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Riding The Rails | Fourth Quarter 2014

In just a few years, crude oil trans-portation by rail has moved quicklyfrom stopgap expedient, to booming

growth industry, to beleaguered necessity.A few, high-profile accidents have costboth lives and credibility, but have alsobrought shippers and carriers together toestablish best practices, and the first fruitsof that has been new standards for tankcars. Those are being phased in over thecoming years.

That is good because behind the luridheadlines, volumes of crude oil moved byrail have continued to grow.

Producers and refiners reiterate that it hasbecome an essential part of the supply chain,while railroads and terminal operators con-tinue to invest in infrastructure to handlehigher volumes. Beyond the pure numbers,many operators are expanding into full in-termodal services, linking road, rail, pipeline,and waterborne transportation.

Terminal modelFar out in the New Mexico desert may bean example of the intermodal future ofcrude handling.

When the Rangeland Integrated Oil(RIO) terminal comes into service near Loving, N.M., in the fourth quarter,it will be the first of a new type of inter-modal facility. The integrated system ofterminals and pipeline is designed to ag-gregate crude oil and condensate at theRIO Hub and deliver it by pipeline to themarket center at Midland, Texas, fortransport to the Cushing, Okla., oil trad-ing hub or the Gulf Coast—or transport itby rail to refining centers and other mar-kets across North America.

The RIO Hub lies in the center of theDelaware Basin’s rapidly growing hori-zontal drilling activity. The facility is situ-ated on a 300-acre site in Eddy County,N.M. Served by the BNSF Railway, the rail

terminal will handle inbound frack sandand outbound crude and condensate.Outbound service will be provided via railand pipeline.

Crude oil will come into the RIO Hub viatruck and pipeline. Rangeland Energy is sup-ported by an initial $200 million equity com-mitment from EnCap Flatrock Midstream.

Transloading between truck and railwas to begin in October. Initial through-put capacity for outbound crude oil andcondensate will be 10,000 barrels per day(bbl/d). As demand increases, Rangelandwill build high-speed unit train loading fa-cilities to take capacity to more than100,000 bbl/d.

The facility will also have the capacity toaccommodate more than 500,000 tons offrack sand per year. When unit train servicebegins and demand increases, Rangelandwill expand sand infrastructure to more than1 million tons per year.

Rail Comes Of AgeBy Gregory DL Morris

Shipping crude by rail has emerged as one critical link in a growing, interlinked supply chain.

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Rangeland is negotiating now with anoilfield services company to provide fracksand rail unloading, storage and distribu-tion, Chris Keene, president and CEO ofRangeland Energy LLC, told Hart Energy.

“We are in advanced discussions withseveral refiners, marketers and producersto provide outbound service for crude oiland condensate,” he added.

The first 30-mile leg of the RIOPipeline will connect the terminal toRangeland’s State Line Terminal, a gather-ing hub at the Texas-New Mexico borderwhere the company will provide tankageand truck unloading facilities. A bi-direc-tional pipeline will allow for the move-ment of crude from the State LineTerminal north to the Rio Hub or eastalong a 104-mile route to the Midland Ter-minal, which will provide connections toexisting and planned interstate pipelinesto Cushing and Gulf Coast markets.

That’s all very impressive. But note:This complex will serve Permian Basin producers—not the rail-centricBakken play.

And RIO will not be alone. Nearby,Murex LLC and Cetane Energy LLC re-cently agreed to capital improvements attheir Cetane transloading terminal atCarlsbad, N.M., that will double the facil-ity’s operational capacity. The existing unittrain terminal was to begin improvementsin the late third quarter that will allow forthe loading of 40,000 bbl/d of oil followingcompletion in July 2015.

Initially, Murex and Cetane installed40,000 bbl of crude oil storage, 12 tank truck offloading stations and morethan 18,000 feet of track to accommo-date unit train loading at the facility,which shipped its first oil in December2013. The expansion will include addi-tional on-site storage, further rail track

enhancements and increased capacity fortruck offloading and rail car loading.

