Wednesday, April 20, 2016

RBN Energy: "Massive" over-capacity at Gulf Coast CBR terminals

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An RBN Energy LLC analysis shows that about 1.7 million barrels per day of crude by rail (CBR) unload capacity has been built out and is operating in the Gulf Coast region. But this capacity “represents a whopping 12 times January 2016 shipments—a massive overbuild that is continuing today as new terminals are still planned.”

According to U.S. Energy Information Administration January 2016 data, an average of only 142 Mb/d (thousand barrels per day) was shipped into the region by rail, down from a peak of just under 450 Mb/d in 2013 and an average of 235 Mb/d in 2015. “On the face of it, the odds do not look good for Gulf Coast CBR terminals,” writes RBN Energy analyst Sandy Fielden in Slow Train Coming – Massive Over Capacity at Gulf Coast Crude-By-Rail Terminals. “It certainly seems like it is a very risky proposition for the new capacity that still is being built, even as volumes are falling off, plenty of pipeline capacity is available and crude price differentials have made rail freight too expensive to compete. And yet several companies are still planning and building new terminals!”

“While some of these projects are backed by take-or-pay commitments, it seems unlikely that these projects will provide good returns once those take-or-pay commitments (that provide revenue even if the terminal is not used) expire,” says Fielden. “Unless that is, crude oil prices take off again and U.S. production grows to a point where pipeline capacity is inadequate and rail is needed to take up the slack, as it did in 2012.”

“There is, however, one possible opportunity for the larger, more-efficient rail terminals, and that is the crude export market,” says Fielden. “Rail terminals might play a role in that market going forward. Let’s assume . . . that U.S. crude production recovers . . . and that domestic prices become competitive vs. overseas crudes. At that point, a crude export market opportunity could exist, and traders/shippers will look to load cargoes of crude at coastal marine docks in large enough batches for export—perhaps 500 to 750 Mb/d of crude at a time from Gulf Coast ports. [R]egular pipeline deliveries might be hard to schedule since such shipments would tend to be one-off responses to export opportunities rather than a regular flow. That would open the door for rail facilities in Houston, Galveston and Port Arthur/Beaumont, Tex., or further east at St. James, La., to be used to accumulate CBR for export, since they provide a connection directly from producing basins to export docks.”

Click HERE to access Fielden’s full analysis.

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