California’s Oil Refiners Double Crude-by-Rail Volumes

Link to article: https://stillwaterassociates.com/californias-oil-refiners-double-crude-rail-volumes/

May 2, 2014

By Lynn Doan, Bloomberg

California, the most-populous U.S. state and biggest gasoline market, more than doubled the volume of oil it received by train in the first quarter as deliveries from Canada surged.

The third-largest oil-refining state unloaded 1.41 million barrels in the first quarter, up from 693,457 a year ago, data on the state Energy Commission’s website showed yesterday. Canadian deliveries made up half the total and were eight times shipments a year earlier. Supplies from New Mexico jumped 71 percent to 173,081 barrels. Those from North Dakota slid 34 percent to 277,046.

U.S. West Coast refiners including Tesoro Corp. (TSO) and Valero Energy Corp. (VLO) are developing projects to bring in more oil by rail from reserves across the middle of the U.S. and Canada to displace more expensive supplies. Crude production in PADD 5, which includes California and Alaska, has dropped every year since 2002 while drillers are extracting record volumes from shale in states including North Dakota and Texas.

The surging flows of domestic oil to California “reflect a continuing improvement in crude-by-rail receiving facilities here,” David Hackett, president of Stillwater Associates, an energy consultant, said by phone from Irvine, California.

Rail shipments still account for a small fraction of California’s oil demand imported more than 20 million barrels of crude from abroad, data from the U.S. Energy Information Administration show.

Lower Costs

Crude from North Dakota and Canada trades at a discount to Alaska North Slope oil, which rose 36 cents to $107.78 a barrel at 9:09 a.m., data compiled by Bloomberg show. Western Canada Select, a heavy, sour blend, gained 36 cents to $82.88. North Dakota’s Bakken crude also gained 36 cents to $95.28.

It costs $9 to $10.50 a barrel to send North Dakota’s Bakken oil by rail to California, according to Tesoro, the West Coast’s largest refiner.

Trains are bringing more to California even as projects face more regulatory scrutiny after a series of accidents involving rail cars carrying fuel. The  most recent was on April 30, when a CSX Corp. (CSX) crude train derailed in Lynchburg, Virginia, igniting a fire and triggering an evacuation. A derailment in Quebec last July killed 47 people.

The U.S. Transportation Department is studying changes to shipping oil by rail, and in February railroads agreed to slow such trains in urban areas. Canada ordered a phase-out of older tank cars last week.

City regulators said yesterday that they’re delaying an environmental report on a rail-offloading complex that Valero has proposed at its Benicia refinery in Northern California to June. The San Antonio-based company originally planned to finish the project by the end of last year.

Behind Schedule

Tesoro is six to eight weeks behind schedule in receiving regulatory permits for a rail-to-marine crude transloading terminal in Washington state, the company, also based in San Antonio, said yesterday. It now expects to receive the permits late this year or in early 2015, with construction taking about 12 months, Scott Spendlove, the chief financial officer, said on a conference call with analysts.

Alaskan oil output has declined every year since 2002 as the yield from existing wells shrinks. Alaska North Slope crude production averaged 555,987 barrels a day in April, up from 546,087 a year earlier, data posted on the Alaska Department of Revenue’s website yesterday showed.

To contact the reporter on this story: Lynn Doan in San Francisco at [email protected]

To contact the editors responsible for this story: Dan Stets at [email protected]

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