The domestic oil and gas industry continues to expand its production levels as improvements in drilling technology couple with a growing demand for the fuels.
But the industry has also faced a problem lately: the nation does not have sufficient infrastructure to support growing production.
Pipelines are planned and under construction, connecting to shale formations like North Dakota's Bakken, but approvals and construction take time. And as producers wait for more infrastructure, the oil and gas they need to move is piling up.
This has led to an excess of on-site flaring of natural gas from some companies, something that regulators are looking to curtail. But it's also led to producers looking for other solutions.
PBF Energy (NYSE: PBF) is taking advantage of existing infrastructure to move its crude faster.
The company has just completed construction of a second rail terminal on its Delaware City refinery, allowing it to move more crude to the facility.
Railways have proved a successful alternative to pipelines for oil and gas transportation. While moving the fuels requires specialized rail cars and terminals that can accept the cars, most of the infrastructure is already in place.
For PBF Energy, this has worked as an advantage. Last year the company announced it would spend between $50 and $60 million on expanding its facilities and purchasing new rail cars, Delaware Online reports. Part of this was its second terminal at the Delaware City facility, which can accept 70,000 barrels per day of light Bakken crude.
But that's just the start of expansions for this refinery. PBF Energy announced an additional $50 million will be spent on that facility this year.
The company has been wildly successful with these type of crude oil shipments. As it uses just rail cars, unlike other companies that use rail cars and barges, it save $3 per barrel on shipments to its Delaware facility. The refinery currently has a rail capacity of 110,000 barrels per day, but it can refine up to 182,200 barrels per day in its current state.
The company's CEO, Tom Nimbley, has compared these rail shipments to what the Keystone XL could have been.
“The Bakken was faster on building rail infrastructure than the Canadians,” he said. “They were thinking (Keystone) XL was going to get done, they were thinking they'd have that to move it, now they're saying 'Oh my what has happened?'”
The company also transports heavier Canadian crude, which costs more than Bakken because fewer barrels can be transported per car. It also requires coiled and insulating rail cars, adding to the transportation cost of $17 per barrel.
It plans on purchasing an additional 2,000 of these special cars for heavy Canadian crude, which can each hold about 550 barrels, within the next two years, and 500 general purpose cars by this year.
Today's announcement of the completion of a second rail terminal marks the beginning of what could be a very good year for PBF. Its success at transporting Bakken crude and refining highly-demanded resources could put it far ahead in the game.
As Tom Nimbley said in the press release:
“The completion of this premier rail facility puts our East Coast refining system at a competitive advantage compared to its Atlantic Basin peers. PBF is now able to deliver significant quantities of cost-advantaged North American crude oils directly to Delaware City at very competitive pricing.”
Bakken crude rose today after the announcement to trade at a $3.10 a barrel discount to WTI crude, the smallest spread in six weeks.
That's all for now,
Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.
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