Oil And Gas Industry Using Existing Assets To Facilitate New Market Conditions -- Platts

There is an incredible post over at Platts.

The analyst pieced this together by listening to several conference calls during earnings week.

There are so many story lines in this article; things are changing rapidly; CBR -- essentially a Bakken strategy -- is changing the oil industry faster than anyone could have expected. I still remember, vividly, the comment I received a year or so ago from a reader who said the CBR phenomenon was temporary: once all the pipelines are laid, CBR will be history. I've always said it costs the oil industry more to ship by pipeline than by rail. Parse that sentence carefully before pointing out the errors of my way. But I digress. Read the linked article over at Platts.

1. First: read my post on the Buckeye pipeline, taken from RBN Energy, posted just a few weeks ago. And from there, read the original RBN Energy article. The photos are great.

2. RBN talked about the Caribbean/Bahamas being a distribution center, taking oil to the east coast of the US. Platts suggests that Buckeye Pipeline, the company, is considering moving Canadian heavy crude to the Bahamas, and from there, it could go almost anywhere. Forget Keystone XL, forget Cushing, forget Texas/Louisiana refineries.

2. As noted, this would take the "anti-oil sand fight out of Canada and the US and extend [that fight] toother areas where oil form the sands might end up. [China would not care.]

3. So, that helps out western Canadian crude. What about the Bakken? Okay, what about the Bakken.  it turns out that Plains All American has revealed plans to create a giant rail hub in Bakersfield, CA, bringing in Bakken and other Midcontinent crudes [probably Permian and Eagle Ford].

4. The Platts folks see at least three scenarios developing.

First: Bakken oil is "low carbon" compared to heavier oils (like Canadian) and the Californian refineries might see the advantage of Bakken oil over Canadian oil coming down from the west coast.

Second: CBR now solves "the California problem": As Platts says, "the idea of a disconnected California market, almost like Hawaii but attached to the rest of the country, starts to fade.

Third: from Platts, the “cheap” crude oil that powered Midcontinent refiners to amazing margins earlier this year may now be available on a less profitable basis to refiners outside of PADD 3.

Readers need to read "Bridget's" comments in italics at the linked Platts article, which includes this bit:

 ... both companies [Buckeye Pipeline and American All Plains] are planning to use existing assets to facilitate new market conditions. How smart. New crude production is changing everything, but a handful of midstream companies seem to really be staying ahead of the game. I haven’t been in this market too long, but I came in at the right time… right as crude by rail took off.

Regular readers of the blog have been in on CBR since about December 31, 2009, when the EOG Stanley facility came on line two months early.

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From the Plains All American conference call that was referenced above:

And with regard to our rail projects, our Tampa Colorado loading facility is expected to come into service this month and our Yorktown Virginia facility is expected to be in-service in December. We expect unloading facility in Bakersfield, California and expansion of our Van Hook, North Dakota loading facility to be in-service by mid 2014. We're also developing a rail loading project in Canada, which we expect to be in-service in the first quarter of 2015.

Finally, I note that our -- that the completion of both our Gulf Coast pipeline and our Bakken North line had been moved to 2014 primarily due to the timing of permits or right of way.

More about the CBR terminal in Bakersfield:

Just circling back to Bakersfield a little bit. I know some of the California refiners have actually cited some permitting delays out there for the lone unloading facility. Curious as to how you guys are looking at that facility in terms of the ultimate scale and ultimately flexibility of the facility to bring in Canadian heavies as well as access a number of different light U.S. shale basins?

It's currently -- that's currently permitted to move, it can move unit train a day, 65,000 to 75,000 barrels a day. The facilities are such that they could -- we could move two unit trains a day, but we need an increase in our admissions permitting for the increase, which we have recently -- we are in the process of making. So ultimately, we think we will able to bring a both light and heavy and actually -- probably be more lighter crudes and sort of a unit train a day type of volume.

A digression: I don't know if I posted this before or not, but I talk about it a lot (especially with my dad). The railroads "took off" twenty or thirty years ago when they realized what "business" they were in. A hundred years ago, railroad companies thought they were in the "railroad" business and operated as such. But, business took off exponentially when railroads realized they were in the transportation business and reconfigured cars for intermodal freight transport. Railroad companies now see themselves as part of a system that includes ocean-going vessels and 18-wheelers.

The PAA/CEO said the same thing about his pipeline company. PAA now "melds" pipeline activity directly into their CBR activities. PAA doesn't think of themselves as a pipeline company any more; they think of themselves as a mover of crude oil.

I have the Air Force to thank for all the training they provided me for this type of thinking.

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For the archives. Platts 2013 Insight -- Top 250 Energy Companies.