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Linn Energy, LLC (LINE) Message Board

  • rlp2451 rlp2451 Jan 20, 2013 8:32 PM Flag

    What I've Been Saying All Along

    From the "Energy Policy Forum", dated January 14, 2013:

    CRUDE BY RAIL: DOES IT REALLY MAKE SENSE?
    By Deborah Rogers

    Bloomberg published an article regarding the new frenzy of shipping domestic crude, particularly tight oil from shales, by rail rather than pipeline. This decision by shale operators is interesting for various reasons but most especially for the economics behind it. While industry touts shipping by rail as their latest great idea, there is, of course, another possibility as to why shipping by rail rather than pipeline makes sense. And it has more to do with unprofitability than great opportunity.

    According to Bloomberg:

    “A group of oil and gas pipeline operators led by Plains All American Pipeline LP (PAA) announced plans just in the past three months to spend about $1 billion on rail depot projects to help move more crude from inland fields to refineries on the coasts.”

    Now there are several things wrong with this. Firstly, everyone in the oil and gas business knows that pipelines are cash cows once upfront costs have been recouped. They are particularly good money machines if a field is long lived. Secondly, pipelines are currently very lucrative places to have your money.

    To give an example, Oil and Gas Journal reported in September 2012:

    “Oil pipeline operators’ net income soared to an all-time high of $6.1 billion, a 33.3% increase from 2010 achieved on the back of a nearly 12% increase in operating revenues.”

    And yet in the Bakken play in North Dakota, Oneok Partners couldn’t get enough interest from operators to build a pipeline to carry Bakken crude.

    According to the WSJ MarketWatch:

    “Oneok cancelled its Bakken Oil Express plans…citing insufficient shipper interest.”

    Now record profits are being made on oil pipeline assets in the U.S. and industry touts the Bakken as one of the two hottest oil shale plays in the US and yet there is “insufficient shipper interest”.

    Further, it costs about three times as much to transport oil by rail than by pipeline. That adds considerably to the overall costs. Tight oil production isn’t cheap by any measure to drill and complete so shipping by rail is merely adding additional burden. Three times the additional burden. Bloomberg quotes Tudor, Pickering and Holt, an energy investment bank based in Houston:

    “Sending Bakken oil through a pipeline to U.S. Midwest markets costs about a third of the $15 a barrel expense of carrying it by train to the East Coast.”

    So let’s examine another possible scenario. One the oil and gas industry isn’t putting forward.

    The USGS examined well data for every shale play in the US and extrapolated EUR’s, or reserve estimates, based on actual production. Reserve estimates were slashed significantly from operators prior overly optimistic assumptions and claims. In fact, operators have overestimated reserves by a minimum of 100% to as much as 400-500% on shale gas and tight oil. These figures are now being corroborated by other independent geologists as well.

    Add to this mix extremely steep decline curves for both shale gas and tight oil. A paper presented to the Society of Petroleum Engineers which researched well data in the Eagle Ford shale of South Texas found that first year decline rates were about 80-93%! Shale gas overall yearly field declines are in excess of 40%. The Haynesville is in excess of 50%. In other words, wells are playing out much quicker than expected.

    And this segues nicely into the heart of the matter. If operators thought that shale assets would be long-lived and highly productive they would build pipeline infrastructure to ensure equally long lived profits. But that is not the case. They have chosen instead to ship by rail for three times the cost of a pipeline. It is more likely that industry recognizes the short lives of shale wells and are not prepared to invest the capital needed to build the infrastructure.

    That is the beautiful thing about numbers. Profitability either exists or it doesn’t. Just AskChesapeake!

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • RLP'D is to ignorant of the subject to understand this was easily addressed and dismissed. But still it strung it out with bratish tantrum. Let us discuss this first. Five thumbs up on a natural gas board?

      From the "Energy Policy Forum", dated January 14, 2013:

      CRUDE BY RAIL: DOES IT REALLY MAKE SENSE?
      By Deborah Rogers

      Bloomberg published an article regarding the new frenzy of shipping domestic crude, particularly tight oil from shales, by rail rather than pipeline. This decision by shale operators is interesting for various reasons but most especially for the economics behind it. While industry touts shipping by rail as their latest great idea, there is, of course, another possibility as to why shipping by rail rather than pipeline makes sense. And it has more to do with unprofitability than great opportunity.

      According to Bloomberg:

      “A group of oil and gas pipeline operators led by Plains All American Pipeline LP (PAA) announced plans just in the past three months to spend about $1 billion on rail depot projects to help move more crude from inland fields to refineries on the coasts.”

      Now there are several things wrong with this. Firstly, everyone in the oil and gas business knows that pipelines are cash cows once upfront costs have been recouped. They are particularly good money machines if a field is long lived. Secondly, pipelines are currently very lucrative places to have your money.

      To give an example, Oil and Gas Journal reported in September 2012:

      “Oil pipeline operators’ net income soared to an all-time high of $6.1 billion, a 33.3% increase from 2010 achieved on the back of a nearly 12% increase in operating revenues.”

      And yet in the Bakken play in North Dakota, Oneok Partners couldn’t get enough interest from operators to build a pipeline to carry Bakken crude.

