What is going to happen to all those oil trains with a worldwide glut of oil?

[schlimm]

Producers watch the futures contracts http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html  Levels of production will depend on various factors, but if cost to extract at wellhead exceeds that of oil produced elsewhere so that the profit margin is reduced, production may even cease until prices rebound.

[Overmod]

erikem

Heinlein's The Man Who Sold the Moon compilation had a reference to a 70 mpg carburetor ca 1941, so the story has been around a long time.

Story's been around a long time, from when engines that could use the design features to best advantage (e.g. F-head long stroke with hotspots in the head, displacement over about 300ci, no emissions-related limits on compression ratio) were more prevalent. 

The 'usual' problem with these carb designs is that they involve very lean mixture combined with high fuel preheat.  Reilable spark ignition that can produce full combustion at stoich without detonation becomes a problem (remember the lean-burn and stratified-charge experiments years ago?) and of course this combustion is at 'full efficiency' for only one combination of speed and load.  Which means that the high mileage figure is only seen at steady speed and constant load -- try to speed up, or hit even a gentle grade, and poof! the engine stalls or the mileage falls off.  (In part, you can think of this as a bit like severe negative intercooling...) 

The Fish carburetor attempted to use better atomization (via higher differential pressure) and better distribution of the atomized plume, among other things, but Fish himself didn't see this producing much above 1/3 improvement in mileage.  And we have not gotten into the other issues with 'high mileage' optimization: worse thermal NOx generation, overheated valves, increased fire danger, and the like.

Polynucleate ignition (think diesel ignition with promoters present, for example) is a workable approach to make severe lean-burn a bit more practical.  However, a polyfocal laser arrangement with adequate ignition capability still represents much more money than you're likely to save over a vehicle's lifetime... compared to engines with nearly the same inherent efficiency.  This is the same reason I think we haven't seen fixed-load instantiations of extreme lean burn in hybrid applications (where the engines make far better engineering sense!) -- you're adding the complex ignition control on top of the already-substantial energy-storage-transmission costs.

This is just the engineering side.  The conspiracy side is of course different: where you stand is often where you sit, and if all gets to be fair in love, war, and business, it isn't surprising that force majeure is used to maintain peoples' status quo.  However, as with the general subject of promoters to increase combustion efficiency (HHO Brown's Gas, anyone?) the utility for new-manufactured vehicles is far lower than the putative gains that buyers will be interested in paying for.

(If there were much truth to the '200-mph carburetor patent suppressed by GM/Big Oil/insert your favorite conspirators here' you'd best believe that it would have been trotted out when the nexus between the Clean Air Act and the first round of CAFE standards became applied...)

[Paul_D_North_Jr]

greyhounds

With the price of crude oil down 26% since June I wonder what the effect on CBR will be?

http://www.cnbc.com/id/102084062 

There was a decent column on this in the print edition of todays' (Monday, 20 Oct. 2014) Wall Street Journal.  Since it's apparently not available on-line, the short version is:

• Drilling - new projects may dry up, but current leases and commitments are likely to be performed, at least in the short-term;
• Production from existing wells will likely continue.  Once the property has been bought, the wells drilled, and the leases paid for, the costs of production are comparatively low - "break-even" prices of from $40 to $60 per barrel were mentioned, and would provide a 10% rate of return - and so will continue.
• The Canadian tar sands projects have the highest cost, and so are the most vulnerable of all the worldwide producers; it's unlikely that the West Texas wells will be seriously affected; no mention of Bakken wells.

I expect that existing and announced Crude-By-Rail moves will continue, but the rapid growth rate will decline, and may even come to a halt (static, no new moves, but not many discontinued, either). 

 Would this undercut one of CP's supposed rationales for merging with CSX - to promote and expedite such traffic ?

- Paul North.   

[Euclid]

If the world economy is slowing down enough to reduce oil demand enough to put the railroads out of the oil by rail business, the industry will have a lot more to worry about than just losing the oil business.

[perrymwarren]

Thanksgiving and Christmas are coming. Gasoline prices will start rising again just before the holidays.

[Paul_D_North_Jr]

The Wall Street Journal column that I mentioned above was in the "HEARD ON THE STREET" section - "Saudi Arabia versus Shale and Sand" on page B-8, by Liam Denning.  It does appear to be available on-line (though date-lined Oct. 19, 2014 instead) on a limited basis at: http://online.wsj.com/articles/saudi-arabia-versus-shale-and-sand-1413761676 

A minor correction to my previous post: The article does mention the Bakken field, in the context of fields with lower break-even points than the current crude price. 

The first comment summarizes my thinking pretty well: There's a big difference between the price that is needed to justify investing in a start-up well, and the price needed to keep operating a well that's already been drilled - even if at a nominal (accounting) loss - because the loss would be even greater if the well were shut down, etc. 

