The full version of this article can be read in the June 2012 issue of Hydrocarbon Engineering. Subscribers can sign in here.
In many analyses of oil markets, the US West Coast region is referred to as PADD V. The US is divided into five ‘Petroleum Administration Defense Districts’, and PADD V contains the seven westernmost states: Alaska, Hawaii, Washington, Oregon, California, Nevada and Arizona. In many ways, these states were the final frontier for settlers colonising the USA, and some of the pioneer spirit remains.
This assemblage of states is highly diverse on many levels; the climate and topography vary enormously. Alaska and Hawaii, the last two states to join the US, are the only two non-contiguous states in the nation. While Alaska extends up to the Arctic Circle and the Beaufort Sea, Hawaii is a balmy tourist destination famous for beaches and tropical foliage. The highest peak on the North American continent is Alaska’s Mount McKinley (20 320 ft above sea level). The lowest point is in California, the Badwater Basin in Death Valley (282 ft below sea level). Alaska is the site of the lowest recorded temperature in the country (-79.8 °F at Prospect Creek Camp in 1971), while California’s Death Valley was the site of the highest recorded temperature in the Western Hemisphere (134 °F in 1913). Death Valley is the driest place in the US, with generally less than two in./y of rain, while Kauai’s Mount Waialeale is the rainiest spot, with an average rainfall of 460 in./y. Hawaii’s tropical rainforests and the Pacific Northwest’s temperate rainforests also contrast sharply with the arid deserts of Arizona and Nevada.
Figure 1 presents the PADD V population by state. California is the most populous state in the country, with a population of approximately 37.3 million in 2010, while sparsely populated Alaska had a population of only 710 000 in 2010. California’s population is larger than the entire country of Canada. Additionally, California’s economy is so large that its GDP has been ranked as the eighth largest in the world, larger than the economies of Italy and Spain, and just behind Brazil.
A high value demand barrel
The US West Coast is primarily a gasoline market, with kerosene/jet and diesel occupying the next level of importance. Most of the higher level national and global trends have affected PADD V, with some important local variances, including a more pronounced market downturn in the aftermath of the Exxon Valdez oil spill off the southern coast of Alaska in 1989. As in many other developed markets, fuel oil demand fell sharply after the oil price shocks of the 1970s, and in PADD V it has continued to fall. In 1981, fuel oil demand was 448 000 bpd, totalling approximately 19% of demand (excluding still gas). By 2011, fuel oil demand had fallen to just 145 00 bpd, or approximately 5% of the demand barrel.
In contrast, gasoline’s share of demand rose from 43.5% in 1981 to nearly 56% of demand in 2011. Gasoline demand in PADD V is over 1.5 million bpd. The share of middle distillates rose from 27% in 1981 to 34% in 2011. In total, therefore, the PADD V demand barrel has shifted from one that was less than 70% gasoline plus middle distillates in 1981 to one which is now over 90% gasoline plus middle distillates. This is a very high value demand barrel that would be a challenge for any refinery to produce.
Demand has fallen for the past five years, shedding 350 000 bpd from the market, including 109 000 bpd of gasoline, 86 000 bpd of jet fuel and 62 000 bpd of diesel.
Refining industry: capacity and utilisation
As noted, the PADD V crude slate is classified as medium weight and medium sulfur, whereas the pattern of demand is overwhelmingly dominated by light, ultra low sulfur products, chiefly gasoline. The local refining industry has grown highly sophisticated and capable by necessity, managing to produce an output slate that is over 50% gasoline and only 4% fuel oil. Yet reaching this level of sophistication has been a rocky path for many PADD V refining companies, some of which did not survive the journey (at least not in their original form).
In the early 1980s, the PADD V refining industry suffered from overcapacity and dismal utilisation rates. In 1982, operable capacity was 3.15 million bpd, whereas gross inputs to refining were 2.07 million bpd. This nominal overcapacity of 1.08 million bpd was roughly equivalent to the entire refining industry of Singapore or Belgium at the time. The utilisation rate was less than 66%. The PADD V refining industry has undergone a major transformation since then.
Given that refinery overcapacity in the 1980s was a more or less global problem, refineries could not survive in the shorter term as export oriented businesses. Many refineries eventually closed, particularly the smaller, less efficient plants. Another wave of closures came when the US and California took a more aggressive stance on clean air policy in the 1990s. There were several phases of reformulation for gasolines and diesels. Producing these new fuels required major investments and a great deal of planning. This constituted a commitment of resources that many small, independent refiners could not afford. Therefore, the evolution of US West Coast refining has resulted in a concentration of refining resources at the larger, more favourably situated plants.
Although a number of refineries in PADD V have closed, the waves of compliance related refinery investment in the 1990s caused capacity to creep upwards. Yet without any grassroots construction, capacity could not grow to any significant degree, and it was assumed that a larger portion of PADD V’s demand would be met via imports. Product imports grew to 148 000 bpd in 2000, continuing to climb to 228 000 bpd by 2007. However, the 2008 price spike and recession contributed to a sharp drop in imports, falling to 97 000 bpd in 2008. In 2011, PADD V imported 93 000 bpd of refined product, most of which was fuel oil and jet fuel. The main sources of supply are other Western Hemisphere refiners, along with Asia Pacific refiners. Smaller volumes arrive on long haul voyages from the Middle East, Africa and Europe.
Instead of merely importing finished product, PADD V has instead increasingly opted for refinery feedstocks and blendstocks. Some of this material is feedstock for cracking units. As noted, the PADD V industry has extensive conversion capacity, yet it has had a slightly lighter crude slate in recent years. PADD V’s exacting petroleum product quality regulations also stimulate trade in blendstocks. Foreign refiners often cannot meet the CARB standards, while they may also export gasoline blending components rather than fully reformulated on spec gasoline. Furthermore, mandatory oxygenation has resulted in PADD V refiners looking abroad for oxygenates. During 1993 – 2003, PADD V was a significant importer of methyl tertiary butyl ether (MTBE), but its subsequent ban shifted dependence to ethanol. Imports of ethanol from foreign sources rose to 10 000 bpd in 2006. At that time, ethanol production in the US Midwest began to surge, and US produced ethanol largely supplanted foreign sources.
PADD V is known around the world as the home of Hollywood and Hollywood celebrities, Silicon Valley, Starbucks Coffee, Microsoft, Waikiki Beach and a host of other instantly recognisable cultural icons. The US West Coast oil industry is large, highly capable and a pioneer of numerous advances. Although it is popular to revile it, it is a mainstay of the region’s economy, and there is little doubt that it will continue to break new ground as a provider of clean fuels and renewable energy.
Written by Nancy Yamaguchi
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/12062012/way_out_west_pioneer_spirit/