More connectionsRangeland expects to establish connec-tions to various pipelines due to come online late this year.

“When we decided to enter theDelaware Basin we looked to currentdrilling activity and production,” saidKeene, “but we paid even more attentionto where we think production will be fiveto 10 years from now. We want to be inthe heart of that activity with the abilityto touch the majority of production oc-curring within a 75-mile radius of theRIO site. We’re very bullish on the geol-ogy in the Delaware. With eight or morepay zones, we continue to believe thatdrilling programs will extend for 20 to 30years. We are even more confident aboutour forecasting today.”

Despite multiple challenges, the dawn of crude by rail grows brighter. These tank cars wait for loads at the COLT Hub terminal in Epping, N.D.Source: Crestwood Midstream Partners LP


For capacity to match production, thatstrategic view is essential. But for markets,the focus has got to be much more tactical.

“The Gulf Coast market has beenflooded with light, sweet crude,” addedKeene. “Rail has opened options thatwere otherwise limited. Sending conden-sate to Canada for use as a diluent for bi-tumen is one option. Accessing the WestCoast by rail is another alternative forlight crudes and condensate.”

Open the Golden GateProduction volumes will continue togrow, Keene is sure, “and producers will seek the destinations that offer thehighest netbacks. Production will find itsway to a refinery, or to a [condensate]splitter for export, or directly to an ex-port terminal to pursue the option of ahigher-value international market, nowthat the export ban has been relaxed forcondensate. Now that it has been, wemay see export terminals on the WestCoast crop up to serve Latin Americanor Asian markets.”

Plains Marketing, a subsidiary ofPlains All American Pipelines, operatesfive crude-oil loading facilities with totalcapacity of 210,000 bbl/d, and two unloading terminals with total capacityof 280,000 bbl/d. A new unloading facil-ity is under construction at Bakersfield,Calif. It will have an initial capacity of70,000 bbl/d, or roughly one unit trainper day when it comes into service,scheduled in October.

The West Coast, both northwest andsouthwest, are the emerging destinationmarkets, John Keffer, vice president ofterminals for Plains, told Hart Energy.

“The Bakersfield terminal will connectto our existing pipeline structure, includ-ing southbound lines to the Los Angelesarea and northbound lines up to the SanFrancisco area. Our current permit is forone train a day, but we are building theoperation to be able to expand. There is agreat deal of interest in California, whichis still dependent on waterborne crudefrom Alaska and South America.”

Here to stayContinued investment on the part ofPlains and other operators is a clear indi-cation that crude by rail (CBR) is not justa temporary expedient to get strandedbarrels out of the Bakken.

“It may have started as an interim so-lution, but from our perspective it is apermanent part of the supply chain,” saidKeffer. “In any event, it has been more ro-bust than we originally anticipated.”

He elaborated: “Our expectations wereless than what we have seen. The Bakkenand the Rockies have just grown andgrown and the need for additional facili-ties has grown substantially. We wouldlike to see even more volume moving byrail, but everyone is looking for morespace on the rails.”

Keffer notes that all the Class 1 rail-roads are making capital investments thatwill benefit all traffic—not just crude.

Total throughput for Plains as an or-ganization is 3.7 million bbl/d of crude,NGL and refined petroleum products, andthe company is exploring every intermodaloption for shippers: rail, truck, pipeline,water and all combinations of those.

“Producers are very much focused ontakeaway capacity, however that can beachieved,” said Keffer. “Rail has added op-tions for them, and not just in theBakken, in Colorado, West Texas, SouthTexas and Canada.”

Refiners, in contrast, are often more limited.

“The East Coast in particular is not re-ally very flexible. They primarily receivefrom the water,” Keffer added. He notesthat interests in the Gulf Coast are devel-oping an idea to load ocean-going bargesto supply East Coast refiners.

“Crude by rail has opened the doorfor refiners to optimize their feedslateswith lots of different crudes,” he said.

