Permian railroads cautiously optimistic on crude

The outlook for crude-by-rail demand in the Permian basin has improved this year even as new pipelines prepare to enter the region, leaving short line operators cautiously optimistic.

Texas-Pacifico Railroad has seen an increase in shipments of crude so far this year, with volumes gaining more in the past two months. The company last year missed its projections as narrow spreads sent its expected crude volumes falling by 20pc, but it has since seen some of that business recover.

"It waxes and it wanes," vice president of marketing and sales Elizabeth Miller Grindstaff said.

Fellow short line operator Iowa Pacific Holdings, which also saw activity drop last year, has seen an increase in activity in the second quarter. Traffic is currently holding steady, vice president of Permian basin logistics Bruce Carswell said, with the company moving 70,000-200,000 bl a week.

"The forward expectation is that the movements will continue for the foreseeable future through July and August," Carswell said. "In this part of the country that's about as good as the crystal ball gets."

Permian crude prices have weakened recently amid the later-than-expected commissioning of the 300,000 b/d BridgeTex pipeline and reports of an unplanned outage at a local refinery, though Iowa Pacific has not seen a spike in demand as a result. Other pipelines out of the Permian are also planned by Plains All American and Sunoco Logistics, but Carswell said he expects the impact on prices may be short-lived due to rising production.

Texas-Pacifico expects overall traffic to spike late this year or early next year because of the planned startup of new terminal by an unnamed user of its system, Grindstaff said. The railroad is also seeing renewed interest from customers on shipping crude and in particular crude in unit trains; it currently is only moving in manifest.

Iowa Pacific is also optimistic on future Permian rail demand even as some of the area's crude-by-rail terminals have been idled.

"We're never going to have the market share outbound that rail has in the Bakken…but as the Gulf coast fills up with lots of oil of the same quality, stuff out of the Permian probably will go looking for other markets," Carswell said.

Both companies say their volumes are primarily being sent to the Texas Gulf coast and Louisiana, though interest in shipping to California is expected to climb once more receiving facilities are built.

For Texas-Pacifico, the much bigger business has been in shipping fracturing sand, which has far eclipsed demand for crude-by-rail in the Permian.

"They haven't figured out how to put sand in a pipeline," Grindstaff said.

ik/tdf

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