Bakken Shale oil produced in the U.S. is no longer being shipped to Canada for use in the nation’s largest crude oil refinery, reports the Wall Street Journal (WSJ).
Rather than importing Bakken shale oil from the U.S., the refinery’s operator, Irving Oil LTD, has opted to use more inexpensive crudes from producers such as Saudi Arabia. The change is the latest indicator of shifting crude costs, which are affecting East Coast refiners as the global oil price slump persists.
As reported by the WSJ, the refinery located in Saint John, New Brunswick, and one of the largest by volume refineries in North America, will be feeding zero barrels of Bakken crude into its 320,000-barrel-per-day refining capacity. Irving President Ian Whitcomb told the WSJ that purchases of Bakken crude shipped by rail have been reduced from a high of roughly 100,000 barrels a day two years ago to zero. He said, “We’re not importing any Bakken crude right now.”
The change is indicative of the energy industry’s globally shifting economics as the price of oil, Bakken crude included, recently sank to a low not seen in six years. As a result of the price decline and persistent global oversupply, the disparity between North American and overseas crude, priced with the Brent global benchmark, has lessened. American East Coast refiners are now able to import crude shipped from overseas for less than the cost of hauling it via railway from producers in North Dakota’s Bakken and elsewhere.
Other East Coast refineries have started doing the same. Both refiners PBF Energy Inc. and Phillips 66 said that due to the increased costs of shipping oil-by-rail, the facilities are relying more heavily on crude shipped from overseas. In late July, PBF Energy CEO Tom Nimbley said, “Our ability to source sovereign waterborne crudes was far more economic to the East Coast facilities, and that’s what we did.” Also last month, Phillips 66 CEO and Chairman Greg Garland told investors, “We actually set [crude-by-rail] cars on the siding. We brought imported crudes in the system.”
It is unclear, however, if importing crude will continue through the remainder of the year. But, in the meantime, the costs of hauling crude-by-rail remains more expensive than transport by pipeline and often by ship, as well. The number of railcars shipping Bakken crude has steadily decreased since 2012. Recently, Continental Resources announced that it now ships over two-thirds of its crude by pipeline. Nationwide, oil-by-rail shipments declined by 16 percent during the second quarter of 2015 when compared to the third quarter of 2014 when shipments were at their peak, according to the Association of American Railroads.
The price of Bakken crude has gone up, though, relative to other crudes when rail shipment costs are included. One year ago, the Irving facility’s feedstock was roughly 25 percent Bakken crude. Now, about 90 percent of the crude the refinery receives is purchased and shipped by sea from producers in Saudi Arabia and western Africa. The remainder of the crude it receives is coming by rail from Canadian tar-sands operations. Only time will tell when the shipping trends will change. Offering a bit of hope, Garland added, “I’d say given where our expectations are for the third quarter, I’d say cars are coming off the sidings, and we’re going to import less crude.” To read the full article, click here.