California Replaces Oil by Rail from Canada with Domestic

September 17, 2014 By

September 8, 2014

by Lynn Doan, Blooomberg

California, the nation’s largest gasoline market, has cut its oil-by-rail volumes from Canada by 86 percent this year while buying more crude made in America.

The most populous U.S. state received 3,142 barrels a day by rail from Canada in July, down from 6,669 in June and a peak of 22,871 in December, California Energy Commission data show. Meanwhile, it more than doubled the oil delivered by rail from Colorado, took a record amount from Utah and brought in more barrels from New Mexico and North Dakota.

The oil-by-rail shipments have surged to a seasonal record as the state’s refiners, lacking direct pipeline access, turn to trains to bring in production from U.S. shale formations. The boom has boosted domestic output to the highest level in 28 years, bringing the nation closer to energy independence.

“In the California scheme of things, the change in Canadian rail volumes isn’t that big, a drop in the bucket for an average refinery running at 200,000 barrels a day,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone Sept. 5. “But in the ‘I’m a Canadian getting way to little for my oil’ scheme of things, any opportunity to export a barrel to the States has got to be welcomed.”

Oil from Alaska’s North Slope, which makes up 12 percent of California’s oil supply, was unchanged at a $4.15-a-barrel premium to the U.S. benchmark West Texas Intermediate crude, data compiled by Bloomberg at 12:05 p.m. show. Western Canada Select, a heavy, sour blend, weakened 60 cents to a $15.50 discount.

Small Fraction

“It is interesting that Canadian exports are down, but we don’t know why at this point,” David Hackett, president of energy consulting company Stillwater Associates, said by telephone from Irvine, California.

California received 1,273 barrels of oil a day in July from Colorado, where crude output has hit a record amid drilling in the Niobrara shale formation, up from 528 barrels a month earlier, state Energy Commission data show. Shipments from Utah, where waxy oil output from the Uinta Basin has surged, climbed 47 percent to a record 4,025 barrels a day.

North Dakota, where the Bakken shale formation has propelled production past 1 million barrels a day, sent 3,981 barrels a day to California by rail in July.

Rail shipments account for a small fraction of oil supplies delivered to the western U.S. In June, the region took 1.08 million barrels of crude a day from outside the U.S., according to data compiled by the Energy Information Administration, the Energy Departments’ statistical unit. Canadian imports to the region that month totaled 30,000 barrels a day, or less than 3 percent.

Refiners in the western U.S. processed 2.5 million barrels a day of crude in the week ended Aug.28, the highest rate in four weeks, EIA data show.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net

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