Genesis Energy's planned Raceland crude-by-rail unloading facility in Southeastern Louisiana will benefit Gulf Coast refiners seeking a variety of low-cost crude grades, while offering producers market flexibility, the company's chief financial officer said Monday following the project's announcement.
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The rail facility would be located 20 miles southeast of St. James, Louisiana, and "isn't specifically purposed for any one type of crude," Bob Deere said. The facility's initial design does not include steaming equipment, which would be needed to ship non-diluted heavy Canadian crudes, but "that's not to say that it can't be added in the future," he said.
The terminal, which is expected to go into service in the second quarter of 2014, will be capable of unloading up to two unit trains per day, the midstream company said in a statement.
A unit train carries on average 70,000 barrels of crude, Deere said.
"Expect all grades and basins to show up [at the terminal] from the US and Canada, as producers and marketers maximize their netbacks into the Louisiana refining market," Ethan Bellamy, senior analyst at Robert W. Baird & Co., said Monday. "The railed volumes need a home and Genesis is making one for them."
Genesis has completed the engineering work, filed necessary permits, executed railroad agreements and is preparing to begin construction on the so-called Raceland Rail Facility. The project should cost $75 million or less, and includes 400,000 barrels of new crude storage and pipeline infrastructure, Genesis said.
The facility will initially be connected to infrastructure providing access to refineries in St. James and Baton Rouge, Louisiana.
"In addition, Genesis is in discussions to build pipeline infrastructure for the rail barrels to move south, ultimately providing access to existing infrastructure at Clovelly, LA and connectivity, via existing pipelines, to the vast majority of refineries in Southeastern Louisiana," it said.
Deere would not disclose details of the discussions, but said they are "ongoing."
The facility would have access to both Burlington Northern Santa Fe Railway and Union Pacific Railroad, according to the statement.
CHEAP PRICE TAG MAKES PROJECT ATTRACTIVE: ANALYST
Crude by rail movements increased in recent years in North America because of a lag in pipeline capacity to ship booming low-cost shale oil production, most notably from the Bakken Shale in North Dakota, to refining markets. But the project's announcement is backdropped by recent talk of a decline in US crude-by-rail spot shipments due to narrowing price spread relationships.
The facility's price tag is an incentive for Genesis, Cowen Securities senior analyst Sam Margolin said Monday.
He added that $75 million is "pretty cheap, and the low barrier to entry is probably what keeps these types of [crude-by-rail] projects coming."
Less-attractive arbitrage opportunities for crude by rail movements have recently enticed shippers back to pipelines, sources have said.
But Deere said that the market is just beginning to develop the "logistical avenues" for moving oil to its "natural customer."
"We believe rail will be in the landscape for some time to come," he said. "The oil and gas market in the US is in the early stages of trying to adjust to the new sources of oil that have been found."
Crude by rail helps producers bypass long-term pipeline commitments and allows shipping flexibility to reach premium markets, Deere said.
"With rail you can deliver much closer to an intended destination," he added.
Margolin said that the terminal "may not be needed in the market right now, particularly if the Trunkline or Capline [pipelines] remain candidates for reversal."
Enbridge and Energy Transfer Partners have formed a joint venture to convert segments of a natural gas pipeline system owned by Trunkline Gas Co., a subsidiary of Energy Transfer Partners, to ship oil. An open season for the Eastern Gulf Crude Access Pipeline is expected to close on September 30.
The pipeline would allow deliveries of 420,000-660,000 b/d of crude from Western Canada and the Bakken Shale to the eastern Gulf Coast, and is targeting a mid-2015 startup. The project also includes a lateral to St. James.
The Capline pipeline--a 1.2 million b/d crude line that originates in St. James, Louisiana, and terminates in Patoka, Illinois--could potentially be reversed, sources have said.