* 210,000 terminal could make Houston a more flexible oil
* Big regional oil price gaps are leading to more rail
* Kinder Morgan, Watco Companies to operate new terminal
Feb 21 Kinder Morgan and Watco said on
Thursday they will team with Swiss oil trader Mercuria to build
a 210,000 barrel per day crude-by-rail terminal in Houston, the
latest bet on railcars to ease major bottlenecks in U.S. oil
Crude-by-rail terminals are springing up as U.S. shale
drilling expands and new pipelines lag behind, causing big
regional oil price gaps, which allow traders like Mercuria to
profit by moving crude quickly between regions.
Kinder Morgan Energy Partners and truck and rail operator
Watco, which have a joint venture known as KW Express LLC, said
they entered a long-term agreement with Mercuria, which will own
15 percent of the terminal on the Houston Ship Channel.
The terminal will be complete in February, 2014, said Kinder
spokesman Joe Hollier.
Financial terms were not disclosed. Mercuria and Watco did
not immediately respond to requests for further comment.
The terminal will allow Mercuria to bring crude to the Gulf
Coast refining complex from locations including Cushing,
Oklahoma -- the delivery site for U.S. crude futures contracts
-- and West Texas, the Bakken Shale or western Canada.
It will also load crude and condensates onto trains or
barges for shipment elsewhere, with capacity to handle three
large unit trains per day, and additional barge offloading
capacity of 100,000 bpd.
Hollier said "interim facilities" should be ready by August,
allowing for crude arriving at the terminal to be transferred
into a distribution system operated by Magellan Midstream
. Barge facilities will be ready in November.
The terminal, which will also feature 500,000 barrels of
tank storage for crude and condensates, will tie into a Magellan
terminal that delivers crude to Houston refiners, while barge
deliveries can reach other refineries around the Gulf Coast,
"This will be the first major crude-by-rail destination
facility in the Houston area with the ability to deliver into
the largest refining complex in the world," said John Schlosser,
Kinder Morgan Terminals president, in a release.
Shipping crude by rail is more expensive than by pipeline,
but due to logistics bottlenecks, a barrel of light crude on the
Gulf Coast can fetch a premium of $20 or more per barrel versus
prices in the midcontinent. The oil price gap between the Gulf
and Western Canada can be $40 or more.
"They'll have unit train capacity to drop off different
grades of crude along the Gulf Coast and capture those big price
differentials," said Jason Stevens, an analyst who covers energy
companies for Morningstar in Chicago.
"It's a very flexible way to operate. The loading capacity
also means they can take light condensates from the Eagle Ford
region of Texas to Canada, where it can be used as a diluent for
Canadian heavy crude."
Mercuria already holds oil and gas stakes in Western Canada
and the Bakken Shale of North Dakota, and controls crude storage
assets in Cushing, Oklahoma, the delivery site for U.S. oil
Pipeline giant Kinder and logistics firm Watco said in 2011
that they planned to build several U.S. crude-by-rail terminals
around the country.
Railroads have been reporting growing profits from crude by
rail, and among the other energy firms betting on it are
independent U.S. oil refiners Valero and PBF Energy Inc.
PBF has been railing cheaper crude from the Northern
Plains to its formerly import-dependent East Coast refineries,