A surge in West Texas oil pipeline startups and expansions has squeezed viability of some crude-by-rail terminals in the region, but increased output of ultra-light condensate could give them a niche pipelines cannot fill, a top rail operator in the region said on Wednesday, Reuters reported July 1.
"The big topic used to be that there wasn't enough takeaway capacity out of the Permian" Basin in West Texas to refining markets, said Pat McGannon, vice president of Rangeland Energy said at an energy conference in Houston. "Now there's plenty."
Rangeland operates a hub in Loving, New Mexico, that was designed to rail in sand used in hydraulic fracturing and move out crude. The company also is building a pipeline to connect its terminal at the New Mexico/Texas state line to its Midland terminal.
The hub is not railing out crude currently because Midland, Texas-priced crude trades at a premium to West Texas Intermediate (WTI) crude futures as pipeline startups have opened more capacity to move oil to markets at a cheaper rate.
Those startups include Plains All American Pipeline LP's 250,000 barrels per day Cactus Pipeline in April and Sunoco Logistics Partners' 200,000 bpd Permian Express II line, expected to start up this month.
When Midland crude trades at a discount to WTI, oil by rail is profitable even with higher transportation costs, McGannon said. When it is at a premium, profitability declines.
However, ultra-light condensate - condensate is itself a super-light crude oil - is an increasing part of the makeup of far West Texas and New Mexico output, which could be moved via rail if too light to move in pipelines.
Lightness of crude is largely determined by its API gravity, a measure of how light or heavy it is compared to water. Typical WTI's API gravity ranges from 38 to 40, while condensate is generally 45 to 80 or even higher. An ultra-light condensate's API is generally higher than 70.
Too much very high-gravity condensate can exceed pipeline API gravity limits, but trains can move it, McGannon said.
"Rail provides a solution for high-gravity condensates," he said at the American Business Conferences' Crude Markets and Storage Summit in Houston.
He said it would need minimal processing in a stabilizer to remove volatile natural gas liquids, as crude is before it moves in a pipeline for safety reasons.
The processing also would make it an exportable refined product under U.S regulations.
U.S. condensate exports doubled in May from January levels with most shipments going to Europe.
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