2/11/2013 by Ron Brochu

The ever-growing amount of crude oil being extracted from western oil fields has quietly led to millions of dollars of investment and is creating new transportation jobs in the Twin Ports.

Calumet Specialty Products announced Jan. 25 it is exploring the possibility of building and operating a crude oil loading dock on Lake Superior, near its Superior refinery.

“We would expect to have this project fully operational during the shipping season of 2015 and are currently in talks with potential customers and partners,” Todd Borgmann, vice president of business development, said in the company’s announcement.

Fourteen months ago, similar interest was expressed in maritime petroleum transportation. Late in 2011, Hallett Dock Co. President and COO Mike McCoshen told the Duluth Seaway Port Authority Board his company had been receiving inquiries about transshipping oil from the Bakken fields.

If Calumet receives permits for its waterfront venture, it won’t be the company’s first investment in new transportation facilities. The Indianapolis-based partnership recently invested $10 million in a rail yard and crude oil loading dock at its Superior refinery.

The facility opened in November as a transshipment point for unrefined crude oil. Calumet purchases the crude from North Dakota drillers, offloading the supply from Enbridge pipelines that pass through Superior. Roughly 7,000 barrels a day – enough to fill 10 tank cars – are transferred to rail for transfer to a Calumet refinery in Shreveport, La.

So why not just route the oil directly from North Dakota to Louisiana? The transportation network – which includes pipelines and rail – hasn’t expanded fast enough to accommodate the explosive growth in North Dakota’s oil extraction. Five years ago, the Bakken fields produced 200,000 barrels of petroleum daily. They currently produce about 600,000. Within the next two or three years, they could produce from 1 million to 1.3 million per day.

“The whole crude oil market and transportation logistics have changed rather dramatically with all the new oil coming on-stream from North Dakota. They have some limits on moving crude oil by pipeline and also some real bottlenecks because so many companies are moving crude oil by rail,” explained Dave Podratz, Calumet’s Superior plant manager. “The freight rate to move crude oil by rail from North Dakota to Shreveport is higher than it is to move it by pipeline to Superior, put it on rail cars and move it to Louisiana.”

Murphy Oil Corp launched the $10 million terminal project before the Superior refinery was sold to Calumet in October 2011. The companies split the costs of the terminal, which include about 5,000 feet of track.

“Murphy saw an opportunity to bring in crude oil by rail from North Dakota. Murphy’s plan was to refine it in Superior and ship it out as gasoline, diesel, fuel oil and asphalt. We would have bought less crude oil coming down the pipeline and replaced it with barrels coming by rail – strictly looking for a cheaper supply by rail,” Podratz said.

After reviewing the plan, Calumet felt it made more sense to offload crude oil from pipelines owned by Enbridge, a common carrier, then transport it by rail to be refined at other Calumet plants.

Calumet has three Louisiana refineries. For many years, the company supplied them via pipelines from regional oil fields. In recent years, however, its refineries had faced some pipeline interruptions.

“They were having a hard time getting enough supply. Crude oil from North Dakota is a nice feed stock for them, and they determined we can get it to them by rail at a lower price than they pay to other sources,” Podratz said.

Expanding the oil transportation network could take years and billions of dollars. In December, Enbridge Energy Partners proposed building a new 24-inch pipeline from Beaver Lodge, N.D. (midway between Minot and Williston) to Superior. The 600-mile pipeline is projected to cost $2.5 billion and won’t be completed until about 2016. It’s part of a $6.2 billion initiative to increase transportation capacity by 400,000 barrels per day. Current capacity is 250,000 barrels.

According to a Jan. 3 Bloomberg story, rail carloads of crude oil tripled last year to more than 200,000. In turn, the demand for rail tank cars has soared, although manufacturers, fearing a boom-then-bust cycle, are reluctant to produce too many.

New focus

Calumet’s project is small when compared with plans Murphy revealed in 2007 to invest $6 billion into the 62-year-old Superior refinery. That expansion would have increased plant capacity from 35,000 barrels per day to about 235,000. Calumet, however, has a different focus. The company’s primary market is petroleum-based specialty products such as lubricating oils, candle waxes, cosmetics, furniture polish – even WD-40. Plans for an expansion of that magnitude are unlikely to materialize, Podratz said, although he anticipates growth in transshipment business.

“We’re looking for customers. We’ve been talking to some folks, so it’s quite possible we’ll see tank cars going out of here for customers other than Calumet. We’re set up to do that,” he said.

So far, four new employees have been hired to operate the loading terminal, which is covered by a shed to protect workers from inclement weather. Switching is handled by Northern Plains Railroad, with the cars transported to Louisiana by BNSF.

“As operations ramp up, Northern Plains may have to add some staff, and we may have to add more shifts,” Podratz said. “Conceivably, we could work two or three shifts a day if customers and rail cars are available.”

In addition to its Superior expansion, Calumet has pursued an aggressive acquisition strategy, spending approximately $1 billion since acquiring the refinery.

• On Jan. 4, 2012, Calumet Missouri, a subsidiary, purchased the assets of Hercules, an aviation and refrigerant lubricants business, for an undisclosed price. Included was a 22-acre parcel and manufacturing facility in Louisiana, Mo.

• On Jan. 6, 2012, Calumet Lubricants Co., a wholly owned subsidiary, acquired the outstanding membership interests of TruSouth Oil, located in Shreveport. It produces a variety of specialty products including motor oils, gear oils, engine oils, automotive fluids and specialty engineered fuel and oil mix products. The transaction price was not disclosed.

• On July 3, Calumet completed the purchase of Royal Purple, a Texas-based maker of synthetic consumer and industrial lubricants, for $333 million.

• On Oct. 1, Calumet acquired Montana Refining Company, Inc. for $120 million, which owns and operates a refinery in Great Falls. It produces 9,800 barrels per day of gasoline, middle distillates and asphalt.

• On Jan. 2, the company purchased a San Antonio refinery, crude oil pipeline and crude oil terminal from NuStar. The deal was valued at more than $100 million. The refinery produces approximately 14,500 barrels per day of ultra-low sulfur diesel, jet fuel, specialty solvents and other products.

“We continue to actively look for additional growth opportunities, which will complement our current assets and diversify our geographic presence,” CEO Bill Grube said in an October press release.

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