Plains is also expanding its fleet of rail-cars available for shippers to lease. “Ourcurrent fleet is 3,500 cars in crude serv-ice and 3,900 for NGLs,” said Keffer. “Ofthe crude cars, only 9% are the olderDOT-111s and those are being phasedout. We have ordered about 1,800 newcars and the first of those will start arriv-ing in the third quarter of 2015.”

Big plans and smallOther midstream operators plan to movecrude to the west, as well as north, southand east. Supply-chain operations firmSavage, based in Salt Lake City, has re-cently doubled the size of its Trenton,N.D., crude loading terminal to ship twounit trains per day and has also broughtinto service two other facilities in re-sponse to a shortage of outbound capac-ity in western Canada.

The Northern Sunrise Crude Terminalnortheast of Grande Prairie, Alberta, inthe Peace River Region, has direct accessto the Canadian National Railway (CN).The terminal’s first phase transloadingcapacity is 25,000 bbl/d, or 1,500 cars permonth, of crude on a manifest basis. Asecond phase will allow unit train opera-tions. Northern Sunrise also has 160 stor-age spots with inbound and outboundtrack access.

The Unity Petroleum Rail Terminal inUnity, Saskatchewan, has direct access tothe Canadian Pacific Railway (CP) and


“We’re very bullish on the geology in the Delaware. Witheight or more pay zones, wecontinue to believe thatdrilling programs will extendfor 20 to 30 years. We areeven more confident aboutour forecasting today.”

— Chris Keene, president and CEO, Rangeland Energy LLC


has 45 rail car spots for capacity of 5,000bbl/d or 275 cars a month.

“We continue to see growth in ori-gins,” Nathan Savage, senior vice presi-dent of the Savage oil and gas midstreamgroup, told Hart Energy. “But there arealso a lot of refineries now building directreceiving facilities. That is directly dis-placing imported crude.”

Kirk Aubry, president and COO at Sav-age, added, “We are very confident aboutthe role of crude by rail in the supply chain.This part of the business is still sorting itselfout, but it’s maturing very quickly.”

Savage and refining and marketingcompany Tesoro Corp. have proposed anew terminal at the port of Vancouver,Wash.—across the Columbia River fromPortland, Ore.—where as much as360,000 bbl/d of oil could be transferredfrom rail to marine vessels for final deliv-eries to refineries all along the West Coast.Tesoro is a major West Coast downstreamoperator with refineries at Anacortes,Wash., and Martinez and Los Angeles,

Calif. It also has a refinery at Kenai,Alaska. The refineries serve an extensiveretail fuel operation west of the Rockies.

Savage suggests such a facility could dis-place about 30% of crude currently im-ported for use on the West Coast. “It’s alarge project with big implications for crudeby rail in the Northwest,” he said. Alaska

North Slope crude has been the dominantfeedstock for West Coast refiners for yearswith some trans-Pacific shipments from In-donesia and elsewhere.

More than differentialsAs a firm with a large transloading pres-ence, Savage is agnostic about mode, but


Savage recently doubled the size of its Trenton, N.D., crude terminal, which can now handle twounit trains per day. Source: Savage

BNSF dominates crude-by-rail shipments out of the Williston Basin. This unit train racesthrough snowy Wisconsin countryside, moving more oil to market. Source: BNSF Railway Co.



Tanks cars await filling at the new Black Thun-der terminal in Campbell County, Wyo. Ajoint project of Meritage Midstream ServicesLLC and Arch Coal Inc., the operation drawson existing rail infrastructure built to handlethe Powder River Basin’s extensive coal out-put, served in part by the high-speed coalloadout in the distance.Source: Meritage Midstream

Savage would like to put to rest the ideathat CBR can’t coexist with pipeline.

“As a practical matter it is not ei-ther/or. It’s both. They are complemen-tary. Both producers and refiners like tohave options. There are locations thatcannot send or receive by pipeline andthe way rail has evolved has given thoseshippers all kinds of new possibilities,”Savage explained.

He adds that supply chain efficiencies,more so than crude differentials, aregoing to make the difference for refiners.

