NEW YORK (Reuters) - Enbridge Energy Partners’ crude rail terminal located just outside Philadelphia was hailed as a symbol of the region’s energy rebirth when it first opened in 2012.
Mile-long trains filled with discounted domestic Bakken crude barreled out of North Dakota like clockwork into the 90,000 barrel-per-day facility before the crude was placed on a barge, bound for Delta Air Lines’ nearby refinery and converted into jet fuel, gasoline and other products.
But the scene at Enbridge’s facility now is very different. The terminal has not received a delivery of crude oil since late January, according to two sources familiar with the plant’s operations, and none are expected any time soon as foreign crudes are expected to remain more economical compared to domestic grades.
Several East Coast traders said Delta and its crude supply partner, Bridger Logistics along with its parent company Ferrellgas Partners, have signaled that their five-year deal inked in 2014 at the terminal is in jeopardy.
“Both parties are telling the market that the deal is dead,” said one East Coast trader.
Although Ferrellgas did not address the lack of deliveries, it said “the long-term take or pay agreement with Delta remains in place.” Spokesmen for both Delta and Enbridge declined to comment on the operations.
The sustained break in activity at the Eddystone terminal stands as yet another example of the oil bust’s aftermath. East Coast refiners and other operators such as Global Partners and Plains All American have borne the brunt of the collapse in oil prices. After plunging millions of dollars into new rail facilities to take advantage of the boom, those assets now lay mostly idle as trade has shifted back to waterborne crudes from West Africa and the North Sea.
In 2012, the U.S. benchmark crude, West Texas Intermediate, averaged a $17.50 discount to Brent, the global benchmark, offering U.S. refiners unparalleled access to cheap crude and spurring investment in rail terminals and pipelines. Today, the spread is less than 50 cents, forcing refiners to shun U.S. crude for foreign imports.
“Companies invested millions thinking that the flow of oil was going to continue to the East Coast, and it just hasn’t,” said Ed Hirs, an energy professor at the University of Houston. “Now these assets are being underused, often resulting in parties renegotiating deals to reflect new realties.”
At its peak in 2014, 458,000 barrels per day - roughly 637 single-tank cars - were moving from North Dakota to the East Coast. The numbers dropped to 300,000 bpd in December, a 22-month low, and trading sources on the East Coast say the numbers dipped further in March and April before rebounding in May.
PBF Energy is only receiving only a fraction of its 210,000 bpd it can deliver by rail to its two East Coast refineries, forcing the company to store its leased rail cars on short-line railroads or seek alternative use of the assets.
Global Partners LP, which owns a crude rail terminal in Albany, New York, that was helping feed the refineries during the boom, paid $11.7 million in the first quarter on leased rail cars, but two-thirds of those cars are parked in storage.
Plains All American’s rail terminal in Yorktown, Virginia, has been dormant for much of the year.
Hirs said rail flow to the East Coast will return, but not before crude prices rise enough that Bakken producers can provide the discounts needed to make a profit and compete with waterborne crudes from across the Atlantic Ocean.
In July 2014, Delta announced a five-year supply deal with Bridger Logistics, hailing it as a significant step in its plan to access cheaper domestic crude at its 182,000-bpd Monroe Energy refinery in Trainer, Pennsylvania.
Bridger agreed to supply between 35,000 and 60,000 bpd of crude oil via the Eddystone terminal to the refinery. A year later, when Ferrellgas Partners LP bought Bridger, the deal was labeled the “largest revenue-generating contract.”
Ferrellgas said the importance of the contract posed some risks for company, disclosing in regulatory filings that if Monroe’s demand for crude oil were to drop for an extended period, it would “adversely affect Bridger Logistics’ cash flows.
Reporting By Jarrett Renshaw; editing by David Gaffen and Diane Craft