US East Coast oil refineries enjoy a stirring comeback

By Katharine Fraser | May 17, 2013

Alarm bells rang along the US Eastern Seaboard not too long ago that the region would face fuel shortages due to refinery closures in the region, but the dynamics changed with the entrance of some new players as well as domestic crude supply via rail from the Bakken Shale play.

The region is study in contrasts in a matter of a few short years. A couple of years ago, it seemed three major plants might close: the then Sunoco-owned refineries in Marcus Hook and Philadelphia, Pennsylvania, and the then ConocoPhillips-owned Trainer, Pennsylvania, refinery. All that came amid Hess and partner PDVSA initially scaling back operations of the Hovensa refinery on St. Croix, which exported to the US Atlantic Coast, to 350,000 b/d in 2011 before shutting it in January 2012.

The US Energy Information Administration focused on the potential problem in an initial report in late 2011 that was updated in the spring of last year. One thrust was EIA noting that if the Philadelphia, Marcus Hook and Trainer plants went offline, that would result in the loss of 50% of East Coast refining capacity (as of August 2011).

But, Philadelphia Energy Solutions now runs the 330,000 b/d Philadelphia refinery while a subsidiary of Delta Airlines runs the 185,000 b/d Trainer refinery, having bought it in June 2012 to recalibrate the plant to produce more jet fuel. Trainer also supplies refined products to Phillips 66 and BP. The 175,000 b/d Marcus Hook refinery was idled at the end of 2011 and now serves as a Sunoco Logistics tank farm storing gasoline and middle distillates.

While some refineries have stopped producing fuel in the region — Hess’ 70,000 FCC plant in Port Reading, New Jersey, Sunoco’s 140,000 b/d Eagle Point refinery in Westville, N.J., and the then Western Refining-owned 128,000 b/d Yorktown, Virginia, refinery (all three now serve as terminals) — the net result has hardly been devastating, given that the two Philly biggies stayed online.

The most recent EIA weekly oil data recorded a record-utilization rate for East Coast refining capacity at 93.8%. And, the total crude processing capacity was 1.293 million b/d. Compare that with the 1.397 million b/d for the week ended July 16, 2010, when the prior utilization rate record was hit at 93.2%. (2010 was the first year this regional utilization data point was tracked in the weekly report.). So, instead of losing half its capacity, the region saw its capacity notch down by all of 100,000 b/d.

East Coast net imports of refined products averaged 1.055 million b/d over the four weeks ending May 10, nearly flat to the comparable period last year. Three years ago that number was around 1.5 million b/d.

Of course, the key indicator for adequacy of supply is inventory. East Coast total motor gasoline stocks rose by 1.805 million barrels to 63.348 million barrels over the reporting week ending May 10, comfortably well above the five-year average. East Coast distillates stocks slipped that week to 35 million barrels, staying in the low-end of their five-year average.

Demand, meanwhile, just isn’t what it used to be. EIA’s latest monthly stats for the East Coast show finished motor gasoline demand in February registered at 2.775 million b/d, which is down 9.28% year on year.

The other key change is the availability of so-called advantaged crude, the domestic supply being railed in from the Bakken. For instance, PBF said earlier this year that it expects to enjoy strong margins from running Bakken and Canadian heavy crudes at its 180,000 b/d refinery in Paulsboro, New Jersey, and its 190,000 b/d refinery in Delaware City, Delaware. Other major regional refineries are preparing to bring in Bakken crude.

All these factors combined in relatively short order to upend the picture. Back when EIA was looking at the East Coast refining sector concerns, there was a fair amount of uncertainty at play, recalls Joanne Shore, the chief industry analyst at the American Fuel & Petrochemicals Manufacturers trade group and a former EIA analyst. The growth of Bakken oil production is exceeding past anticipations and the speed with which rail facilities can be put in place on the East Coast may not have been previously appreciated, she said in an interview earlier this week.

Asked if the companies that chose to stick with or hook into the East Coast refining sector were prescient, she said “they may have been,” adding “these are all sharp business people.”

“This whole situation was evolving rapidly at that time,” Shore added. “It wasn’t clear as to how these East Coast facilities might be able to take advantage of discounted crude and different companies may have seen it differently at that time. It was a time of great uncertainty.”

http://blogs.platts.com/2013/05/17/us-east-coast-oil-refineries-enjoy-a-stirring-comeback