September 25, 2018 / 5:03 AM / 3 months ago

Philadelphia-area crude rail terminal reawakened by discounted crude

NEW YORK, Sept 25 (Reuters) - A rail terminal outside of Philadelphia has begun taking deliveries of Bakken crude after going dormant for nearly three years, according to shipping data and a source familiar with operations, as refiners snatch up discounted North American crude barrels.

The 90,000 barrel-per-day-rail terminal in Eddystone, Pennsylvania, has been getting routine deliveries of Bakken crude for the past month, the first significant deliveries since the site went dark in January 2016. Monroe Energy, a subsidiary of Delta Air Lines Inc, is using the terminal to help supply its 185,000 bpd refinery in Trainer, Pennsylvania.

The return of crude deliveries at Eddystone highlights the growing pains confronting U.S. producers who are facing bottlenecks as booming production outpaces pipeline growth. It also shows how U.S. refiners are trying to seize on the bottlenecks, doing whatever they can to access the distressed crude.

The Eddystone rail terminal was one of several facilities built on the U.S. East Coast in the early part of this decade to take advantage of discounted crude out of North Dakota. But business at this terminal and others slumped as the discount vanished and cheap imports came into favor.

North Dakota oil production hit a record 1.3 million barrels per day in July, outpacing pipeline capacity, forcing producers to discount crude and making it attractive for coastal buyers.

The Dakota Access Pipeline, the key artery out of North Dakota, was nearly 100 percent full in August, according to energy industry intelligence service Genscape. Flows on the line, which runs from North Dakota to Illinois, are averaging just over 500,000 bpd, and further expansion is expected.

U.S. crude's discount to global benchmark Brent WTCLc1-LCOc1 rose to more than $10 a barrel this month, the widest in three months and near the biggest discount in over three years.

That spread is key for East Coast refiners, since the Bakken grade is priced off U.S. crude while import grades are typically priced off Brent. But other factors such as full pipelines have also contributed to the pickup in crude by rail, traders said.

Rail volumes from North Dakota to the East Coast hit nearly 75,000 bpd in June, according to the latest federal data, up from near zero volumes in August and September of last year. At the height of the boom, more than 450,000 bpd ran from the Bakken to the East Coast.

The activity could persist as long as the discounts for Bakken crude remain, according to traders and analysts. Brent crude's premium to Bakken has been between $10 and $11 for November, traders said. It is expected to average around $7 a barrel in 2019, according to Morgan Stanley.

Delta Air Lines used the Eddystone terminal to supply the refinery from 2013 until the contract collapsed in 2016. It is unclear whether the new deliveries are part of a new supply contract or represent spot purchases.

The terminal is owned by Canopy Prospecting, which bought out its partner, Enbridge Inc, last year. Jack Galloway, one of the partners at Canopy, declined comment when reached by phone on Friday.

Monroe Energy did not respond to comment for this story. (Reporting by Jarrett Renshaw and Devika Krishna Kumar in New York Editing by Matthew Lewis)

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