Monday, May 20, 2013

CBR Is Here To Stay: Pipeline And Shale Are Not Compatible Unless There Is The Rail Option

For those of you who haven't read the sixteenth and last in the 2013 series on crude-by-rail provided by RBN Energy, you need to do so. Absolutely fascinating. Some takeaways:

Costs:
  • pipelines: billions of dollars
  • CBR terminals: millions of dollars
Investment return:
  • 20% on a $50 million investment
  • payback in 5 years
Advantages:
  • scalable
  • flexible
  • activist environmentalists apparently are rail buffs, apparently they love Burlington Northern, Canadian Pacific, and Union Pacific (these are the big winners)
From concept to design to permitting to operation:
  • measured in months, not years (let's see, are we in our 8th year with regard to the Keystone XL?)
  • exception: years in California due to permitting process
Most interesting: rail is particularly suitable to shale production = production volatility
  • initial production huge; tapers off quickly (hard on pipelines; perfect for scalable CBR)
  • pad drilling: huge initial production (can't get pipelines in fast enough for all the new pads)
  • new rigs more effective; increased production volatility; again, CBR better than pipelines
  • as sweet spots targeted, production volatility increases
RBN summary:
So the pipeline model and the shale crude model are not compatible unless you have a third transport option to take up the slack. That is where rail came into play. Originally as a band-aid to ship production until pipelines were built. Now that the rail network is set up however, the band-aid becomes part of the solution and no longer just a work around.
MDW summary:
  • not one downside to CBR for shale oil production
  • scalable, flexible
  • no losers
  • activist environmentalists love rail
  • once natural gas proves cost effective for locomotives, one more advantage
  • best thing that ever happened: Keystone XL killed
 Yup, CBR is here to stay:

Rock and Roll Is Here To Stay, Danny & The Juniors

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