“The crude buyers know what is out there, it’s not like there are a lot of secret crudes. They have done a great job of taking advantage of what is nowavailable to them,” he added. In additionto its own several crude loading termi-nals, Savage operates unloading facilitiesat several refineries, including some ofTesoro’s plants.

The maturation process of whichAubry spoke was only accelerated by theLac–Mégantic, Quebec, tragedy last year.

“We are seeing a leaning-out amongthe operators,” he observed. “You can’tdabble in this business. You are in or out. If you are in, you have to have the equipment and the training to do it safely, to work with all the regulatorsand trade groups. One thing the acci-dents have done is to bring together the industry to look at the safety of the

supply chain. And we are an importantconduit between the shippers and carri-ers. As the field leans out, you will seemore folks like us who are committed,”he added.

The takeaway priority“In macroeconomic terms, crude by railis absolutely here to stay,” Brian Freed,vice president of crude logistics at Crest-wood Midstream Partners LP, told HartEnergy. Crestwood owns and operatesthe sprawling COLT Hub Terminal inEpping, N.D., just northeast of Willistonas well as a 50% interest in the PowderRiver Basin Industrial Complex terminalin Douglas, Wyo. He said that CBR on itsown—and and as part of an integratedsupply chain with terminals, water, road,and pipeline connections—is “workingwell for many people and is rapidly maturing.” He emphasized that CBR ismaturing, with all the implications ofthat word.

Freed was present at the creation ofCBR as it is known today: He led the de-velopment team for Rangeland Energywhen it built and opened the COLT ter-minal in June 2012. It was one of the firstmajor, purpose-built Bakken facilities,built as the unconventional shale playrapidly increased production. It wasgiven an appropriately prosaic name:Crude Oil Loading Terminal, or COLT.

He joined Inergy when it acquired theCOLT Hub in late 2012, prior to Inergy’smerger with Crestwood Midstream inOctober 2013.

“We built the first terminal fromscratch, so I have seen that maturationprocess firsthand. There is some pride of ownership, or at least of authorship,”said Freed, adding that the model isevolving from toll-throughput to inte-grated services.

What has not changed for CBR is afocus on long-term contractual businesswith specific shippers and consignees.

“The majority of our customers areactually refineries. They are buying bar-rels in the field as close as they can get tothe wellhead. We have dedicated tanks,dedicated truck racks, and pipeline con-nections. The closest we get to spot busi-ness is when a contractual customer asksfor increased volume,” he explained.

And volumes are rising, said Freed.Acknowledging reports that Bakken pro-duction has begin to show fluctuation, hesays terminal throughput is still rising.

“We are moving record volumes. Ourpeak was not 2012 or ’13 but the last fourmonths [of 2014].”

Expedient to necessityThe reason for that, Freed said, is thatwhile CBR began as an expedient, it hasquickly become a necessity.

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“To get to the Northeast or to the Pa-cific Northwest, there are no pipelines inexistence or even proposed. What are thechances of a pipeline across the Rockies?Slim to none. Pipeline to Philadelphia?Slim to none. That is why the West andEast Coast refiners have invested in receiving terminals, so they can bring inthe best barrels for their facilities,” he said.

At an increasing rate, Freed added, heis seeing “disintermediation. The refinersare hooking up with the producers di-rectly. And it’s not just in the Bakken, it’sin the Niobrara, the Powder River Basinand Canada.”

That said, the process has not been en-tirely smooth, nor could it be.

“This process of getting crude in mo-tion is a basin-by-basin process. Somebasins are already over-served, at least at present, but others are not.” Taking astep back, Freed noted that “over-served”only pertains to the midstream. “For producers, the priority is always takeawaycapacity. There really is no such thing astoo much.”

The same goes for refiners.

It’s all relativeBut even in the midstream, over-served is relative.

“The desirability of Bakken crude hasa lot to do with the arbitrage vs. Brent.

At an arb of $7 a bbl or less, then sure,there is probably too much takeaway ca-pacity. But we saw production fromNorth Dakota increase 30,000 bbl/d fromApril to May. There are ebbs and flowsnow, it’s not a straight line any more. Butthis is hardly slowing,” Freed said.

