Phillips 66 signs oil-by-rail contract for Bayway refinery in New Jersey


Phillips 66 signed a five-year contract for 50,000 bpd of North Dakota crude oil to be delivered by rail to its Bayway refinery in New Jersey, the company said Tuesday, a move that underscores how important the North American oil boom has become to refiners on the East Coast.

Phillips 66's contract with Global Partners also cements North Dakota crude's hold in the East Coast refining belt, where Philadelphia Energy Solutions and PBF Energy already get crude from North Dakota's Bakken field by rail.

Most pipeline construction has focused on bringing oil from West Canada and North Dakota to the Gulf Coast, leaving East Coast refiners relying on railcars to bring in domestic oil.

Under the contract, Phillips 66 will use Global's network of loading facilities and offloading terminals. The cost of the deal wasn't disclosed.

Even after shipping costs, a barrel of Bakken crude can be $10 less than the Brent oil imports that East Coast refiners have traditionally relied upon. That price difference has revived the fortunes of refiners in a region where last year numerous refineries were expected to shut down because of the high cost of imported oil.

"The ability to get crude from someplace other than the world market keeps those guys alive," RBN Energy analyst Rusty Braziel said of the East Coast refining industry.

The East Coast fuel market is the biggest in the country, with 4.6 million bpd of gasoline, diesel and other petroleum products sold in October, according to the latest figures from the US Energy Information Administration.

New drilling methods have unlocked a wealth of oil and natural gas that had until recently had been considered too expensive to economically produce.

But logistics, construction issues -- and in the case of TransCanada's planned Keystone XL heavy Canadian crude oil pipeline, political protest -- have bogged down new pipeline projects, leaving rail companies to capitalize on their ability to use existing routes to connect.

Last year, Phillips 66 bought 2,000 rail cars to supply domestic crude oil to its refineries. Tesoro built a 10,000-car "pipeline on rails" to bring crude oil from the Bakken field to its refinery in Anacortes, Wash.

Dow Jones Newswires

(Editor's note: The Bayway refinery has a capacity of approximately 238,000 bpd, according to reports.)

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