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GGG · 02-21-2019, 05:23 PM

Rail costs around $20 per barrel pipeline around 10. So provided WTI is about $50 there is money to be made on rail.

Companies have been increasing rail capacity. Cenovous recently committed to it.

The problem is a Prisoners dilemma. If I ship by rail I pay $20 per barrel. If you ship by rail I pay $10 to ship by pipe. So I am incentivized to ship as little by rail as possible. This means when CP and CN require long term commitments to ship it doesn’t make sense to lock in. However when total takeaway capacity is less than production the diff rises to what you saw in November/December.

So while the dilemma still exists with a government rail if they become the swing shipper which should reduce the risk of the diff crashing.

The other question of why no private sector entity as become a rail shipper is that they aren’t currently protected the way the pipelines are. The common carrier pipelines have gurenteed rates whether or not fluid is flowing through them based on a cost plus Investment return model. If such a system existed for rail capacity you would likely see companies exist to do this. The other issue with private investment in trains is that they can get undermined by a pipeline and made not profitable. In that case the government is insulated by increased royalties from a reduced diff.

I hope that makes sense. As to the deal being better or worse than typical I’m not sure there is enough info to make that decision. I suspect this is a ploy by Kenny knowing that the details of the commercial contract likely can’t be made public.

You could benchmark against the 3 yr deal signed by cenovous for 100k barrels if you had details to both.

https://www.cenovus.com/news/news-re...ulf-coast.html

02-21-2019, 05:23 PM	#2209
GGG Franchise Player Join Date: Aug 2008 Location: California Exp:	Rail costs around $20 per barrel pipeline around 10. So provided WTI is about $50 there is money to be made on rail. Companies have been increasing rail capacity. Cenovous recently committed to it. The problem is a Prisoners dilemma. If I ship by rail I pay $20 per barrel. If you ship by rail I pay $10 to ship by pipe. So I am incentivized to ship as little by rail as possible. This means when CP and CN require long term commitments to ship it doesn’t make sense to lock in. However when total takeaway capacity is less than production the diff rises to what you saw in November/December. So while the dilemma still exists with a government rail if they become the swing shipper which should reduce the risk of the diff crashing. The other question of why no private sector entity as become a rail shipper is that they aren’t currently protected the way the pipelines are. The common carrier pipelines have gurenteed rates whether or not fluid is flowing through them based on a cost plus Investment return model. If such a system existed for rail capacity you would likely see companies exist to do this. The other issue with private investment in trains is that they can get undermined by a pipeline and made not profitable. In that case the government is insulated by increased royalties from a reduced diff. I hope that makes sense. As to the deal being better or worse than typical I’m not sure there is enough info to make that decision. I suspect this is a ploy by Kenny knowing that the details of the commercial contract likely can’t be made public. You could benchmark against the 3 yr deal signed by cenovous for 100k barrels if you had details to both. https://www.cenovus.com/news/news-re...ulf-coast.html Last edited by GGG; 02-21-2019 at 05:26 PM.