San Antonio, 16 October (Argus) — Pipeline and midstream operator NuStar now leases “a couple thousand” railcars on about three-year agreements to move crude and fuel oil around the US, the company's chief executive said today.
The railcars are “way more than we ever had in this company,” NuStar chief Curt Anastasio said today on the sidelines of the DUG Eagle Ford conference in San Antonio, Texas. “Sometimes I feel like a railway company,” he joked.
Use of crude by rail has grown as a method of transporting shale production. The company rails Bakken crude to St James, Louisiana, and also moves heavy fuel oil from midcontinent refiners to Texas City, Texas, where it is blended and marketed as bunker fuel or as fuel oil blend components.
The company has chosen to go with lease terms around the three-year range.
“If you try to go too short then you're paying a big price, and too long is really too risky in our view. Because we're not sure how much in these various areas there's going to be enough pipeline takeaway capacity to reduce the need for rail. So that was kind of the sweet spot for us, around three years,” Anastasio said.
The demand for crude by rail has increased prices in some instances for railcars, or moved them out of ethanol service into crude transport – it has also allowed lessors to demand longer-term agreements. Some companies are banking on a long-term play in crude-by-rail – Statoil took out leases on 1,000 railcars for terms over five years in length to service its Bakken production, and railcar lessor CIT this year has ordered thousands of new railcars, the bulk of which will serve crude and NGLs.
The company has also been growing its pipeline offerings in shale plays. It now is involved four active pipelines in the Eagle Ford, including a line from Corpus Christi to Three Rivers, Texas, where it brings Valero's refinery imports and feedstock. The refiner, which runs mostly Eagle Ford crude thanks to its proximity to the production, wants optionality, Anastasio said.
A line that had moved refined products from Corpus Christi to Houston is also now being used to deliver NGLs, because Corpus Christi refiners are exporting distillate production rather than sending it to Houston. The company could continue growing its midstream shale transportation offerings, Anastasio told attendees.
“I think what you're going to see from us is a lot more announcements about the Eagle Ford but also some of the other shale plays,” he said.
The company this week announced an open season on a proposed crude pipeline that would move production out of the Niobrara formation near Platteville and Watkins, Colorado, to Wichita Falls, Texas.
The projected ramp-up of output in the Niobrara is “not as much as say, the Eagle Ford, but still increasing production that's going to have to make its way to market. It really can't stay where it is. It's a really similar problem that the Bakken had and the Eagle Ford had,” Anastasio said. “We are confident enough to announce the open season because we had enough indication that shippers would take a close look.”
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