Oil by Rail Eases Logistical Bottlenecks
As North American crude oil production increases, rail offers efficiency in logistics and an effective alternative in an environment challenged by pipeline constraints. EY's report released recently, Rolling with the revolution: rail's role in the new oil and gas era, addresses how the crude-by-rail (CBR) business model continues to increase as a strategic source of feedstock diversification while offering producers the ability to capitalize on regional pricing disparities and providing added flexibility for refiners.
The strong growth in production from the Canadian oil sands, combined with the surge in U.S. unconventional oil production as a result of the advances in drilling and completion technologies, has significantly stressed the North American oil transportation infrastructure and caused unprecedented quality dislocations and price disparities for the benchmark crudes.
The resulting supply/demand imbalances and logistical bottlenecks point to a need for better long-term pipeline solutions and a more efficient pipeline network. In the meantime, these imbalances have created opportunities for both oil producers and refiners to take advantage of these imbalances and bottlenecks by using rail transportation. And as a result, the industry is witnessing a fundamental change in crude logistics.
“CBR is more than just a short-term solution and/or opportunity. While it is not going to be a complete replacement for pipelines, it is positioned to grow and will remain a long-term strategic complement or supplement to pipelines,” says Dale Nijoka, EY’s Global Oil & Gas Sector leader.
Rail transportation is moving from niche volumes to base-load for a number of refiners, allowing them access to previously inaccessible crudes or in some cases to capture price differentials as pipeline capacity additions lag production gains in many regions. Rail has also allowed producers to link inland prices to a broader set of benchmarks than just West Texas Intermediate (WTI), at a time when pricing is very dynamic. Additionally, given the optionality on destinations that rail has created, producers are, in many cases, reluctant to commit volumes to new pipelines.
Although pipelines generally are the least expensive crude transport option, the benefits of rail – speed to market, extensive geographic coverage, faster transit times, fewer permitting/regulatory hurdles – imply that that the industry will continue to utilize both modes. Landlocked or logistically-constrained crude will generally trade at a discount to other comparable crudes, creating opportunities and incentives for both upstream producers and downstream refiners.
Nijoka adds, “Where pipelines are not an option, oil and gas companies that have a crude-by-rail strategy with an integrated operational plan that includes tracking and analysis, along with a clear inbound and outbound logistical scheme, will be most successful in getting their crude to market or their feedstock sourced in the most cost-effective manner.”
CBR presents a relatively efficient solution for producers to transport crudes to markets with higher potential netbacks, or for refiners to have access to cheaper, advantaged crude. In both cases, CBR provides enormous flexibility and the ability to respond to rapidly changing and unforeseeable market conditions; this is a tremendous asset that should ensure the industry’s long-term sustainability in the unconventional revolution.
Hydrostor receives $4m funding for A-CAES facility in Canada
Hydrostor has received $4m funding to develop a 300-500MW Advanced Compressed Air Energy Storage (A-CAES) facility in Canada.
The funding will be used to complete essential engineering and planning, and enable Hydrostor to plan construction.
The project will be modeled on Hydrostor’s commercially operating Goderich storage facility, providing up to 12 hours of energy storage.
Hydrostor’s A-CAES system supports Canada’s green economic transition by designing, building, and operating emissions-free energy storage facilities, and employing people, suppliers, and technologies from the oil and gas sector.
The Honorable Seamus O’Regan, Jr. Minister of Natural Resources, said: “Investing in clean technology will lower emissions and increase our competitiveness. This is how we get to net zero by 2050.”
A-CAES has the potential to lower greenhouse gas emissions by enabling the transition to a cleaner and more flexible electricity grid. Specifically, the low-impact and cost-effective technology will reduce the use of fossil fuels and will provide reliable and bankable energy storage solutions for utilities and regulators, while integrating renewable energy for sustainable growth.
Curtis VanWalleghem, Hydrostor’s Chief Executive Officer, said: “We are grateful for the federal government’s support of our long duration energy storage solution that is critical to enabling the clean energy transition. This made-in-Canada solution, with the support of NRCan and Sustainable Development Technology Canada, is ready to be widely deployed within Canada and globally to lower electricity rates and decarbonize the electricity sector."
The Rosamond A-CAES 500MW Project is under advanced development and targeting a 2024 launch. It is designed to turn California’s growing solar and wind resources into on-demand peak capacity while allowing for closure of fossil fuel generating stations.
Hydrostor closed US$37 million (C$49 million) in growth financing in September 2019.