Dakota Access Pipeline cheaper shipping tool for Bakken producers
The completion of the Dakota Access Pipeline in mid-May could force East Coast refineries who have been using Bakken crude shipped by rail to use foreign, waterborne crude.
In a sign that the Dakota Access Pipeline is shifting trade flows, Philadelphia Energy Solutions Inc, the largest refiner on the East Coast, will not be taking any rail deliveries of Bakken crude in June, according to a Reuters source.
During the boom years between 2013 and 2015, PES would receive three trains carrying 75,000 barrels of Bakken crude each. Recently, the refiner has shipped about one unit train per day. In May, PES has scheduled only five rail deliveries for its refinery.
“It’s the new reality,” Taylor Robinson, president of PLG Consulting told Reuters. “Unless there’s an unforeseen event, like a supply disruption, there will be no economic incentive to rail Bakken to the East Coast.”
The $3.8 billion Dakota Access Pipeline that runs from North Dakota to Illinois and connects to Texas bound pipelines, boosts the price for Bakken crude and will unofficially bring to a close the crude-by-rail boom that helped revive East Coast refining operations several years ago.
Upon completion, the Dakota Access Pipeline will expand competition for Bakken crude. According to Reuters, Bakken barrels at the delivery point in Nederland, Texas, are trading around $1.25 to $1.50/barrel over US crude futures in June.
Higher rail costs would increase those barrels to $7 to $8 more than US crude.
Genscape says East Coast refiners averaged about 100,000 b/d of crude deliveries by rail. During the boom, rail volumes peaked at 420,000 b/d, resulting in bumper profits for the refiners.
In January, 2016, Monroe Energy, a subsidiary of Delta Air Lines, stopped shipping Bakken crude by rail to its 185,000 b/d refinery located near Philadelphia. Some East Coast refineries, including Phillips 66 and PBF Energy still receive some Bakken crude.
“At this point, there are no good reasons to rail crude to the East Coast,” Sarah Emerson, a managing principal at ESAI Energy LLC told Reuters.