North America - Oil Transport By Rail

toolmaker wrote: ↑Tue Apr 21, 2020 1:02 pm I was thinking the same about stored tank cars except for one thing. Locals freak out over when they realize there are full cars in storage nearby. This may require loading tanks and shipping off to a remote locations for many months.

Mr. Toolmaker, here is a Journal editorial that I find factual describing the dilemma confronting these commodity traders:

https://www.wsj.com/articles/care-to-st ... 1587424678

Fair Use:

If you thought negative interest rates were bizarre, how about minus-$37 for a barrel of oil? That was the going price for a time on Monday on the futures contract for a barrel of West Texas Intermediate crude delivered in May. To put it another way, it would cost you less under that contract to fill your bathtub with oil than to fill it with water.

So goes the continuing turmoil in oil markets from the collapse in demand amid the coronavirus pandemic and global recession. The real price of oil isn’t less than $0. The bizarre behavior in futures markets is a combination of crashing oil demand today and expectations for higher oil prices later in the year when the economy is beginning to recover

Finally, regarding your immediately captioned point, note, yes, there are some localities that will object to loaded tank cars parked within their jurisdiction. But, last time I checked, those cars have wheels, and if their DOT Inspections are out of date, that can be remedied.

Locals aren't the only ones who freak out. The reading I've seen on this possibility so far (trade journals I believe) is that the railroads are not particularly enthusiastic about this possibility.

I realize, Mr. O'Keefe, "beaucoup liability, titi revenue".

The cars would not be moving; just storage once the maritime vessels were filled up.

Some cynic would simply look at these vessels "steaming" (Dieseling) in circles at 6kts or so, and simply laugh at our "mad, mad world"

Yes indeed. Even if the cars are on private property the railroads are likely not enthusiastic at all. I have to admit though ... If I were an oil man in North Dakota or Texas and I could fill a few hundred tank cars at reasonable rates I would do it in a second. The only real issue is that the glut may be so large that the crude could be sitting in storage for so long that no amount of price increases would pay for the storage costs. Going rate I've read about is something like $700/month to lease tank cars. Not sure how much parking on a siding costs.

gokeefe wrote: ↑Fri Mar 27, 2020 8:21 am
The "lift price" (price of production) is not the point at all. Russia functions much like Saudi Arabia. They pay a huge portion of their government budget with oil royalties and/or revenues. If the price of oil is only marginally above the lift price for the Russians then they have a 30% +/- hole in their government spending for the year. That's a pretty serious problem for a country that spends a lot of time hand wringing over pensions to elders, massive increases to defense spending and rebuilding crumbling Communist era infrastructure.

The Saudis aren't really that much better off especially when you consider they have capital intensive goals for economic diversification. Sure they can eat through their sovereign wealth fund but I doubt very much that's what they really want to do right now. They need the cash and it damages their strategic position when they start burning through their reserves.

So that leaves North America ... Yes I think there will be bankruptcies. However, that only means assets sold at fire sale prices to companies willing to take them on. These are tangible assets. The oil is still there regardless of the paper that governs it above ground. That is not the case in many bankruptcies when the capital value of the company as a going concern evaporates upon shutdown.

No matter how hard they try OPEC knows that there is nothing they can do about this. The oil is in the ground, the cat is out of the bag and perhaps worst of all for them the North American railroads continue to be able to deliver flexible takeaway capacity which comes online and offline with market conditions.

It's a total nightmare for a cartel which is trying to control a market.

The main difference between Russia and Saudi Arabia is that the former has other competitive economical sectors (they're, for example, a big grain, steel and industrial machinery exporters, although that last one is slowing down too).
Yes, the national budget depends from oil sales, but the total share is radically different from the Saudis'.

Still say, in the tradition of that great movie "The Graduate" (Mr. Robinson ((Murray Hamilton)) to Benjamin ((Dustin Hoffman))):

"railcars"

https://www.wsj.com/articles/wanted-som ... 1589207580

This article is a nightmare for the Saudis.

"What happened to all the oil we tried to flood them with?" ... "It's all in storage." ... "I thought Cushing was full." ... "It is, our stuff is sitting in every rail yard between New Orleans and Houston." ... "Where did they get all those cars?" ... "Because the shale fields shutdown they can store oil almost anywhere." ... "[Expletive]"

Obviously we don't have 40 million barrels of storage available in railcars. On the other hand every time I read about all this oil headed our way I can just imagine the traders drooling over their screens at the virtually risk free proposition of forward arbitrage.

If they find a way to absorb all of the Saudi oil without damaging shale production (which appears increasingly likely) the overhang in the oil markets from this will last for years. The result will be an absolute worst case situation for the Saudis of stagnant oil prices hovering between $30-$40 well into 2022/2023.

Off topic and political.

Why Vlady and Binny chose to have their little playground fight on the world stage escapes me. Despite what they both like to proclaim about their "diversified" economies, they both come down to what was once "Black Gold" and now is "Black sludge".

I would not characterize the Russians as being first movers in this situation. The Crown Prince decided he wanted to strike a blow against American shale once and for all. He miscalculated terribly and also may have completely underestimated a) the amount of storage available in the U.S. (he was not alone in this) and b) the potential for COVID to cause a demand crash.