Adding time brings a fourth dimen-sion to the CBR calculus.

“It could be fair to say that there ismore takeaway capacity in the Bakkenthan is needed at this moment. But thereare limited pipeline increases coming

until 2016. So if you want to say there istoo much for 2014, fine, but can you saythat for 2015?” he asked

As with any large-scale industrial op-eration, capacity additions will alwayscome in large chunks while demandchanges incrementally—and rarely arethe two evenly matched.

“It is likely that someone will build an-other terminal,” said Freed, “but it is defi-nitely easier and more economical toexpand existing facilities than it is tobuild a new one from scratch.”

“In macroeconomic terms,crude by rail is absolutelyhere to stay.”

— Brian Freed,vice president of crude logistics, Crestwood Midstream Partners LP



As proof of that Freed added, “Sincethe day we came in service we havepretty much always had some kind of construction on-site. Most recently, we have added new tanks, increased our pump sizes and added loadingarms. We are also adding release tracksto expand our railcar capacity. Youcould call it debottlenecking or addingincremental capacity.”

Canadian heavy oilRail traffic in CBR continues to rise forCanada’s heavy crudes as well as thelight oil produced by U.S. unconven-tional shale plays. CN is the dominantrail service provider in northern Albertawhere Canada’s heavy oil sands lie.

The line hoped to double its crudeoil shipments in 2013 from 30,000 car-loads in 2012. The result? It moved al-most 74,000 carloads last year—andalready moved 60,000 just in the firsthalf of 2014. Not only are absolute vol-umes booming, but so is revenue.

“The length of haul is growing,” saysJames Cairns, vice president of petro-leum and chemicals for CN, told HartEnergy. “Heavy crude by rail by natureis farther from tidewater markets thanlight crudes and means a longer dis-tance.”

In a classic example of economies ofscale, higher profitability for the rail-road does not necessarily mean higherprices for shippers. In general, industryexperts note that a longer single-line

haul is often less expensive and takessignificantly less time than a rail inter-change of the same length.

In that, the CN has a significant ad-vantage over all of the Class I railroadsin North America. “We are unique as theonly North American railway thatreaches all three coasts [Atlantic, Pacific,and Gulf of Mexico] as well all the oil-producing regions of Canada,” saidCairns. “We can get from northern Al-berta to the Gulf Coast all on our ownrights of way.” CN added to its existingtranscontinental network across Canadaand routes into the U.S. Midwest andNew England in 1998 by acquiring theIllinois Central Railroad, which linkedthe continent’s Chicago rail hub withNew Orleans and the Gulf Coast.

That vantage point also puts the rail-way in a position to note changes inpatterns of flow.

“There has been high demand forcrude by rail from refineries in easternCanada, in PADD 1 [eastern U.S.], andin the Gulf Coast,” said Cairns. “The bigsea change is that Canadian shipmentsare moving from manifest freight [sin-gle cars or blocks of cars] to unit trains.That is accelerating.”

The distances crude is travelling byrail is matched by the variety.

“We move everything from neat bit,bitumen, that has an API gravity of 8˚,and Peace River Heavy, to rail bit that isabout 15% diluent, to fully dilutedpipeline-spec crude that moves pipe to

rail or rail to pipe, to traditional lightbarrels,” Cairns said. “Not only does railreach crudes that have no access topipeline, there is actually an economicadvantage to moving heavy crudes,neat, by rail without diluent.”

New cars, new terminalsThe list of types of crude moving by railprompted Cairns to dispel a miscon-ception about CBR. “The Bakken isunique in the fact that so much of theproduction is moving by rail. Outsideof the Bakken, rail is really just a bite ofa slice of the pie.” As a result, he ex-plained, there are many avenues togrowth all along the supply chain. “Railis still such a small player, overall, in thecrude supply picture that we can see bigchanges in volume.”

As that volume grows, the CN re-mains vigilant about corridor risks,both in terms of population and envi-ronmental exposures.

