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Oil, Gas Drilling Leads to Rail Resurgence

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Oil is priced in two different markets in the U.S., the West Texas Intermediate and Brent exchanges. Brent prices are what producers want, as they're about $30 per barrel on average higher -- based on international oil prices -- than WTI prices. Typically, shipping to the places that demand Brent prices costs more than it's worth. But with the recent gluts at the Cushing trading hub, it can depress prices.

"Yes, you want better prices, but if you are completely limited on pipeline capacity, you just want to get the crude to market," said Adam Bedard, an oil and gas analyst with PA Consulting in Denver. "First, you want a price, and second, you want the best price."

"The highest value markets continue to be the coastlines of both the U.S. and Canada. So by hook or crook, by rail, by car, by pipeline, if they can reach those higher-valued markets, they will," Haas said.

The option of moving that black gold via rail to markets that fetch a higher price is spawning a host of new rail centers to make it happen. In Weld County, rail transloading facilities are popping up. A facility in Carr in northern Weld County has been around for years, and just last year was acquired by Plains All American Pipeline. It has the capacity to load from 15,000 to 35,000 barrels of oil per day onto 160 cars.

Musket Corp. last year opened its own transloading facility in the Great Western Industrial Park in Windsor, with the ability to store 48,000 barrels of oil and the capacity to take out up to 16,000 barrels per day on trains.

Plains All American also has planned a much larger terminal along Interstate 76 between Roggen and Keenesburg, capable of taking in 68,000 barrels per day. It already has commitments from Noble and Anadarko to pipe in their crude from northern Colorado in 12-inch lines to the facility. Plains officials hope to have the facility running by August.

But, the Plains Tampa Loading Facility, as the southeast Weld facility is called, already faces some opposition from area residents worried about truck traffic through Keenesburg and additional wait times because of an already heavy schedule of trains in the area. The proposal will go before the Board of Weld County Commissioners on Wednesday.

Down the road, the Hudson Terminal Railroad also takes in oil to ship out, though on a much smaller scale, said John Birmingham, president of the company, which has 13 miles of tracks.

"We have customers asking us for it," Birmingham said of the business of railing crude. "One of the things is that the pipelines can't be built as fast as rail cars can be set up to haul crude if production increases."

Birmingham is set up for smaller loads, not the "unit trains," which carry on average 100 cars, stretching a mile or more down the tracks.

"There are a lot of refiners that can't handle unit trains," Birmingham said. "There's a niche market for the smaller loads of five to 10 cars."

A transloading facility also may come to Eaton, but its itinerary is not yet set in stone. The town of Eaton is set to sell 43 acres at the old sugar factory to Omaha Track Material , which builds railroads, but also transloading facilities. Plans are preliminary, but they include mostly offloading agricultural products.

"Offloading crude is a possibility, but it's not our favorite thing to do," said Gary Carsten, Eaton's town manager. "Everything's on the table at this point."

Decisions in Eaton should be made in the next two or three months.

Oil and gas officials have made serious plans to keep the rail coming. In earnings calls, they're assuaging investors with broad plans to get product to those better-priced markets.

Bedard sees the addition of rail discussions as another sign of Niobrara success.

"It signals to me that big companies like Noble and Anadarko are seeing good results out of the Niobrara," Bedard said. "They see that their growth is going to outpace pipeline capacity, then they're stuck... and they need to get the oil out."

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Distributed by MCT Information Services



Source: (c) 2013 the Greeley Tribune (Greeley, Colo.)


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