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ANALYSIS-U.S. East Coast crude import days are numbered as Bakken gets barged

EDDYSTONE, Pennsylvania, Feb 28 (Reuters) - A handful of new East Coast terminals that will pump Bakken and other crude from trains onto barges may end demand for imported light, sweet oil in the U.S. Northeast, the latest twist in the shale revolution that is reshaping the market.

By mid-year, new rail-to-barge facilities in Pennsylvania and Virginia will be able to unload more than 200,000 barrels per day (bpd) of crude, enough for refiners like PBF Energy or Phillips 66 to replace their remaining barrels of Nigerian or Norwegian oil, analysts say. A third facility in New Jersey may add to the flow soon.

The new terminals are part of a massive wave of investment into North American oil transportation and logistics, fueled by the emergence of fast-growing shale production in remote places like North Dakota. Output is rising so quickly it is already threatening to saturate the U.S. Gulf Coast refining hub, meaning more crude may be moving east or west.

On a recent evening, klieg lights illuminated the site of a former power plant in Eddystone, an industrial town on the Delaware River outside Philadelphia. More than 500 workers have been working through the night since October to lay fresh train tracks, retrofit a storage tank and install the machinery that will load and unload a mile-long, 118-car oil train in a day.

The crude will be piped to docks, where 145,000-barrel barges will ferry it to a clutch of refiners less than 10 miles (16 km) away. Canada's Enbridge and partner Canopy Prospecting aim to have the terminal running by the end of March, and may double capacity to 160,000 bpd by the end of next year.

It is not yet clear exactly how markets will adjust to the new capacity. Local refiners have spent tens of millions of dollars building their own rail offloading terminals direct to their doorsteps. Keeping some overseas imports flowing may provide a more varied slate of crude and provide useful bargaining power with domestic shippers.

On paper, however, the new capacity could shut the door on imports of lighter, low-sulfur crude into a half-dozen East Coast refiners. Such shipments, which ran in excess of 800,000 bpd just a few years ago, have fallen this year from 400,000 bpd in the first quarter to less than 240,000 bpd in October and November, according to U.S. government data.

The new capacity to take Bakken crude will "just shut down imports," said David St. Amand, president of Navigistics Consulting, a shipping consultancy.

In December, the first trains began rolling in to Plains All American's 140,000 bpd rail-to-barge terminal at a former refinery in Yorktown, Virginia. It is unclear how much oil is flowing through the facility, but industry observers said that barges are moving crude to the Philadelphia Energy Solutions refinery, a trip of around 200 miles (322 km).

EAST COAST REVIVAL

The shale boom has been a godsend for East Coast refinery operators like Monroe Energy, a subsidiary of Delta Air Lines , and Carlyle Group's joint-venture PES, which runs a 330,000 bpd plant in Philadelphia, the area's largest.

Most of the domestic crude now arriving on the East Coast is coming by rail to purpose-built terminals at the refiners themselves. PBF Energy currently brings 80,000 to 90,000 bpd of light crude, with construction under way to bring that up to 130,000 bpd, executives said this month. PES brought its direct crude-by-rail capacity to 200,000 bpd in the third quarter.

Even with rail costs of up to $10 a barrel, Bakken is still "vastly superior" to imports priced off of European benchmark Brent, said PES chief executive Philip Rinaldi.

After decades of near total dependence on imported crude, PES now runs 75 percent domestic oil, he said. On top of its own rail terminal, it also takes in some 25,000 bpd by barge via Sunoco's multimodal terminal in Eagle Point, New Jersey.

Now, new rail-to-barge terminals offer even more flexibility for refiners from Delaware to Newfoundland that process up to 1.8 million bpd.

Until last year, the two major rail-to-barge terminals operating in the region were in Albany, New York, where as much as 220,000 bpd is transferred onto barges down the Hudson River to Bayway, New Jersey, or up to Canadian refiner Irving Oil in St. John, New Brunswick. (For a full list of crude-by-rail projects in the U.S., see )

Buckeye Partners LP is due to finish an overhaul of its Perth Amboy terminal in New Jersey by mid-year, including a crude offloading facility, four docks, and pipeline connectivity, said Kevin Goodwin, vice president and treasurer. He would not disclose its capacity, but confirmed the company is in discussions with customers to bring Bakken crude by rail.

FLEXIBILITY AT A PRICE

While barges offer more flexibility than on-site refinery rail terminals, they come at a cost.

Rail freight from the Bakken fields to various East Coast destination range from $8.70 a barrel to Philadelphia to $10.20 to Yorktown, according to Genscape's PetroRail report.

It costs another $1 or less to barge the crude from Eddystone to its nearby refineries, and up to $2.50 or $3 a barrel from Yorktown. Transferring from rail to barge adds an additional $1.50 to $2 in fees for unloading and again for loading, said logistics experts.

Despite the higher barge costs, Yorktown offers a useful alternative to the "more congested Philadelphia region," said Brad Leone, spokesman for Plains All American Pipelines. He declined to comment on Yorktown's customers.

Bakken crude <BAK-> is now trading at around $12 a barrel less than benchmark Brent, but in November had fallen to a more than $30 discount, according to Reuters data.

"Say it costs $12-$15 to send a barrel from North Dakota to the East Coast; it's still pretty good economics for you," said Chris Neumiller, senior energy and shipping advisor at McQuilling Services LLC.

JONES ACT BUMMER, EXPORT GATEWAY

In addition to cutting imports, the new terminals may also affect domestic oil flows in other ways.

For instance, they may cut off an emerging arbitrage for Texas Eagle Ford crude sailing up the East Coast on costly Jones Act vessels, a route that runs around $4 to $6 a barrel on a 330,000-barrel tanker. While too costly for now, a growing Gulf Coast glut could widen the price spread between Bakken and Eagle Ford crudes that will dictate whether it works.

As East Coast refiners fill up, the oil may flow further afield, up to Canadian refiners on the East Coast that are slowly absorbing more and more U.S. shale oil.

If U.S. export limits are loosened, they could even go further afield. The Yorktown site is able to load ocean-going tankers, executives said in February.

For the moment, though, the focus is simply on sating demand from domestic refiners who are craving more.

"They have a thirst for as much Bakken crude as they can get their hands on," said Steven Turnbull, Eddystone's facility manager.

(Reporting by Anna Louie Sussman, editing by Jonathan Leff and Ross Colvin)