“Following the Lac-Mégantic trage-dy, the industry strengthened train-securing practices,” said Cairns. “Withinthe CN, we voluntarily extended U.S. Department of Transportation rulesabout transloading to all of our Canadianoperations. We already have an annual program to wayside detection, and have committed CA$10 million (US$9.2 million) to additional monitor-ing equipment.”

While the vast majority of the tankcar fleets in the U.S. and Canada isowned or leased by shippers—not bythe railroads—the carriers are doingwhat they can above the rails.

“We have been very clear in support-ing changes to U.S. and Canadian railcar regulations, and are already seeingthe phase out of low-pressure DOT-111cars in crude service. We are also reach-ing out to all emergency responders tohelp provide training all along the line,”Cairns said.

As old tank cars are phased out, newterminals are phased in. The new BlackThunder Terminal in Wyoming’s Pow-der River Basin came into service inMarch and is already operating atslightly above expectations.

“We are transloading about 8,000bbl/d at Black Thunder,” Steve Huckaby,CEO at Meritage Midstream ServicesLLC, told Hart Energy. “We are slightly

“Our planned expansionswill be needed for the ter-minal to accommodate theprolific drilling and pro-duction activity takingplace in the area.”

— Steve Huckaby, CEO, Meritage Midstream Services LLC



above our initial forecasts for through-put. We have been attracting barrelsbased on the combination of the termi-nal’s location and rail economics.”

Huckaby said he expects the facility tobe at capacity of 15,000 bbl/d by year end.“Our planned expansions will be neededfor the terminal to accommodate the pro-lific drilling and production activity takingplace in the area,” he added.

Black Thunder boomsBlack Thunder Terminal is a joint venturebetween Meritage and Arch Coal Inc., and

was built at Arch’s Black Thunder miningcomplex in Campbell County, Wyo., 11 miles southeast of Wright, Wyo. Meritage is pursuing long-term arrange-ments with various refiners and third-party marketing companies and workingwith various pipeline companies to de-velop direct connections.

Black Thunder has significant railroadinfrastructure in place already to serveArch Coal’s big Powder River mines.Adding CBR handling will be compara-tively easy. A big plus for shippers comesfrom Black Thunder’s dual rail service by

the two largest carriers in the western U.S.,BNSF and Union Pacific.

“Based on current production, exportcapacity and production in the PowderRiver Basin seem to be at equilibrium”said Huckaby. “We believe that equilib-rium will be disrupted by the inability of current rail infrastructure to keep up with production. We are launching a phased approach to expansion. The first step will bring throughput capacity at Black Thunder to 20,000 to 25,000 bbl/d by installing five to 10 loading arms, five truck offload bays,

Custom Blending May Be Next

The flexibility of crude by rail for crude buyers has given more than a few people thoughts about the potential for even more thorough integration of the supply chain from pro-

ducer through terminals, railroads and refiners. Some refiners havefloated the idea of optimizing their refineries by custom blending a feedslate.

“Custom blending is a story that is unfolding in the Powder RiverBasin,” Steve Huckaby, CEO at Meritage Midstream Services LLC, toldHart Energy, adding , “as we learn more about the quality of crudeproduction coming from the play’s multiple stacked formations andthe blends that are available, both now and in the future. Currently, wesend samples and assays to refineries and they make selections basedon their current requirements, but custom blending is something we’llcontinue to explore.”

Custom blending is something that the refining industry has beendoing for a long time, said Chris Keene, president and CEO of Range-land Energy LLC. “Whether at the refinery or at the point of origin, blend-ing often generates a feedstock that maximizes yield. Now we’re seeingterminals like RIO serve refiners as direct customers. This is a trend thathas grown over the last few years so custom blending at the terminalcan make good sense in some situations. This will be an ongoing dis-cussion with the RIO Hub’s customers.”

