TRANSPORT

Rail delays put East Coast refining 'in jeopardy' -- Delta subsidiary

Rail delays are chipping away at a crude "life line" for East Coast refiners, according to Monroe Energy LLC, a refining subsidiary of Delta Air Lines Inc.

In August and September, Monroe experienced a million-barrel shortage of crude-by-rail deliveries to "key supply points," according to a Sept. 26 letter to federal transportation regulators. Oil trains are supposed to ship 65,000 barrels of crude to the company's Trainer, Pa., jet fuel refinery each day -- roughly a third of the facility's throughput capacity.

The deficit "caused the Monroe refinery (and others relying on this railroad service) to cut refinery runs (or crude processed), which causes a spike in product prices for consumers," Monroe's president and CEO, Jeff Warmann, said in the letter, addressed to officials at the Surface Transportation Board and posted online yesterday.

Warmann's comments mark the first time a major refiner has disclosed "severe financial harm" from rail delays.

Poor rail service has historically been a more pressing issue for agriculture, coal and other industries that can't pump their products through pipelines. But in recent years, East Coast refineries have relied on railroads to access new sources of crude from places with scant pipeline access, such as North Dakota's Bakken Shale play.

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In the wake of the shale oil boom, crude-by-rail unloading terminals cropped up from New Brunswick to Delaware, serving refiners such as Irving Oil Ltd., PBF Energy Inc. and Philadelphia Energy Solutions. Shipments of rail-bound crude are on track to surpass 450,000 carloads this year, up from fewer than 10,000 carloads in 2008.

With rail volumes surging, most refineries haven't reported suffering from delays (EnergyWire, Sept. 8). But continued freight disruptions could cause that to change, according to Warmann's letter.

"The inability to ratably receive or rely on railroad service puts the future of PADD 1 refineries in jeopardy," he wrote, using the Petroleum Administration for Defense District (PADD) classification to refer to East Coast refiners.

BNSF Railway Co., which provides service to Monroe's Pennsylvania refinery, declined to discuss customer-specific information. Spokeswoman Roxanne Butler said BNSF "works with our customers on an individual basis, and we will continue to do so as we work to improve service across our network."

BNSF and Canadian Pacific Railway Ltd., the two biggest railroads with access to the Bakken Shale, have pledged to invest billions of dollars in infrastructure as they scramble to clear up backlogged orders.

Northern Tier Energy LP, which runs a midsized oil refinery in Minnesota, has warned the STB that it "can no longer trust" Canadian Pacific Railway to deliver crude carloads on time.

Warmann singled out BNSF's service in his letter to STB. A spokesman for Monroe Energy did not immediately return a request for comment yesterday afternoon.

Other refiners have taken note of rail problems but fell short of using Warmann's stark terms.

On the eve of an STB hearing in April, independent refiner Valero Energy Corp. weighed in on rail service, but the company's comments focused on delays affecting its 11 corn ethanol production plants rather than its oil refineries.

Also in April, PBF Holding Co. LLC's senior vice president of logistics said the firm's oil refineries had been affected by holdups in North Dakota and Chicago. However, James Fedena added, "PBF believes that the railroads are working to correct the issues and that better weather will help, or at least not impede, those efforts." A PBF spokesman declined to comment on the company's crude-by-rail operations in September.

Twitter: @BlakeSobczak | Email: bsobczak@eenews.net

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