An alternate hypothesis would presume that the Saudis had figured out COVID would cause a demand crash and they felt this could be their chance to bankrupt the shale producers. Again, in error. Their mistake here appears to be two fold a) underestimating U.S. storage capacity and b) underestimating the price levels that shale producers could tolerate. They also probably didn't understand some of the very arcane options available to state government regulators such as on Oklahoma were production shutins without causing a loss of lease rights occurred.

Who in Saudi Arabia would have ever said, "This is going to cause long dormant state regulators to allow measures to be taken in the American oil fields which have never occurred in our lifetime." Nobody ever believes that guy initially.

The Russians appeared reactive to me and I think they are probably relatively pleased with the latest outcome. They have their own problems now with COVID that are going to make their previous issues economically and politically seem like child's play.

In the meantime the "glug glug glug" of filling storage continues unabated while the economy slowly emerges from quarantine in fits and starts. When the time comes fuel will be cheap and energy prices very low and almost certain to remain that way for years to come. Bodes well for the future.

Interesting hypothesis, Mr. O'Keefe.

So Binny started it, and Vlady decided to pile on.

Little children thinking only of themselves and only for the moment.

Yes, and I think the Russians probably underestimated COVID to an extent as well. Either willfully because "the boss" doesn't like bad news or they really didn't know for any number of other reasons ("friends" in Beijing of whatever kind weren't sharing information).

This really does leave crude by rail in an interesting position yet again. Shale fields are preserved. Oil is everywhere, the economy is slowly recovering and China is opening back up. The rail option always seems to thrive on market disruption. One could argue that rail tank cars are as significant to the market in some senses as the entire Strategic Petroleum Reserve.

Not a scenario any of us would have ever imagined.

Over at another topic, I learned of this development. JD Irving, Ltd, an industrial conglomerate into "anything and everything" - including oil refining, is handling Alberta crude, first by pipeline to Vancouver (Port Burnaby), then by vessel through the Panama Canal, to their refinery at Saint John, NB:

https://globalnews.ca/news/7176448/firs ... ey-irving/

Fair Use:

After a lengthy, nearly 12,000 km journey from British Columbia through the Panama Canal, the first shipment of Alberta crude oil has arrived on Canada’s East Coast.

The Cabo De Hornos — loaded with oil from Calgary-based Cenovus Energy — departed the Trans Mountain Terminal in Burnaby, BC., on June 18.

The vessel’s nearly month-long circuitous route to Saint John was a journey made out of necessity, according to industry analysts, as Canada’s oil sector works to make due without the cancelled Energy East Pipeline project.

“The idea that we would send a tanker from the west coast all the way down through the Panama Canal back up the east coast to a refinery in our own country is certainly a clumsy solution,” said David Yager, an analyst with Yager Management Ltd.

Well, at least the vessel did not see its namesake

All I can say is "Thank you Eddie Burkhardt" for "torpedoing" future Trans-Canada oil transport, let alone what you did to the business "down here".

There is still some oil transport business; I can see two separate trains go by here most days. Further, I havent learned of any derailments or spillage incidents of late. Can't say same for pipelines.

But Eddie Burkhardt, when you attempted to operate a crude oil train over your excuse for a railroad, cutting every corner there was to be cut, no wonder Megantic happened; and no wonder Canada is going to those lengths to avoid rail shipment of crude.

I'm surprised they didn't route it through the U.S. via Pan Am. Rates must not have been pretty for that move ...

Sent from my Pixel 2 XL using Tapatalk

Mr. O'Keefe. that's for another day. From our "for sale" discussion, it appears all too much, especially the Maine Central, of a Pan Am-Irving Short Line (can't keep the "alphabet soup" of those straight) routing is FRA Class 2 (25mph).

What I don't know is in what kind of shape
either the CN's Moncton-Saint John line, or Saint Andre-Saint John; Mr. Hadfield, anyone?

I trust by now all of us who follow industry affairs beyond passenger trains are aware that President Biden has cancelled the permit to build the Keystone XL pipeline through the US. Here is New York Times reporting of this development:

https://www.nytimes.com/2021/01/20/worl ... biden.html

Fair Use (railroad related):

.There are numerous pipelines between the two countries, in addition to railways, through which Canada sends oil to American refineries. And two other Canadian pipelines serving the United States are currently being expanded, making it likely that production in the oil sands will continue.

Still, the question, Mr. Leach said, is whether these other pipelines are also targets of the new U.S. administration: Is Mr. Biden “saying basically we don’t want cross-border pipelines, or we just don’t want this particular pipeline?”

I think environmental interests fail to recognize is that (Graziano 1267) crude still is being shipped by rail, and that the roads have made great strides to "clean up the act". Yes, Megantic put a "terrible Black Eye" on the industry's ability to safely handle the shipments. This was further abetted by the incidents, while not resulting in the loss of life and hence news media coverage, occurring on all seven Class I's.

But I think it time that these interests accept that railroads now represent a mode that can safely handle crude oil.

Here is related coverage (Fair Use omitted as author's points are drawn from that first noted):

https://www.nytimes.com/2021/01/20/clim ... ement.html

Finally, and hardly a surprise, The Journal's Editorial Board holds a differing view:

https://www.wsj.com/articles/bidens-key ... 1611184519

Fair Use:

Mr. Biden is sending an early signal that the climate panic will trump nearly everything else in his Administration. The unstated but operative message from the Keystone kill is that he will use regulation and permitting to do the dirty work.

Might "the honeymoon" be over after only one day?