Oil boom puts pressure on pipelines, rail transit hubs; no easing in sight

GREELEY – The oil and gas companies doing business in Northern Colorado are looking for more ways to ship crude oil in light of record production in the Niobrara formation.

Facing limited pipeline capacity, companies have increasingly turned to rail, a fast but more expensive method of shipping the crude oil extracted from the Denver-Julesburg Basin.

That’s why plans for a third so-called transload facility in Weld County are under way, said Bruce Biggi, economic development manager for the city of Greeley.

Also, pipeline giant Kinder Morgan is planning to convert a natural-gas pipeline that runs through the Denver-Julesburg to ship oil. The company expects the pipeline to begin service in 2014, “subject to customer commitments and required approvals.”

These plans come as companies operating in Weld County report record-breaking production levels.

Anadarko Petroleum Corp., one of the larger of the dozens of companies drilling in the Niobrara, recently reported that it delivered a record 301,000 barrels of liquids per day.

The city of Greeley is working with a “couple prospects” to develop the additional transload facility on city-owned property, Biggi said.

The station would serve as shipment point for not only oil, but also for sand used in hydraulic fracturing.

Fracturing involves pumping a mixture of sand, water and chemicals to release oil and gas trapped in shale formations. Producers have long employed fracturing to extract oil but the advent of horizontal drilling has created new opportunities for drilling companies.

At the moment, the city is “determining whether the property is a good fit or not,” Biggi said.

Building a transload facility takes less time than building a pipeline and presents a short-term fix to transportation bottlenecks, said Jodi Quinnell, senior energy analyst for Evergreen-based BENTEK Energy.

She explained that Anadarko and Noble Energy Inc. have reserved most of the space on the two major pipelines in Northern Colorado. Those pipelines already ship 66 million barrels a year.

An Anadarko spokesman did not respond to a phone message seeking comment, and a Noble spokesman declined to comment.

There are pros and cons to rail vs. pipelines.

It costs at little as $5.20 to ship a barrel of oil by pipeline, while shipping by rail can go as high as $8.70 a barrel.

Rail gives companies flexibility in shipping to various markets while pipelines force them to ship to specific places, Quinnell said. As an example, companies using railroads can ship directly to the Gulf Coast, where they can sell their oil for higher prices.

Weld County already is home to one transload facility in Carr, operated by U.S. Development Group; another is planned for the Great Western Industrial Station in Windsor.

That transload station, established by Houston-based Musket Corp., though not operating yet, features fuel-storage tanks with a total capacity of 48,000 barrels at a time. Trucks will bring oil that will be loaded onto trains at the facility. The facility will have an initial loading capacity of 5.8 million barrels a year.

Separately, Great Western Railway will extend its railroad track to complete a four-mile-long loop track within the Great Western Industrial Park to serve the Musket facility and users within the park.

Rail cars transport the oil to various refineries in the West, East and Gulf Coast depending on oil quality and markets, said Clay Buford, crude supply manager for Musket.

He described the project as a “substantial” investment, though he declined to say how much it will cost.

“Any project that you’re working on that requires construction, permitting and dedication of assets is going to be expensive,” he said.

Musket has not planned any additional transload facilities in Colorado, he added.

Companies have expressed interest in other transload facilities throughout Weld County but, so far, no one has submitted a formal application, said Tom Parko, planning manager for Weld County Department of Planning Services.

Mike Peters, senior vice president of OmniTRAX Inc., which operates Great Western Railway, said he believed plans for additional transload facilities and pipelines would materialize in the next “12 to 18 months,” depending on the amount of production taking place.

“There are multiple groups in the market looking for ways to provide that takeaway capacity,” Peters said.

Among them, Kinder Morgan is considering moving oil through 500 miles of its natural-gas Pony Express Pipeline, which runs through the D.J. Basin. The pipeline originally was constructed to transport crude oil.

It’s also considering a 210-mile extension to the pipeline from Central Kansas to Cushing, Okla. That would allow the shipment of as many as 210,000 barrels per day of crude oil from various sources near a terminal in Guernsey, Wyo., including from the Denver-Julesburg Basin.

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