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Vol. 18, No. 7 Week of February 17, 2013
Providing coverage of Bakken oil and gas

Rail will survive pipeline additions

The need for rail to move crude from Midcontinent fields will likely persist, even if plans for expanding pipeline links from the Bakken to the Gulf Coast go ahead, EOG Resources Chief Executive Officer Mark Papa told a Colorado conference.

He said rail will still be used five years from now to deliver Bakken crude to all three Lower 48 coasts — the Gulf, East and West — but expects the current advantage of Louisiana Light Sweet, LLS, crude prices in the Houston market will probably change within 18 months.

The differential for LLS was $21 a barrel over West Texas Intermediate earlier in February.

Papa said there will always be the “advantage of a price lift” somewhere in the United States that will generate a “pretty fat margin.”

However, he said there are no guarantees that the margin will exist in 2014-15.

He said it is possible within a couple of years that EOG will be delivering Bakken crude to other regions and less to the Gulf Coast.

EOG leases rail cars and has track fee arrangements with BNSF Railroad to deliver from the Bakken in North Dakota and Montana to St. James, La., with rail accounting for essentially all of its Bakken crude and some from the Permian.

Tesoro weighing rail, barges

In a Feb. 7 conference call, Greg Goff, president and chief executive officer of Tesoro, said his company is weighing the possibility of using rail and barges to improve margins for both heavy and light crudes.

Currently Tesoro uses rail to carry 5,000 barrels per day of discounted light sweet Bakken crude to its 160,000 bpd refinery at Martinez, Calif., and 40,000 bpd to its 120,000 bpd refinery in Anacortes, Wash., while its 58,000 bpd Mandan, N.D., refinery runs only Bakken crude.

The final quarter of 2012 was the first time that rail deliveries were made to Anacortes, with average volumes of 4,000 bpd during the period, which are now at 50,000 bpd.

Dan Romasko, Tesoro’s executive vice president of operations, said the flow of Bakken crude has backed out Alaska North Slope and foreign crudes at Anacortes.

Goff said his company now runs only a limited quantity of ANS in its portfolio.

No details on barges

Tesoro officials made fleeting reference to the use of barges to access the Southern California refining market, without offering any details beyond Goff’s comment that the use of barges from the Pacific Northwest is as attractive as rail.

He said Tesoro has a “good appetite” for Midcontinent crude at the Martinez refinery and could add the 266,000 bpd Carson, Calif., refinery when than is combined with the Wilmington, Calif., refinery being acquired for $2.6 billion from BP.

Tesoro reported a 6.5 percent year-over-year increase to 604,000 bpd in its refining throughout, with refinery utilization at 87 percent, its highest in five years.

The company refined 408,000 bpd of light crude in the latest quarter, up 23,000 bpd from the third quarter and posted net income of $27 million compared with a net loss of $124 million a year earlier.

—Gary Park



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