      According to the WSJ MarketWatch:

      “Oneok cancelled its Bakken Oil Express plans…citing insufficient shipper interest.”

      Now record profits are being made on oil pipeline assets in the U.S. and industry touts the Bakken as one of the two hottest oil shale plays in the US and yet there is “insufficient shipper interest”.

      Further, it costs about three times as much to transport oil by rail than by pipeline. That adds considerably to the overall costs. Tight oil production isn’t cheap by any measure to drill and complete so shipping by rail is merely adding additional burden. Three times the additional burden. Bloomberg quotes Tudor, Pickering and Holt, an energy investment bank based in Houston:

      “Sending Bakken oil through a pipeline to U.S. Midwest markets costs about a third of the $15 a barrel expense of carrying it by train to the East Coast.”

      So let’s examine another possible scenario. One the oil and gas industry isn’t putting forward.

      The USGS examined well data for every shale play in the US and extrapolated EUR’s, or reserve estimates, based on actual production. Reserve estimates were slashed significantly from operators prior overly optimistic assumptions and claims. In fact, operators have overestimated reserves by a minimum of 100% to as much as 400-500% on shale gas and tight oil. These figures are now being corroborated by other independent geologists as well.

      Add to this mix extremely steep decline curves for both shale gas and tight oil. A paper presented to the Society of Petroleum Engineers which researched well data in the Eagle Ford shale of South Texas found that first year decline rates were about 80-93%! Shale gas overall yearly field declines are in excess of 40%. The Haynesville is in excess of 50%. In other words, wells are playing out much quicker than expected.

      And this segues nicely into the heart of the matter. If operators thought that shale assets would be long-lived and highly productive they would build pipeline infrastructure to ensure equally long lived profits. But that is not the case. They have chosen instead to ship by rail for three times the cost of a pipeline. It is more likely that industry recognizes the short lives of shale wells and are not prepared to invest the capital needed to build the infrastructure.

      That is the beautiful thing about numbers. Profitability either exists or it doesn’t. Just AskChesapeake!

    • PN Bakken: Bakken oil to feed Kenai refinery?

      Besides price, downsides of ANS oil

      Tesoro said in July 2011 that Bakken crude oil at the Anacortes refinery yielded approximately 16 percent more clean product and less fuel oil than ANS crude, and that during the second quarter of 2011, the price difference between those products averaged approximately $28 per barrel.
      Although the price differential decreased in the second quarter of this year, Goff confirmed May 3 that, “as a rule of thumb … Bakken barrels substituted for ANS … will improve the gas and diesel by approximately 16 percent. … We basically reduced the fuel oil production by 16 percent and produced gasoline and diesel.”
      The refiners seem bullish on the idea of these “pipelines on wheels” because it allows them to buy crude oil feedstock quickly and shift around opportunities. Recent Conoco (NYSE:COP) spin-off, refiner Phillips 66 (NYSE:PSX) announced that it’s looking into buying as many as 2,000 tank cars to ship crude produced from Bakken to its facilities on the East and West Coasts.
      However, the company says its dominance will grow as more facilities are built. BNSF estimates that it could ship roughly 730,000 barrels of crude daily out of North Dakota. Likewise, competitor Union Pacific (NYSE:UNP) has plans in the works to quadruple its Bakken-to-Gulf rail delivery volumes this year.

      While both represent great plays, the best option could be Canadian Pacific (NYSE:CP). The railway owns one of only two with tracks in the North Dakota part of the Bakken, and it has been seeing growth in both in- and outbound volumes. The Calgary-based company predicts by 2014 it will be carrying more than 70,000 carloads of crude out toward refineries.

      • 2 Replies to norrishappy
      • "That is the beautiful thing about numbers. Profitability either exists or it doesn’t. Just AskChesapeake!"

        The propaganda RLP'D posted was self contradictory and as always shows just how ignorant and mindless it is.

        Now if there is already excess pipe capacity why would any one build train terminals to carry more at 10 times the cost? Why because the size of the resource is a hoax and it is declining quick?! So build more take away capacity at 10 times the cost?

        As Sand has been good enough to post ND production and takeaway are still growing very quickly even with Obama scared business to death drilling capital budgets.

        As throughout our economy EPs like all business has focused on efficiency and lowering costs rather than going into job creating full tilt growth.

        The good part of this is the cost of producing ND oil or oil anywhere in the US is coming down by huge amounts. Making it ever more economic to produce.

        SA has had to make significant reductions in their out put to maintain Brent oil prices.

        Something to think about when these completely dishonest environmentalists try to blame the 80% reduction in what fellow Americans pay for natural gas due to over production on high decline rates.

        The only really amazing thing is RLP'D would be so completely ignorant as to post it on an energy board. This is the type of brazen behavior which once resulted in tar and feathering in our history.

        But in Mom's basement these pale miscreants and would be morlocks are safe. Soon they will begin prattling about the merits of a Obama/Progressive carbon tax.

      • 2011? Couldn't find anything more relevant than that? I think you'd better ask SOB to conduct your Google searches.

    • Go look at the numbers from ND for railroads and compare it to the pipelines capacity......all of the cut and past articles are meaningless if the state numbers show something contrary.

 
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