reuters, London, England, on Aug. 24, 2011.

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