Rail operator proposes to move Utah heavy oil to U.S. Gulf Coast

HOUSTON (Reuters) - Investor Drexel Hamilton Infrastructure Partners LP and rail operator Rio Grande Pacific Corp on Friday disclosed plans to build a $1.5 billion rail line that would transport heavy crude from Utah to connections to the U.S. Gulf Coast.

Drexel Hamilton and Rio Grande officials said the project aims to deliver about 400,000 barrels per day (bpd) of Uinta basin crude to Gulf Coast refineries looking to replace heavy oil supplies from Venezuela.

“The Uinta has only been restricted from Gulf Coast and overseas refiners as a result of limited takeaway capacity,” said Mark Michel, a managing partner at private equity fund Drexel Hamilton. “We are going to change that.”

Uinta Basin oil now is trucked to Salt Lake City refineries because it is too thick to put into a pipeline, Robert Bach, president of Rio Grande said in an interview. “This (Gulf Coast) market is much bigger.”

The proposed project would include at least one terminal able to load crude onto trains and to receive sand used in hydraulic fracturing. The rail line will be contingent on receiving commitments from oil producers, Bach said.

The Seven County Infrastructure Coalition, a Utah regional planning group, on Friday approved terms of a preliminary agreement with Drexel Hamilton to build the railroad.

Rio Grande owns four short-line railroads in Texas, Louisiana, Oklahoma and other states. The proposed rail line would extend 80 miles between connections with Union Pacific and BNSF Railway near Soldier Summit, Utah and potential terminal locations in the Uinta basin near U.S. oil producers.

“There was never enough momentum behind this before,” Bach said, explaining that U.S. sanctions on Venezuela’s state-run PDVSA oil company, a former major supplier of heavy crude to the U.S., helped spur demand.

Reporting by Collin Eaton; editing by Diane Craft