Sunoco‘s Philadelphia refinery is on the banks of the Schuylkill River. The company plans to pull out of the refining business altogether, which could help put the Northeast region in a precarious position. Photo: MIKE MERGEN / HC
Northeastern states are slated to lose half of their regional capacity for fuel production by midyear as financial woes push refineries there to idle, a trend likely to increase the region’s dependency on Gulf Coast supply.
A Houston-to-New York pipeline is making major expansions to accommodate growing demand to transport gasoline and other fuels up north from the Gulf Coast to fill the potential supply void.
The Gulf already supplies about half of the Northeast’s demand for petroleum products, said Mindi Farber-Deanda, head of the liquid fuels market team for the U.S. Energy Information Administration.
But the shutdown of production at two major Pennsylvania refineries last year and potential closure of a third could put the region in a precarious position and stress supplies of gasoline, jet fuel and heating oil, the agency concluded in a new report.
“It’s marginal, but it matters,” Farber-Deanda said of the drop in the Northeast’s local fuel production. “Before, you could get a certain percentage of supply from local refineries. Now you get it from Europe and the Gulf.”
The report noted that Northeastern states could experience “spot shortages with price hikes” for gasoline and other fuels as refineries discontinue operations.
Sunoco announced last month that it will idle operation of its 335,000 barrel-per-day refinery in Marcus Hook, Pa., part of the company’s plan to pull out of the refining business altogether. If Sunoco doesn’t find a buyer for its 178,000-barrel-per-day Philadelphia refinery by July, it will go off line, too, the company has said.
ConocoPhillips announced a similar move in September, taking its 185,000-barrel-per-day Trainer, Pa., refinery off line to prepare it for sale.
A combination of the sagging economy and improved fuel efficiency in vehicles and equipment has caused demand for some fuels to plateau. Meanwhile, competition from larger and more efficient refineries on the Gulf Coast and imports from Europe put pressure on local fuel producers, said Bill Day, a spokesman for San Antonio-based refiner Valero.
“They found it very difficult to compete,” he said. “If there was demand for product there, those refineries wouldn’t close down.”
Valero pulled out of the Northeast in 2010, when it sold its Delaware City, Del., and Paulsboro, N.J., refineries.
The struggling European economy has left refiners on the continent with plenty of gasoline to ship overseas.
Cleaner heating oil
A bigger concern for the Northeast is heating oil.
Demand for ultra-low-sulfur heating oil is expected to rise next fall, when regulations taking effect in New York will require use of the cleaner fuel in boilers that warm buildings. A limited number of refineries are equipped to produce it.
“Heating oil concerns are probably the greatest,” said Terry Higgins, executive director of refining for consulting company Hart Energy. “A cold snap, with a strong surge on heating oil needs, could be a strain on the system.”
Room to grow
The Gulf Coast is replete with refineries that are expanding or have room to increase production, he said. Motiva Enterprises, a joint venture of Shell and Saudi Aramco, is nearing the end of a massive expansion of its Port Arthur refinery to increase production of ultra-low sulfur fuel and other petroleum products.
In 2010, Gulf Coast area refiners produced a net 3.4 million barrels per day of ultralow-sulfur distillate fuel oil, a category that includes the clean heating oil, according to Energy Information Administration data. That’s up from just 23,000 barrels per day in 2005.
Colonial Pipeline, a major thoroughfare for shipping fuels from Gulf Coast refineries to East Coast markets, has seen growing demand from refiners to ship larger amounts of its products north, spokesman Steve Baker said.
The 5,500-mile pipeline transports heating oil, as well as gasoline, diesel fuel and other petroleum products.
Last year, Colonial added 120,000 barrels per day of carrying capacity to its system. By mid-2012, it will have expanded the flow of distillates – including heating oil, jet fuel and diesel – by another 55,000 barrels per day. In December, the company announced it would expand its gasoline transport capacity by another 100,000 barrels per day.
In total, the expansions will increase the system’s capacity by about 8 percent, Baker said.
“We have seen a rising demand throughout the year” for fuel transport between the Gulf Coast and the Northeast, Baker said. “These are big capital investments. It’s a significant increase.”
- Gasoline May Rise Above $4 a Gallon as Northeast Plants Shut (businessweek.com)
- Gas could soar past $4 per gallon by summer, analyst says (nj.com)
- Refining Sector Woes Going From Challenging To Worse (TSO, VLO, MPC, WNR, CVI, XOM, CVX, COP, BP) (247wallst.com)
- Amid fears of price spikes, Dems press Chu to fill Northeast oil reserve (thehill.com)
ConocoPhillips announced that as part of its ongoing strategy to create shareholder value it has entered into agreements to sell its interests in two U.S. pipeline companies for a total of $2 billion.
ConocoPhillips has entered into definitive agreements with a subsidiary of Caisse de dépôt et placement du Québec (CDPQ) to sell its 16.55 percent interest in Colonial Pipeline Company and Colonial Ventures LLC (Colonial). The transaction is anticipated to close in the first quarter of 2012 following the completion of contractual Rights of First Refusal review by the existing shareholders in Colonial.
In addition, ConocoPhillips has entered into definitive agreements with Enbridge Holdings (Seaway) L.L.C., a subsidiary of Enbridge (U.S.) Inc., to sell its ownership interest in the Seaway Crude Pipeline Company (SCPC). The transaction is anticipated to close in December, subject to satisfaction of customary conditions precedent and completion of certain arrangements regarding other logistics services currently provided by SCPC to ConocoPhillips.
“These two sales of non-core pipeline assets are important components of our $15-20 billion divestiture program for the years 2010-2012. We are pleased that CDPQ and Enbridge have recognized the value of these quality assets,” said Al Hirshberg, senior vice president, Planning and Strategy, ConocoPhillips. “Through September 2011, the 2010-2012 divestiture program has yielded proceeds from asset dispositions of $8 billion. Once closed, these two transactions, along with other sales already closed in the fourth quarter, would increase that total to approximately $10.5 billion, and strongly position us to accomplish our target by the end of 2012.”
The sale of the Colonial and Seaway interests is just one part of ConocoPhillips’ plan to create value for shareholders through a continued focus on disciplined capital investment, a strengthened financial position, improved returns on capital, and growth in shareholder distributions.
Source – RIGZONE
- ConocoPhillips selling pipelines for $2 billion (marketwatch.com)
- Enbridge, Caisse snap up Conoco pipelines for US$2B (business.financialpost.com)
- Enbridge buys $1.15 Seaway oil pipeline stake (cbc.ca)