AFPM on misunderstanding US refineries

The AFPM pointed out some misunderstandings regarding US refineries’ ability to use increasing US light crude production in a recent report. Below are some of the highlights.

Oped by William O’Keefe, CEO, George C. Marshall Institute, President, Solutions Consulting in Roll Call

“The steep increase in US supply of oil and gas has brought with it a bounty of benefits. The energy sector has increased employment in states that otherwise saw economic decline, and the growth in direct jobs has indirectly benefited communities throughout the country. At the same time, the taxes paid by the energy industry have helped bolster our national economy…Most US refineries, which were built when the country imports of crude oil were growing, are fitted to process heavy petroleum, not the light, sweet crude oil that represents the increase in domestic production. As a result, the impressive production growth over the last decade has largely outpaced our refining capabilities, creating a glut of light crude oil locked inside our borders.”

Editorial from the Wall Street Journal

“To the extent more US crude makes it to the global market, prices will be lower, other things being equal. All the more so given that most US oil is lighter crude that can’t all be processed by US refiners. American refineries on the Gulf Coast were built to process heavy imported crude from the likes of Venezuela. Light crude is valuable and should be fetching a premium. Instead, US producers are at the mercy of US refiners, since the export ban means they have nowhere else to sell. As US supplies have swelled, those refineries have had more leverage to push down prices for US shale oil. While the price of Brent crude, the world benchmark, is still about US$50 a barrel, producers in the Bakken Shale in North Dakota this month are averaging about US$34 a barrel for light crude. Exports would allow a more efficient oil market. Opponents of lifting the ban argue that keeping US oil here will enhance US energy security, as if it can be stockpiled for use in an emergency. The feds already have the Strategic Petroleum Reserve, which can provide some relief in a genuine crisis. But companies are only going to drill if they can sell oil at a profit.”

Bismark Tribune

“An oversupply of crude oil in the US isn’t something mentioned very often, if at all. But as a result of surging domestic production, that could be the case in the months ahead with light sweet crude oil production likely exceeding current refinery capacity for that class of crude in the near future. Tight oil extraction in plays like the Bakken in North Dakota and Eagle Ford in Texas, have led to a renaissance in domestic oil production. The catch, US refineries are nearing full capacity for light sweet crude oil processing, is that most facilities are configured to process heavy crudes instead.”

CNBC

“The United States is swimming in oil and gas. But processing the new found bounty is posing a challenge to US refiners, which can’t come to grips with the abundance in domestic supply…Yet with fewer than 150 refineries, the US has a surprisingly limited capacity to process the bounty.”

Column from Reuters

“Most of the extra oil produced in the US in the next two years will be light crudes and condensates that domestic refineries will struggle to process, intensifying pressure for at least a partial relaxation of the country’s export ban…More than 60% of the forecast growth will consist of light oils with a significant gravity of 40° API or higher, according to the US. EIA…But with imports of competing crudes from West Africa already reduced close to zero, US refineries will be unable to process all this extra oil without enormous investment in equipment. Distillation towers, furnaces, heat exchangers and downstream conversion units would need expensive and time consuming overhauls to enable them to handle a higher share of light oil.”

Motley Fool

“Though advances in drilling technology have propelled US crude oil production to levels not seen since the late 1980s, many US refineries are poorly equipped to handle these growing volumes of mainly light, sweet crude oil…Many US refiners are poorly equipped to handle these light sweet grades of crude mainly because they were upgraded over the past decade to process heavier, sour crudes. After all, nobody was expecting a shale revolution 10 years ago and refiners figured they would continue to rely on imports of heavier grades. Therein lies the main issue, the growing mismatch between surging light sweet crude production and refining capacity configured to process imported heavy, sour crudes. While some of these refineries do have the flexibility to modify their feedstock to process greater volumes of lighter crudes, doing so would generally reduce their utilisation rate and, therefore, profitability.”

Edited from report by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/refining/09042015/misunderstanding-us-refineries/