Keene added, “One area we’re looking at with our customers is sta-bilizing condensate to remove the light ends to create a more stableproduct. The economics of doing that at a centralized point in the sup-ply chain are attractive, so we are exploring building stabilizing infra-structure at RIO and providing those services.” ■

—Gregory DL Morris


and one 100,000-bbl storage tank. At the completion of Phase II, we expect to reach total storage capacity of 400,000bbl and throughput capacity of 70,000bbl/d with a 15-arm loading rack capable of loading 15 to 18 cars per hour and 16 truck offload bays. Target loadtime is a full unit train in less than 24 hours.”

A key name in CBR terminalling isStrobel Starostka. Its Strobel StarostkaConstruction (SSC) has designed andbuilt many of the loading and unloadingterminals through which the CBR boomis building and its affiliate, StrobelStarostka Transfer (SST), operates anumber of transload facilities across the country, including three in NorthDakota’s Bakken Shale and two inWyoming’s Powder River Basin: Crest-wood’s COLT Hub; the Bakken Oil Express terminal near Dickinson, N.D.;the Dakota Plains terminal near NewTown, N.D.; Meritage Midstream’s BlackThunder Terminal; and Eighty-EightOil’s terminal at Fort Laramie, Wyo.

“We handle 35% of the crude movingout of the Bakken by rail,” Travis Brock,vice president of commercial develop-ment and strategy for both SSC and SST,told Hart Energy. “And of the more than

400,000 tank cars loaded with crude inthe country last year, we loaded approx-imately 100,000 of them.”

But importantly, neither SSC nor SSTown any of the terminals they design,build or operate. Brock could not pro-vide any specifics on new projects, otherthan to say with a smile in his voice, “Weare very, very busy. Each terminal is stilla custom job, especially the loading fa-cilities. The ability to go rail-to-pipe andpipe-to-rail, integration of heavy oil,scale, they all make each design different.Destination terminals are a little simpler,but not much.”

East and WestThat experience gives Brock broad in-sights on the CBR trend. Brock relatesthat “the East Coast is still building out a bit, but the real attention is shifting to the West Coast. That is the last frontierfor crude by rail. People say that a pipeline could not be built through the Rockies, but the mountains might bethe easy part compared to permitting in California.”

For similar reasons, he suggested thatCanadian crude exports may comethrough the U.S. Gulf Coast. Brock ex-plained that while CBR already reaches

both the Atlantic and Pacific ports in Canada, pipelines are facing fierce opposition from environmental groupsand the native First Nations. Tanker traffic is likely to get the same reception.Meanwhile, Canadian crude is alreadymoving by pipeline and rail to Gulf Coast refiners.

“There are already folks in Texas and Louisiana working on how to get Canadian crude on the water withoutcomingling it with U.S. domestic crude,which cannot by law be exported,” Brock said.

The biggest shift in CBR, according toBrock, is that refiners are taking owner-ship of the supply chain, echoing thetrend mentioned by Crestwood’s Freed.“They are buying crude all the way backto the wellhead,” he said. “It is such achange. The traders took the lead oncrude by rail, and most refiners sat backand watched. But now they are jumpingin and taking the lead. The arbitrage op-portunities for stranded barrels is prettymuch gone, so now the incremental advantage is owning the supply chain.Eventually the cost of crude by rail willjust be absorbed into the refinery crackspread. The big refiners have the moneyto play that.”


The Port of Vancouver, Wash., has its West Vancouver Freight Access Project underway to cut railcongestion as traffic grows at the port, located across the Columbia River from Portland, Ore. Theproject, scheduled for a 2017 completion, includes a proposal by Tesoro Refining & Marketingand Savage Cos. for a crude terminal to serve Pacific refiners. The proposal has drawn strong opposition from some Pacific Northwest environmental groups.Source: Port of Vancouver


Next generationThe Williston Basin will see new termi-nal capacity as crude production ticksupward. Dakota Gold Transfer LLC plansto develop a crude transload facility,Dakota Gold Transfer Plaza LLC, inMountrail County near Plaza, N.D., toserve production from Bakken and ThreeForks producers.

