A reader sent me this story (I couldn't find the link; when I find the link I will post it and will cut the post to highlights only. Until then, enjoy; a huge "thank you to the reader for sending me this):
Refiners in California railed in an average of 4,670 b/d of light, sweet Bakken crude from North Dakota during the first three months of this year, more than doubling average rail receipts of 2,174 b/d during all of 2012, according to the latest data from the California Energy Commission.
California's refineries did not receive any Bakken crude by tanker or barge in the first quarter of 2013, but received a total of 89,462 bl in this manner last year.
In February Bakken receipts by rail reached an unprecedented level of 7,363 b/d before sliding almost 55pc to 3,086 b/d in March. Golden State refiners first received Bakken crude in June 2010.
The erratic swings in Bakken crude import levels seen throughout the state data signal that the formation's crude-by-rail movements are likely manifest shipments that track pricing arbitrage opportunities rather than constant, ratable unit train flows. As pricing for the US crude benchmark, West Texas Intermediate (WTI) falls relative to other global benchmark crudes, opportunities to rail WTI-based crudes, such as Bakken, to markets that refine Brent and Dubai-based crudes emerge. When WTI gains strength relative to other benchmark crudes these pricing arbitrage opportunities narrow.
The current manifest freight cost to rail Bakken crude to Bakersfield, California, from North Dakota is $12.06/bl. August-injecting volumes of Bakken at the Enbridge pipeline-injection hub of Clearbrook, Minnesota, are currently being valued at a $3/bl discount to calendar-month August WTI.
Bakken crude loading onto rail cars in North Dakota are being valued around $1-$2/bl under the Clearbrook price. In the current pricing environment, Bakken could land at Bakersfield at a cost of $8.06/bl over August calendar-month WTI, well under prices for alternative light and medium crudes.
Russia's light, sweet ESPO Blend can be delivered to San Francisco, California, from the Kozmino terminal at a delivered cost of around August WTI +11.51, which is $3.64/bl costlier than Bakken. Medium, sour grade Alaskan North Slope (ANS) crude delivered into the region is currently pricing at an $8.85/bl premium to August WTI, or about $1/bl stronger than Bakken delivered by manifest rail car. Shipments of Bakken crude to California could increase in the coming months as Californian refiners seek an economical replacement for ANS production in their crude slates.
Production of the domestic medium sour, which commands strong prices, has been naturally declining since 1988 when production rates peaked over 2mn b/d to a current average of 489,941 b/d.
In stark contrast to refiners in California, their Washington state counterparts have already largely developed crude-by-rail infrastructure and currently take between 80,000-100,000 b/d of Bakken crude by unit train shipments at a freight cost of about $7.96/bl, effectively backing out significant pricier foreign alternatives.
There are several proposals underway to bring increased volumes of discounted WTI-based crude-by-rail to California. Plains All American Pipeline will open a 140,000 b/d rail unloading site in Bakersfield during the first quarter of 2014 and US independent refiner Valero has submitted applications with state regulators to build a 60,000 b/d rail terminal at its 135,000 b/d refinery in Wilmington and a 70,000 b/d rail terminal at its 147,000 b/d refinery in Benicia.
US independent refiner Tesoro plans to move North American crudes over the water to west coast refineries through a 120,000 b/d marine-loading facility in Vancouver, Washington, which is located across the Columbia river from Portland, Oregon. And NuStar is also considering a crude-by-rail project in Vancouver, Washington, where the company has two existing products terminals.
Terminal builder US Development Group will build a 50,000 b/d site at the Port of Grays Harbor on the coast of Washington state that will be capable of handling one unit train per day of North American crude. The crude could be offloaded to barges for transport to US west coast refineries.
The project is one of three crude-by-rail terminals proposed at the Port of Grays Harbor. Westway Terminals and biodiesel refiner Imperium Renewables are also weighing unit train projects involving crude that would expand their existing port facilities
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