Refinery utilisation and trade behaviour
‘Shale boom’ boosts refinery utilisation
Global crude prices were at a long, sustained high before their recent collapse. In the US, however, crude prices had already broken with international prices. In 2011, spot prices for Europe’s Brent crude were more than US$16/bbl above prices for US WTI crude. This was a major turnabout, since in 2004, Brent crude had been approximately US$3/bbl cheaper than WTI. The rapid growth in tight oil production from shale plays shook US crude production out of its long term decline and ushered in a period of renewed growth. Crude production has risen from 5.0 million bpd in 2008 to an estimated 9.1 million bpd in January, 2015. Most of the shale plays are in the north and central corridor of the country, reaching down to the US Gulf Coast. The existing pipeline network allows these crudes to flow south, but not easily to the east or west. The restrictions placed on exports of US domestic crude created localised surpluses of crude, causing US refinery utilisation rates to rise, particularly in the centre of the country.
Refinery utilisation rates are varied among the five US PADDs (Petroleum Administration Defense Districts). The US East Coast is PADD 1, where the majority of the US population resides. Its refining industry is relatively small and unsophisticated, however, and it has been the site of several refinery sales and closures. PADD 1 refinery utilisation rates have been the lowest in the country, falling below 80% in 2008 and even below 70% in 2011. The US West Coast is PADD 5. PADD 5 also experienced a slump in refinery utilisation, with rates falling to 80% in 2009. As domestic crudes grew more plentiful and cheap, refinery utilisation first rose in PADD 2 (the US Great Lakes and Midwest), PADD 3 (the US Gulf Coast), and PADD 4 (the Rocky Mountains). Refineries in these areas enjoyed pipeline access to less expensive domestic crudes. Pipelines are the favoured mode of crude oil transport, handling approximately 80% of the domestic crudes delivered to refineries. Tankers are the second largest mode of delivery, handling in the range of 10 - 15% of domestic crude deliveries.Getting the new shale crudes to additional refineries outside the existing pipeline network required the use of other transport modes. There has been a recent surge in the use of barges, trucks, and tank trucks (rail) to deliver domestic crudes. In 2010, these three modes accounted for only 6% of domestic crude deliveries to refineries. By 2013, the percentage had grown to 15%. Although these modes of transport are significantly more expensive than pipeline transport, they have been the key to getting additional domestic crude to refineries in PADD 1 and PADD 5. It is no coincidence that the increased use of these crude transport modes has corresponded with an improvement in refinery utilisation in PADDs 1 and 5.
The US becomes an export refining centre
The growth in US refinery throughput has not been matched by a growth in demand. Excess output has hit export markets. In the year 2000, exports were under 1 million bpd. They more than tripled to 3.3 million bpd in 2014 (January - October.) One third of this is diesel, one of the fuels in greatest demand in international markets. Diesel exports have grown at rates averaging over 14%/y from 2000 through 2014. Exports have increased for every class of product, and for crude oil and natural gas liquids as well. Although it is common to hear the expression ‘US crude export ban’, it is not really a ban, but a set of restrictions. US crude exports grew to 320 000 bpd during the first 10 months of 2014, 303 000 bpd of which went to Canada. There are discussions now underway to allow for a crude trade with Mexico to exchange up to 100 000 bpd of US light sweet crude for Mexican heavy sour crude. This plan would benefit both traders, alleviating the oversupply of light sweet crudes in the US and helping boost gasoline production in Mexico. Mexico’s refinery investment and modernisation plans have been continually delayed, and product imports have grown. US refined product exports to Mexico have averaged over 500 000 bpd for the past four years.
With such rapid growth in exports, US products are now reaching markets around the globe, even to unexpected and far flung places such as Oman, Poland and Macau. But the main export outlet is the Western Hemisphere. Exports to Mexico and Canada are now averaging 1 million bpd, and exports to Central and South America are averaging 1.3 million bpd. Latin America used to be a significant exporter of refined product to the US, but its refinery capacity has stagnated despite many ambitious construction and modernisation plans. Latin America’s crude capacity peaked at approximately 8.5 million bpd in 1980, but it fell to 7.1 million bpd in 1986 as many refineries closed during the time of overcapacity. Capacity gradually crept back above 8 million bpd by 2008, but BP noted capacity of only 7.6 million bpd in 2013. Demand, in contrast, has grown steadily, surpassing nominal crude capacity by 2010. Latin America therefore remains an attractive export market for US refiners.
Written by Nancy Yamaguchi. This is an abridged article from Hydrocarbon Engineering’s March 2015 issue.
Read the article online at: https://www.hydrocarbonengineering.com/refining/05032015/us-refining-new-again-part-three-363/