Dakota Gold is a joint venture be-tween its president and CEO, Cody Moe,and the TrailStone Group. TrailStone isan energy asset investor and managerowned by Riverstone Holdings, a $27 bil-lion private equity firm specializing inenergy. Moe is a crude trucking and con-struction entrepreneur with seven yearsof experience in the Bakken.

The new terminal will be served by theCP, the distant No. 2 handler of Bakkencrude behind BNSF, and will aggregatecrude produced in Mountrail and neigh-boring counties via gathering pipelinesand trucks. Outbound service will beprovided via rail and pipeline.

It will have a capacity of 70,000 bbl/dand storage capacity of more than 300,000bbl, with expansion to 600,000 bbl duringa planned second phase. The terminal’s de-sign includes two loop tracks with an ad-ditional spur for train storage, a coveredloading barn, a 14-arm system capable ofloading a unit train in about 14 hours, 15truck unloading bays and three 103,000-bbl storage tanks.

“We are very encouraged by the response we are receiving from customersand anticipate that construction willbegin later this year,” Moe told Hart Energy. Initial truck-to-rail transloadservice may begin about 90 days afterconstruction begins with storage and high-speed rail loading service expected in the second half of 2015 along with outbound pipeline service.Permitting and engineering are under-way. Dakota Gold is also in discussionswith various pipeline companies to develop outbound pipeline service fromthe Plaza Terminal to multiple pipe-line markets.

Dakota Gold hired a familiar name,Strobel Starostka Construction, to con-duct the FEED study. It is expected SSCwill build the terminal and that StrobelStarostka Transfer will operate it.

“The rapid expansion of rail deliveryof Bakken crude has created a significantcongestion issue in the play,” said Moe.“Congestion is an issue we addressedwhen we were siting the Plaza Terminal.First, we believe that Dakota Gold’s decision to invest on the east side of the play will substantially increase the efficiency of flows and traffic pat-terns. Also, the CP Railway is making a substantial capital investment in the Bakken and on the New Town sub line in particular. That will allow the Plaza Terminal to more effectively

realize its design capabilities, and will have a material impact on some ofthe congestion issues experienced by all railroads.”

Clear signalNew, multimillion dollar projects like theDakota Gold terminal prove CBR has agreen signal and clear track ahead for theforeseeable future. New tank car stan-dards and railroad operating proceduresmay clear up lingering safety questions.Intermodal operations continue togrow—making North America’s alreadyimpressive midstream infrastructureeven more efficient.

Even California with its nearly impos-sible review and permitting processesmay be climbing on board.

Kern County, Calif., recently approveda CBR terminal at Alon USA Energy’sBakersfield, Calif., refinery. Alon shuttered the plant in 2012, throwingdozens of employees out of work, and hassought to build a rail terminal that wouldallow it to bring in price-advantaged do-mestic crudes.

The proposed terminal would have a capacity of 140,000 bbl/d and replacethe plant’s small, 13,000 bbl/d unloadingrack. Alon has indicated it may use a completed terminal on a standalonebasis without reopening the refinery.That might work, given that Bakersfieldserves as the center of California’s in-stateoil production with significant pipelinesand other midstream infrastructure in place.

Valero Energy Corp., the nation’slargest independent refiner, gave up ef-forts to obtain permits for its refineries inthe San Francisco and Los Angeles areasafter strong protests and long delays bypermitting agencies. Kinder Morgan En-ergy Partners operates a 72,000 bbl/d ter-minal at Richmond, Calif., across the bayfrom San Francisco—by far the largestCBR operation in the state—and hasfought off efforts by environmentalists toshut it down.

But despite such concerns about envi-ronmental and safety issues, the growingimportance of rail as one of many linksin the crude supply chain seems secure. ■

Paul Hart, editor-in-chief of Midstream Business, contributed tothis article.


“We are very, very busy. Eachterminal is still a custom job,especially the loading facilities.The ability to go rail-to-pipeand pipe-to-rail, integration ofheavy oil, scale, they all makeeach design different. Destination terminals are a little simpler, but not much.”

— Travis Brock, vice president ofcommercial development andstrategy, Strobel Starostka


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