August 4, 2011 / 7:16 PM / 6 years ago

WRAPUP 1-US firms plan rail expansion to profit from oil spread

* Musket, Plains announce crude-by-rail expansions

* Musket plans see 7-fold rise from Bakken to 70,000 bpd

* Huge price spreads in crude grades accelerate rail plans

By Joshua Schneyer and Janet McGurty

NEW YORK, Aug 4 (Reuters) - Logistics firms are accelerating plans to build crude-by-rail terminals in the United States as shippers look to transport more oil on railroads to capture massive oil price spreads between the country’s northern and southern regions.

Logistics firm Musket said on Thursday it would build capacity to ship 70,000 barrels a day of oil by railroad from North Dakota’s Bakken region, and competitor Plains All American (PAA.N) said it is also boosting crude-by-rail capacity.

Oil traders and shipping companies are building rail terminals in the booming Bakken shale and other northern or mid-continent locations in a race to move crude south due to a dearth of pipelines to do the job. Pipeline tariffs remain cheaper than rail, but the boom period for crude-by-rail could last until at least 2013, when new pipelines between the Midwest and Gulf Coast regions enter into play.

The unusually large price spread of more than $20 per barrel between crudes in Cushing, Oklahoma, or further north, and those traded in the U.S. southern Gulf Coast region is providing huge economic incentives to move crude south.

Oklahoma-based Musket, a fuel trader and logistics firm, said Thursday it will build a unit train terminal at Bakken by early 2012, expanding its existing rail infrastructure in an oil-boom region that now produces around 400,000 barrels a day.

The plans will allow Musket to 70,000 to 80,000 bpd from Bakken, mostly in unit rail cars, up from an average daily shipments of 10,000 to 16,000 bpd now on so-called manifest cars, a company source told Reuters.

Musket didn’t give the cost of the expansion. The company currently ships Bakken crude by rail to the Gulf Coast, West Coast and Mid-Continent locations. But once built, unit-car terminals provide much cheaper transport costs than moving oil on individual manifest cars.

    Also Thursday, Houston-based Plains said it had plans to double crude-by-rail capacity at two of its key crude oil terminals, Patoka, Illinois, and St. James, Louisiana. In an earnings conference call, Plains executives told investors the company is seeking to boost rail transport of oil. It didn’t offer specific volumes of oil it plans to move, but Plains’ website says it owns 1,395 railcars.

    Light Louisiana Sweet LLS-, a commonly traded low-sulfur crude from the Gulf Coast region, changed hands for $22.90 a barrel above Cushing, Oklahoma, benchmark West Texas Intermediate CLc1 as of Wednesday.

    Moving crude by rail between Bakken and St. James, a hub for LLS, would allow shippers to capture much of that spread, minus transportation costs.

    US Development Corp opened a unit train crude terminal at St. James last year, with capacity to receive around 60,000 barrels a day of Bakken crude, and has plans to double the capacity by the end of 2011, as well as building additional crude-by-rail terminals along the Gulf Coast.

    Several other terminals are also popping up. [ID:nN04236932]

    In a presentation earlier this year, major U.S. railroad operator BNSF said around a fifth of Bakken crude output was already being shipped out by rail, and added that eight new crude unit train facilities were in the works around Bakken for implementation in 2012. BNSF forecast it could someday ship as much as 730,000 bpd by rail out of the region.

    Reporting by Joshua Schneyer and Janet McGurty in New York; Editing by Lisa Shumaker

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