It’s no industry secret that crude oil has been bottled up in the Permian Basin in the past year or so by lack of takeaway, and with the increasing Permian production it’s been getting worse. There are pipelines under construction and others in planning, but a way to move more Permian oil to market is sorely needed now.
One Houston company, privately-held JupiterMLP, LLC is constructing a 670+ mile, dedicated high gravity crude oil pipeline that originates in Orla, Texas, with additional inject and off take points at Pecos and Three Rivers, Texas.
The Jupiter pipeline terminates in the Port of Brownsville at the Jupiter Crude Upgrading, Processing and Export Terminal.
The company estimates the pipeline will go into service in 2020.
Meantime another private company, Vista Proppants and Logistics, LLC, a Fort Worth proppant company with three Texas sand mines and a dozen transloading stations, announced it has entered an agreement with JupiterMLP for transloading crude oil from truck to rail at its Pecos, Texas facility. The adjustment is being made to accommodate crude oil transport till the Jupiter Pipeline is finished in 2020. Jupiter is also constructing a VLCC loading terminal in Brownsville, Texas.
Vista and Jupiter said they plan to ship crude oil on the Union Pacific Railroad through 2019 and potentially into 2020, depending on pipeline construction timelines and capacity availability.
Vista currently anticipates shipping by rail approximately 400,000 barrels per month from Pecos to St James, Louisiana. That number is dependent on the number of available train slots each month, Vista said.
Union Pacific has indicated it will continually evaluate their mainline capacity and provide additional service as it becomes available.
Historically, pipelines have transported most crude oil, but as higher crude oil production outpaces growth in pipeline capacity in various basins, railroads have helped fill the gap.
According to the Association of American Railroads growth in pipeline capacity, a narrowing in the “spread” between domestic and imported oil, and other factors have led to a sharp decline in rail shipments of crude oil. After peaking in 2014, originated carloads of crude oil on U.S. Class I railroads fell to 128,967 in 2017, 74 percent lower than in 2014.
From the first quarter of 2009 through the first quarter of 2018, U.S. Class I railroads originated 2.03 million carloads of crude oil and terminated 2.34 millioncarloads. At its peak in 2014, crude oil accounted for 1.6 percent of total originated carloads on Class I railroads. In 2017, it accounted for less than 0.5 percent.
In 2017, the average carload of crude oil originated in the United States carried 691 barrels of oil. Using that, the 128,967 carloads of crude oil originated by U.S. Class I railroads in 2017 was equivalent to around 244,000 barrels per day.
According to data from the EIA, U.S. crude oil production in 2017 averaged 9.4 million barrels per day, so the rail share was approximately 2.6 percent of total production. In 2014, the peak year for rail crude oil shipments, railroads accounted for around 11 percent of U.S. crude oil production.
