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US East Coast domestic crude market

Hydrocarbon Engineering,

In January of this year, receipts of domestic crude oil at East Coast (PADD 1) refineries in January were approximately equal to receipts of foreign crude oil, reflecting a very significant change from recent market experience. In January of last year, domestic crude oil was only 18% of total PADD 1 crude receipts, and in January of 2012 accounted for only 5%. Rising US crude oil production from North Dakota’s Bakken formation combined with the expansion of crude by rail infrastructure, which has facilitated movement from Bakken crude to PADD 1, have of course contributed to the increase in domestic crude oil supply to East Coast refineries.

Bakken crude

Most East Coast refineries find Bakken crude oil as a good fit as they generally favour a light sweet crude slate. In the area there has also been substantial investment in crude by rail infrastructure to accommodate receipts of the crude in to PADD 1 refineries and many crude by rail unloading facilities are now operational. Merchant terminal operators who own storage in Albany, New York are receiving crude by rail and then shipping it by barge down the Hudson River to refineries in New York Harbour and Philadelphia. PBF Energy inc. has also built a crude by rail unloading facility at the Delaware City refinery that has an estimated capacity of 120 000 bpd.

The lower cost of Bakken compared to imported crude oil has provided the impetus for investing in the crude by rail facilities which allow PADD 1 refineries to receive it. This is measured by the refiner acquisition cost of crude oil (RAC), which is the weighted average cost of crude oil, including transportation and other fees paid by the refiner. Between 2004 – 2008 East Coast RAC for domestic crude oil was US$ 2.30 /bbl. Since 2009, domestic RAC has averaged US$ 5.80 /bbl which was higher than import costs. However, as of 2013 domestic and imported RACs reached parity where Bakken is concerned.

Crude by rail

The EIA does not collect crude by rail statistics monthly however, it is possible to estimate the movements to PADD 1 by subtracting regional crude production and PADD to PADD crude oil movements via other transport methods from the region’s crude oil receipts. Doing so indicates, according to the EIA, that East Coast refinery domestic crude oil by rail receipts were roughly 400 000 bpd in January and February of this year.

In recent years, total East Coast receipts of domestic crude oil have increased significantly. In 2012, receipts in PADD 1 averaged less than 80 000 bpd but this increased to 290 000 bpd in 2013 and 490 000 bpd in 2014.

The increased access to Bakken crude has given PADD 1 refineries crude selection flexibility, but refinery crude slates will continue to be a function of relative crude prices. As, in February 2014, East Coast receipts of imported crude oil were slightly higher than domestic receipts, compared to January, it suggests that refiners in the region can react to price movements in their crude sourcing decision.

Adapted from press release by Claira Lloyd

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