California Takes Record Volumes of Oil by Rail from Utah

August 7, 2014 By

August 6, 2014

by Lynn Doan, Bloomberg

California, home to two-thirds of refining capacity in the western U.S., brought in a record volume of waxy oil by rail from Utah in June as crude imports from Canada and North Dakota slid.

The state, the biggest gasoline market in the U.S., received 2,737 barrels a day of oil by rail from Utah in June, almost twice the volume of the previous month and up from nothing a year ago, data on the state Energy Commission’s website showed yesterday. Canadian oil-by-rail imports dropped 25 percent to 6,669 barrels a day. North Dakota shipments shrank by 34 percent 4,035.

California’s oil-by-rail deliveries are at a seasonal record as refiners in the western U.S., lacking direct pipeline access, use trains to reach surging crude production from shale formations in the center of the country and in Canada. Utah is shipping record volumes of oil by rail as companies use a combination of hydraulic fracturing and horizontal drilling to draw the most waxy oil out of its Uinta Basin since 1987.

Ultra Petroleum Inc., a Houston-based independent oil and gas driller that bought $650 million worth of oil-producing assets in the Uinta Basin in northeast Utah last year, said July 31 that “rail capacity is the best option to place our barrels.”

“By 2016, we expect to market approximately 45 percent of our crude oil volumes via rail,” Garland Shaw, the company’s chief financial officer, said in a conference call with analysts.The company has agreements for at least 2,000 barrels a day of rail capacity that can expand to 7,500, he said.

Small Fraction

Rail shipments still account for a small fraction of oil supplies in the western U.S. In May, the region took 1.1 million barrels of crude a day from outside the U.S., according to data compiled by the Energy Information Administration, the Energy Department’s statistical arm.

Demand for Uinta Basin oil may be limited by California refiners’ ability to receive and process the black, waxy oil, David Hackett, president of energy consulting firm Stillwater Associates in Irvine, California, said by telephone yesterday.

“It’s hard to place because of its high pour point,” he said. “They don’t call it black wax for nothing. At room temperature, it’s a candle.”

Refiners in the western U.S. ran 2.51 million barrels a day of crude last week, the highest rate in 11 months, the EIA said today.