- Paul North.   

[wanswheel]

Paul_D_North_Jr

The Wall Street Journal column that I mentioned above was in the "HEARD ON THE STREET" section - "Saudi Arabia versus Shale and Sand" on page B-8, by Liam Denning.  It does appear to be available on-line (though date-lined Oct. 19, 2014 instead) on a limited basis at: http://online.wsj.com/articles/saudi-arabia-versus-shale-and-sand-1413761676 

Perhaps the Journal will give the full article via Google.

https://www.google.com/#q=%22Saudi+Arabia+Versus+Shale+and+Sand%22

 

[MP173]

There is a great comment to the article about exploration costs (drilling) vs production costs (once the well is in place).  The wells in place will continue to produce.

The real issue will be for those holding time certain oil leases.  As those leases approach expiration, the oil company will face a real issue....drill at below cost returns or lose the lease.

Does anyone know if production falls off quickly on the shale oil wells?  If so, there is a need to continue drilling to replace the "lost" production.  Oil wells typically fall off within a few months and then stabilize, however i am not familiar with the shale oil situation.

If shale oil production falls off and replacement wells are not drilled then the oil prices will begin to rise again, and more wells will be drilled.  Oil producers have gone thru this for decades.

 

ed

[schlimm]

Another good article

http://www.cbc.ca/news/business/oilpatch-faces-project-cancellations-with-crude-at-82-1.2806405

And this 7-page one:

http://seekingalpha.com/article/2571085-this-is-why-oil-prices-will-remain-weak-for-some-time-and-shale-oil-will-get-hurt

[SALfan]

MP173

Does anyone know if production falls off quickly on the shale oil wells?  If so, there is a need to continue drilling to replace the "lost" production.  Oil wells typically fall off within a few months and then stabilize, however i am not familiar with the shale oil situation.

If shale oil production falls off and replacement wells are not drilled then the oil prices will begin to rise again, and more wells will be drilled.  Oil producers have gone thru this for decades.

 

ed

 

According to something I read in the last few days, production from fracked wells DOES fall off rapidly, a year or two after production begins.

[Paul_D_North_Jr]

The CBC article linked by Schlimm above echoes the WSJ article that I cited on the impact on the Canadian tar sands production: pretty drastic. 

A column on the editorial pages of today's (Fri., 24 Oct. 2014) WSJ - by an oil or energy expert - says that fracked wells are producing about 300% more than was expected. 

After further thought, I still think the crude-by-rail moves are not terribly susceptible to discontinuance by oil prices dropping into the range that's now predicted.

However, the drilling of new wells has been and will continue to be heavily impacted.  I would expect those rail lines, operations, and towns that are dependent on drilling - the fracking sand and well pipe traffic, etc. - to start to look abandoned and like ghost towns until this situation stabilizes and/ or returns to a higher price regime - which may not happen for quite a while.

- Paul North.    

[Murphy Siding]

Paul_D_North_Jr

 I would expect those rail lines, operations, and towns that are dependent on drilling - the fracking sand and well pipe traffic, etc. - to start to look abandoned and like ghost towns until this situation stabilizes and/ or returns to a higher price regime - which may not happen for quite a while.

- Paul North.    

 

  I lived in a town like that once.  There was a hnadpainted sign on the interstate that said "Would the last person leaving Gillette please turn off the lights?".

[MOWBill]

Murphy I don't don't think anybody will be turn turning the lights off in Gillette for a little while, the just hit a well producing over 3,200 barrels a day about 30 miles south of Gillette. There are about 20 rigs drilling there now, my drilling buddies say $60 a barrel is where the drilling will slow.

Don't know if you have been to Douglas WY lately but there are about 30 rigs drilling there, at night it is like daytime with all the Natural Gas burning off.

I don't tink the number of oil train will change much, remember there is a lot of natural gas that is produced with the oil here, lot of pipelines going in, by the way the Coal Mines have produced more coal this year then any other, loading over 50 trains a day.

[MidlandMike]

MP173

...

The real issue will be for those holding time certain oil leases.  As those leases approach expiration, the oil company will face a real issue....drill at below cost returns or lose the lease.

...

 

If it is a large lease, there may be producing well(s) drilled on the lease already, and the lease will be held by production.  If there is nothing to hold the lease, the oil company may negotiate for an extension.  They may be top-leased by another company offering more money, but lease prices will probably cool until the price of oil goes up again.

[Norm48327]

Bill,

On a trip west in 2013 we landed at Gillette for fuel and lunch. Couldn't help but notice a lot of activity at the mine north of the airport.

[erikem]

I have a cousin who is a schoolteacher in Gillette, haven't heard anything from her about the economy tanking. She's been there for more than 20 years.

