In an attempt to ease Permian bottlenecks, Vista Proppants has partnered with JupiterMLP to transload crude oil from truck to rail at Vista’s Pecos, Texas facility to launch a new crude-by-rail facility.
The facility opened August 15, and its launch was disclosed Friday in a joint prepared statement.
The companies have agreed to ship crude on the Union Pacific Railroad through 2019 and potentially 2020, “depending on pipeline construction timelines and capacity availability,” according to the statement.
New crude-by-rail facilities, particularly in North Dakota, were announced with a great degree of frequency in the years after production began rising, the spread between what sellers could get at the benchmark delivery point of Cushing, Oklahoma fell relative to world prices, and pipeline capacity was inadequate.
That market weakness has become particularly acute now for oil in the Permian Basin in West Texas. It is showing up in the price of crude delivered at Midland, Texas, relative to Cushing, which now has substantial takeaway capacity to the U.S. Gulf. According to benchmark oil price service S&P Global Platts, West Texas Intermediate at Midland was $17.75/b less than WTI at Cushing on August 30. It was $23.55/b less than at the Magellan East Houston delivery point on the U.S. Gulf.
On March 1, WTI Midland was 75 cents less than Cushing. A year ago, on August 31, it was $1.35 less.
The increasing need of the oil sector to carry both crude and products to market via rail can also be seen in the latest weekly report from the Association of American Railroads. In its latest weekly release, it reported 11,332 cars carrying petroleum and petroleum products, up 1,980 from a year earlier, for a gain of more than 21%.
A July 2017 Forbes article states that “at its recent peak, crude-by-rail carried about 10% of U.S. oil production, up from less than 1% in 2010.” Despite the lack of dependable data on crude-by-rail, “it is quite possible that the last time the rail industry transported as much crude oil as it does today—20% of Bakken production and 4% of total U.S. production—was during the Standard Oil era of the early 20th century,” according to Forbes.
Gary Humphreys, Vista CEO, commented, “We are excited to formalize our relationship with Jupiter and begin exporting crude out of the Permian Basin. Vista has a long history of providing innovative solutions to issues that arise for our customers in the marketplace. Today’s announcement is yet another example of the significant value provided by our unique vertically integrated logistics network.”
Squarely located in west Texas, Vista concluded that “The strategic location and capabilities of our Pecos facility make it a natural fit for crude-by-rail operations, and we look forward to assisting our customers with their transport needs as takeaway infrastructure for the Permian is further built out over the next couple of years.”
Tom Ramsey, Jupiter CEO, stated “We value our relationship with the Vista team. The crude-by-rail opportunity that their facility provides helps us to accelerate our strategy of moving significant volumes of Permian Basin crude oil to the Gulf Coast while we construct our Jupiter Pipeline and VLCC loading terminal in Brownsville, Texas.”
This follows Union Pacific’s July earning webcast, where CMO Beth Whited acknowledged that “The [Permian] is an interesting place and we’re definitely seeing some reduction in crude production due to the lack of pipelines,” adding that Union Pacific has “some capacity in our network and expect to see some results in the third and fourth quarter.”
OilPrice.com reports that Vista anticipates to ship roughly 400,000 barrels per month from Pecos, Texas to St. James, Louisiana.