The proliferation of rail-based crude oil transport in the Bakken Shale and elsewhere has not gone unnoticed by pipeliner Enbridge Inc. “It’s an agile…way of getting to market,” Enbridge’s Stephen John Wuori, president of the liquids pipeline business, said. However, “…rail movements can and will get turned off in a day if differentials collapse.”
About a month ago, BNSF Railway said its capacity to carry liquids from the Williston Basin in North Dakota and Montana had hit 1 million b/d (see Shale Daily, Sept. 6). Producer Statoil is among rail’s fans. “The value of our Bakken crude is lowered by present limited pipeline capacity in the region,” Statoil’s Tor Martin Anfinnsen, senior vice president of crude, liquids and products, said recently (see Shale Daily, Aug. 31).
In a mid-August blog post, RBN Energy analyst Sandy Fielden noted that significant new rail terminal capacity had come online in the Bakken during recent months: the Rangeland COLT terminal near Epping, ND (120,000 b/d); an upgrade to the Musket Terminal at Dore, ND (now with 60,000 b/d capacity); and the Savage Services Terminal in Trenton, ND (90,000 b/d).
During a presentation to financial analysts Wednesday in Toronto, Wuori allowed that numerous crude terminaling projects have been announced or completed. But when basis collapses — or a cheaper transport alternative emerges — capacity goes unused.
“Differentials have to remain high and be seen to be remaining high in order for rail to continue to be viable,” he said. “No one is building new track. You hear a lot about loading facilities and unloading facilities and rail cars being welded together, but nobody’s building much for new track…
“[Y]ou have to wonder whether you have congestion issues because pipelines, unlike rail, do not need a backhaul…With rail, you have the rail cars all empty at the wrong end and you’ve got to, hopefully, get a backhaul of some kind or somehow get them back to the source.”
For the time being, rail can get product to market when there are no pipelines to do so. “You can’t get any appreciable amount of crude to the eastern Gulf Coast; St. James, LA, or Philadelphia by pipeline,” Wuori said. Even with “high transportation cost,” there is a basis spread available for rail to capture, he said. When Louisiana Light Sweet is going for a $20 premium to West Texas Intermediate, it “leaves room for quite a bit of transportation cost.”
Still, shippers would rather pipe it if they only could.
“…[I]f you think about pipeline tariffs, almost always they run between $3 and $9,” Wuori said. “In North America, generally, to get from point A to point B, if it’s any distance, it will be $3. You know that our toll on the mainline system for heavy crude is $3.93 from Western Canada to Chicago. And then depending on how you piece the routing together, you could get up into the high-single digits for a toll.
“Rail rates, of course, run $12-16/bbl. You’ve got about $3/bbl spent before you move it an inch because you’re going to have about that combined on the loading and unloading and switching charges and so on…[T]hen you add the rail rates themselves…
“And by the way, just when you’re wondering how far can the rail phenomenon go…to replace the Enbridge mainline system alone would take 3,600 rail cars unloading every day, seven days a week consistently to replicate the roughly 2 million or so b/d that we deliver with the mainline.”
However, when rail makes sense, Calgary-based Enbridge is in.
Enbridge Pipelines (North Dakota) LLC is enhancing its North Dakota crude system by upgrading and expanding facilities in Berthold, ND, to connect into a rail car loading facility south of its existing Berthold Station. “This facility will provide timely increased export capacity via rail while additional pipeline infrastructure projects are being developed in the Bakken and Three Forks regions,” the company said. The Berthold Station Expansion Project will add 80,000 b/d of capacity to market hubs and refineries across the BNSF rail network by early 2013.
There are pipeline projects out of the Bakken as well. The company’s Bakken Expansion Project, slated to come online next year, will move 145,000 b/d. The Bakken Access Program, also to come online next year, will move 100,000 b/d. And the yet-to-be announced Sandpiper Pipeline “would be the next high-volume export from the Bakken Project that we would be pursuing, and it would go to our mainline system…” Wuori said. “We’re working with producers to develop this Sandpiper concept.
“Rail certainly has been making a lot of inroads in the area; that’s been a tremendous story in the North Dakota Bakken. And I’m thankful for rail because, quite honestly, it has kept the production profile growing as it has been.”
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