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Western Railroad Discussion > Is crude by rail doomed?


Date: 03/22/20 16:49
Is crude by rail doomed?
Author: Lackawanna484

The Wall Street Journal had a weekend piece on US crude oil prices. With US oil prices around $30, rail is an expensive way to move crude oil.

Bakken to East coast is about $12 for The railroad, give or take a little. Alberta to Louisiana is about $16, on Canadian oil that sells for $25.

This matters because railroads are increasingly dependent on crude oil as coal traffic drops. Pipe lines are filled.

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Date: 03/22/20 17:15
Re: Is crude by rail doomed?
Author: callum_out

Cheap oil is doomed, hang around for a while, the current situation is but a blip.

Out 



Date: 03/22/20 17:23
Re: Is crude by rail doomed?
Author: mojaveflyer

I agree with callum_out.... I heard to be profitable crude needs to be at $50 / barrel or above for rail transport. These low prices, however nice for us, will not last forever. 

James Nelson
Thornton, CO
www.flickr.com/mojaveflyer



Date: 03/22/20 17:25
Re: Is crude by rail doomed?
Author: wyeth

Much of the crude oil for the Pacific Northwest refineries come from North Dakota, so it's likely that "crude by rail" will still be a big thing across the BNSF Northern Transcon.



Date: 03/22/20 18:18
Re: Is crude by rail doomed?
Author: Lackawanna484

The cost of extracting oil in the US and Canada varies widely. Some of it is caused by the difficulty in drilling. Frac sites need to be re-opened, older wells need carbon dioxide or other injections, some guys bought leases at spectacularly bad prices. There are US oil companies that need $80 oil to survive, others that can break even at $40. Few companies can pump oil at $30 spot price, and pay BNSF/NS another $12 to haul it to the east coast.

The Saudi vs Russian pissing match is squeezing marginal producers like Iran and Nigeria, as well as most of the US frac market. There will be more blood in the oil patch before this is over.



Date: 03/22/20 18:22
Re: Is crude by rail doomed?
Author: lowwater

As of 7:15 PM MDT 3/22, according to Bloomberg West Texas Intermediate futures are at $22.64/bbl.........



Date: 03/22/20 18:51
Re: Is crude by rail doomed?
Author: Lackawanna484

lowwater Wrote:
-------------------------------------------------------
> As of 7:15 PM MDT 3/22, according to Bloomberg
> West Texas Intermediate futures are at
> $22.64/bbl.........

Yes. One guy on Bloomberg news mentioned he expects to see $10 WTI oil this Summer. 

Few US oil companies will make money selling oil on the spot market for $22, but few have to do that.  Much / most oil is sold in the contract markets, with multiple hedges around it.  But the contract amounts are coming down, and that's going to impact the decision to buy US and rail or pipe it to your plant, or offload it from a tanker and process Angolan, Norwegian, Saudi etc oil.



Date: 03/22/20 19:19
Re: Is crude by rail doomed?
Author: callum_out

The Saudis float at $80/bbl below that they sink, what's interesting is that they've threatened to go to 13M bbl/day,
seems totally counterproductive unless everyone else stops pumping to elt the price rise. If alternative energy cars
do catch on quickly this is going to be a major global disaster unless a market for sand develops.

Out 



Date: 03/22/20 19:38
Re: Is crude by rail doomed?
Author: kyrasmus

Lackawanna484 Wrote:
-------------------------------------------------------
 Pipe lines are filled.
>
This is actually not a true sentiment anymore. So many new (or expansions of existing) pipes to move crude out of the Permian Basin have literally erased the bottleneck of pipelines across most of the US. The Bakken is getting tight on takeaway capacity again, but either expanding the DAPL or connecting to the Guernsey Hub have been discussed to alleviate this. Also, as noted, a significant amount of bakken crude does go west by rail to PNW refineries which keeps a relief valve off how full the Bakken hubs get. Quite a bit of crude is moving from Canada by rail, but stories are making the news that the Keystone XL is finally starting to take break ground. 

Unfortunately, this now open availability of pipeline space out of the Permian does pinch whatever margin the railroad may have had to move barrels out by rail. The only places even considerable to move crude by rail is to places that pipelines don't exist (PNW or Northeast refineries). I think the last time I was down in New Mexico I saw crude oil heading out on BNSF to California. Not sure if much of anything is leaving via UP.

I agree with the sentiments of other posters that neither the Saudis nor the Russians can go as long as either claim with $20/bbl oil. The Russians have a small advantage in that they can manipulate the Ruble to ease some burden (whereas the Saudi's are locked to the dollar for oil), but the Saudis can most certainly pump oil cheaper. Neither country can afford an the ongoing revenue loss from a prolonged price war. (Also remember Aramco sold shares in the company, so there are shareholders to think about now)

Sadly I'm sure there will be several E&P firms that will go bankrupt over the next couple of months. Even with improved efficiency in fracking, the majority of the "break even" price in the shale sector is paying off debt from the boom days of 2014-15. 

One wrinkle in the theory of replacing US shale with imported OPEC barrels, is that the pipeline system in this country is now designed to move oil TOWARDS the gulf coast, not away from it. Currently the Capline system (between St. James, LA and Patoka, IL) is in the process of reversal and won't be moving any crude anywhere until next year: https://www.reuters.com/article/mplx-results/update-1-mplx-says-reversed-capline-pipeline-to-begin-light-crude-service-in-mid-2021-idUSL1N29Y0XU  But once it starts back up it will carry Bakken crude out of Illinois to St. James for gulf coast refiners and export. 

Kyle Rasmussen
Centervillle, UT



Date: 03/22/20 21:19
Re: Is crude by rail doomed?
Author: callum_out

The Saudi situation has little to do with pumping costs but rather the portion of the national budget which is serviced by oil sales.
Presently not a good situation.

Out 



Date: 03/23/20 05:31
Re: Is crude by rail doomed?
Author: Lackawanna484

Good comments all around.

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