[Murphy Siding]

     I left Gillette in 1984 as the local economy was tanking.  I was selling units of plywood to board up windows on apartments that were just being finished up but had no one to rent them.  In recent years Gillette has been in the boom mode.

[Paul_D_North_Jr]

greyhounds

With the price of crude oil down 26% since June I wonder what the effect on CBR will be?

http://www.cnbc.com/id/102084062 

Might not matter - or might actually be a net benefit to the US railroads !  Huh ?!?  

(Note: "Doh !" to self for not thinking of this earlier):  The genesis of this comment is in today's Wall Street Journal, which had a page A-1 article titled "Gas at $3 Carries Rewards - And Risks".  Now, nowhere in it is mentioned railroads or crude-by-rail.  However, it does discuss a benefit to transportation companies - mainly airlines - by greatly reducing the costs of their fuel. 

Wouldn't the same logic apply to railroads ?  Yes, they may lose some revenue and a few dollars in profit if CBR declines or vanishes - but, they'll save a ton more money on all those locomotive fuel tanks of diesel fuel that's used to haul all of their other traffic.  I'm speculating that 'net - net', the savings from reduced fuel costs will be a much larger amount than the lost profits from CBR moves that vanish from the rails.

But then, lower fuel prices will reduce costs for trucks and make them more competitive, which may take some traffic off the rails . . . so where does it all end and settle out to a new equilibrium ?

- Paul North.     

[MP173]

Paul:

It probably will not be quite the boom to the railroads (reduced fuel costs).  The cost of fuel is tied to the fuel surcharge which is periodically adjusted.  Thus, the revenue will drop. Now, wait a minute you say...isnt the fuel surcharge a direct correlation to the adjustment in fuel?

I have maintained that fuel surcharges are a profit center for the railroads and other forms of transportation.  

Our waste company (one of the big ones) even has affixed a fuel surcharge to our quarterly bill.

Ed

 

[Boyd]

The oil in Saudi Arabia is closer to the surface and cheaper to recover. An article in one of the major Minneapolis newspapers this summer said that they think the Bakken area has another 30 years of oil production left and that oil output would reach 2 million barrels a day within a year. Much of the Bakken oil goes down to the southern port area for refining. Much of the tar sands oil goes to the U.S. east coast. That was covered in a Trains article this year. China's debt to annual GDP ratio is 200% right now. The U.S. ratio is close to 100%. 2008/2009 sudden recession is just 6 years old and fresh in the minds of most any adult. The U.S. bank loan regulations are still very tight and in part constraining our economy. 

[daveklepper]

glut or no glut, oil still has to be moved from where it is found to where it is processed to where it is used

[blue streak 1]

Should any excess USA oil be deposited into the strategic oil reserve ?

[MidlandMike]

A lot of Bakken crude oil was going to east and west coast refineries because they were getting higher prices there (vs. texas) which made the higher cost rail option viable.  However, the world oil glut has leveled prices of different crudes, so the Bakken producers can get the same price at the Gulf coast and save money by shipping via pipeline.  The reference for this is an RBN blog referenced a couple of days ago in Fred Fraileys blog on oil.

[richg1998]

Don't know if this has been mentioned. Another reason for falling price of "regular gas".

http://fuelfix.com/blog/2014/10/28/mercedes-drivers-stung-by-shale-booms-quirks-at-the-pump/

Rich

[jeffhergert]

Falling? Gas in central Iowa went up 7 to 10 cents/gal about a week ago.  The day it happened, my wife and I passed a local gas station to get to a store before it closed.  When we returned to fill up about 20 minutes later, it had risen 7 cents.  Other areas had the 10 cent rise, leading to places that are usually cheaper than our area to be at the same price as our town.

Jeff 

[Norm48327]

Only seven cents? Around here, it goes down pennies and goes up a quarter. We're in one of five states that does that courtesy of one oil copany that is dominant in the area.

[blue streak 1]

This could get interesting. 

The following indicates that the demand for CBR is exceeding RR supplied.

The Delta air lines refinery on the east coast reportely is not getting enough CBR and is complaining.  Will this become another war of words between RRs and airlines ( especially Delta) ?  Probably costing Delta more bucks to get jet fuel from other sources ?  Maybe barges ? Remember the Airlines ( almost all )  in the uSA buy jet fuel and put the fuel into a common  pool for all airlines. Each airline then has to replace into the pool equal amounts by buying replacement fuel.  Most vendors pumping fuel get a per gallon and hook up fees.  That means airports that have a lot of same airline fuel demand will do their own pfuel pumping.    But all fuel trucks still have meters.to allow proper accounting.t 

 

http://www.eenews.net/stories/1060008119

 

 

 

[BaltACD]

In my area of observation, the hold up in the supply chain is the destination receiver of CBR - they are able to unload 2 trains per day but there is 4 days worth of loaded trains within 24 hours of the unloading site.