So far, the number of proposed crude-by-rail projects on both coasts have overwhelmed the requirements by the regional refineries. Despite the potential overcapacity for crude unloading and transloading capacities, this crude-by-rail business will remain profitable even at low utilization rates, refiners and logistics players told OPIS this week.

Comparing both coastal projects, the crude-by-rail projects on the East Coast are way ahead of the West Coast in terms of project approvals, permitting and construction.

The number of West Coast proposed projects are about double the number of East Coast facilities. Sources expect East Coast facilities to be commissioned as planned, but not all West Coast projects would materialize due to permitting issues and economic viability.

By 2015, the East Coast will have a rail unloading capacity of 1.5 million b/d, and the West Coast rail unloading capacity will jump to 910,000 b/d, Tesoro said in January.

The current West Coast crude rail unloading capacity was pegged at 218,000 b/d.

Even if all proposed West Coast and East Coast crude-by-rail terminal projects come onstream, sources said that this logistics business would remain profitable because of low cost to capital for these projects and there is economic pressure to run these facilities at 100% capacity in order to turn a tidy profit.

However, some projects are expected to be more economically viable than others, they said.

Crude unloading facilities within refineries are expected to have a cost advantage over those third-party terminals.

“Why would refiners want to pay an extra $3-$4/bbl to deliver crude from a third-party terminal if they can deliver it straight to their refineries,” a West Coast refiner said.

An East Coast refiner said that close proximity to refineries would be a key for crude-by-rail projects as it would cut delivery costs and improve refining margins.

East Versus West

On the East Coast, there are at least seven crude-by-rail facilities that are already operational or are set to start up by the end of 2014.

The new crude by rail facilities will compete for delivery volumes to a limited number of five Northeast refiners — Trainer, Bayway, Delaware City, Paulsboro and Philadelphia.

Many Northeast refineries are already receiving at least some Bakken crude to take advantage of the price-advantaged Midcon crude grades.

There are two crude by rail facilities at Albany, N.Y. — Global Partners and Buckeye. Buckeye is also expected to commission a new crude unloading facility at Perth Amboy in the second quarter.

In addition, there will be two facilities in Philadelphia. Philadelphia Energy Solutions has its own crude rail transportation facility and Enbridge’s 80,000- b/d Eddystone crude rail facility will be ready for first operations in early 2014.

At the Eddystone facility, the crude oil will be transferred from rail to barge and will be delivered to nearby refineries along the Delaware River.

Plains’ Yorktown terminal in Virginia is capable of receiving up to 130,000 b/d of crude via rail, and PBF Energy has its own dedicated crude rail transportation facility at the Delaware City refinery.

Sunoco Logistics’ Eagle Point in New Jersey is still delivering crude via rail even after PES started its own Philly crude rail facility last year.

On the West Coast, there are more than 10 crude-by-rail projects under consideration. Most of these projects are stuck in the permitting phase, with no definite project completion timetables.

Some sources pointed out that the rail projects at Phillips 66’s Santa Maria refinery, Valero’s Benicia, Tesoro’s various projects and Plains and Alon in Bakersfield, Calif., make the most economic sense, based on locations and logistics costs.

In Washington state, there are several more projects eyeing crude deliveries to California as well, but crude deliveries via barge from the Pacific Northwest down the coast to California would add a few dollars to the logistics costs.

Sources noted that the permitting process for crude by rail projects in Washington are not any easier than California.

So far, many West Coast projects do not have a definite timetable, pending the issuance of construction permits.

Also, West Coast crude-by-rail terminals would need to compete with the proposed Canadian crude pipeline expansion in Vancouver.

Kinder Morgan is planning to expand the capacity at its Trans Mountain Pipeline from 300,000 b/d to 890,000 b/d, and it is also increasing the storage capacity at Westridge Marine Terminal.

The $5.4 billion Trans Mountain Pipeline Expansion will connect the growing Alberta oil sands production with Canada’s west coast. The system delivers crude from Edmonton, Canada, to terminals and refineries in British Columbia, Washington and possibly California.

This Canadian project is facing regulatory review.