EnSys Energy
Informing key decisions in the global oil industry

Phone: (781) 274-8454 | Email: info@ensysenergy.com | Upstream affiliate: Ensys Yocum

Crude by Rail

U.S. Crude exports finally approved

This Overview is part of our North America Logistics Review subscription service.

The energy industry ushered in 2015 in a low price environment. Through year-end 2015, oversupply in the market, coupled with data indicating weak demand growth in China, continued to exert strong downward pressure on crude prices. On the supply side, high inventory levels continue to play a major role in further price declines. Just this past month, the EIA reported that crude inventories in Cushing and PADD 3 reached a record-high of 309.4 million barrels at the end of November 2015.

After announcements of 2015 capital expenditure cuts from oil producers worldwide, supply forecasts indicate that production is finally starting to decline. The EIA predicts US crude production will decline from 9.3 mbpd in 2015 to 8.8 mbpd in 2016. Nonetheless, for the longer term, OPEC estimates in its latest World Oil Outlook that global energy demand will increase by 47% from today to 2040, dominated by demand increases in developing world regions led by non-OECD Asia.

US crude exports

On December 18, the U.S. Senate passed a spending bill totaling $1.1 trillion. As part of the bill, the US lifted the ban on crude oil exports. Following the announcement, trading giant Vitol announced that the company will be the first to ship crude under the legislative change. During the month of January, a tanker will carry 600,000 barrels of US light crude from Enterprise Product Partners LP’s terminal in Houston to an undisclosed location in Europe. Jim Teague, Enterprise’s chief operating officer, said that “this action provides new markets to domestic producers, especially producers of light crude oil, and will provide global markets with supply diversification.” Many analysts, however, contend that this policy change may have come too late because the WTI discount vs. Brent has diminished and even, at least for now, inverted such that WTI is above Brent; thus that there is little economic incentive for significant US crude exports in the short-term. Nevertheless, multiple studies conducted in 2014-15 demonstrated that, in the long-term, this policy change would enable the U.S. refining sector to operate in a more optimal manner, encourage domestic crude production and could create thousands of jobs and increased GDP while cutting fuel costs for consumers. These were the findings from, inter alia, the 2014 study that EnSys and ICF completed for the American Petroleum Institute: “The Impacts of U.S. Crude Oil Exports on Domestic Crude Production, GDP, Employment, Trade, and Consumer Costs.” One caveat here is that the study relied upon many underlying market assumptions that have changed in the wake of dramatically reduced prices.

Pipeline Projects

For the month of December, an open season was announced for a new gathering system on the Platte River Pipeline System (157,000 bpd). The pipeline system aims to move crude production from the Denver-Jules (DJ) Basin to County, Colorado and then onto the Grand Mesa Pipeline (currently under construction) to eventually reach Cushing, Oklahoma. In the same region, a supplemental open season was launched for the Saddlehorn Pipeline (190,000 bpd). As discussed in last month’s report, the Saddlehorn pipeline and the Grand Mesa pipeline combined projects since both were serving the same area with the same destination. This consolidation also ensures that the region does not end up with overbuilt capacity. The Saddlehorn and Grand Mesa projects will have a combined capacity of 340,000 bpd (190,000 owned by Saddlehorn and 150,000 owned by Grand Mesa), a significant reduction from the 600,000 bpd that was originally announced for both lines.

The BridgeTex pipeline also launched an open season to gather customer interest in a new origin at Grimes County, TX to move Eaglebine crude oil and condensate. The pipeline has a current capacity of 300,000 bpd to transport Permian Basin crude from Colorado City to the Houston Gulf Coast area. If the open season is successful, an expansion of 35,000 bpd will be added to the system.

The Iowa Utilities Board is still reviewing the construction of the Dakota Access Pipeline (North Dakota to Patoka Illinois passing through South Dakota and Iowa). In our previous issue, we reported that the 560,000 bpd project received approval from South Dakota but Iowa, Illinois and North Dakota are still evaluating the project.

In Canada, Kinder Morgan presented its final oral argument to the National Energy Board (NEB) regarding its Trans Mountain oil pipeline expansion (from 300,000 bpd to 890,000 bpd). The NEB panel-will give its recommendations to the cabinet of Prime Minister Justin Trudeau which is expected to make a final decision by the summer. Pending regulatory approval, Kinder Morgan is aiming to complete the expansion by July-October 2019.


After several crude-by-rail accidents in recent years, some US states have enacted crude-by-rail safety regulations in an effort to ensure the safety of their communities. One such measure is the requirement for full environmental impact reports for rail terminal projects. Last month, Phillips 66 filed its Final Environmental Impact Report for a proposed oil terminal at the Phillips 66 Santa Maria Refinery in California. This project was originally announced in press articles dating back to November 2013, highlighting the lengthy regulatory approval process before breaking ground.

Scroll to Top