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)
The US oil industry is in a bit of a quandary. The Houston & Louisiana refining area is the largest in the world. It has just had tens of billions of dollars thrown at it, to prepare it to run heavy sour sources. These heavy sour grades are typically cheaper, and contain lots of secondary products during the refining process.
In simple terms, we have spent the last twenty years preparing to make more out of lower quality oil. It was a great idea, when the handwriting on the wall said these would be the only real sources of future growth in hydrocarbon volumes.
If they ran this stuff, they would have to turn off a significant number of units at their refinery’s that are designed to capture and crack the heavy sludge. This leave the US refining patch in a bit of a jam.
The new Eagle Ford shale oil is coming online in large volumes. Rumors are that Eagle Ford production will crack 500,000 barrels by the end of 2012, if they can get around localized shipping constraints.
Right now it is the gathering of the stuff in quantities that are easy to ship/export that is the issue.The crude is so light in some places, they need specialized trucks to collect it and bring it to a gathering location. There isn’t the capacity to pick up the crude and bring it to market available right now.
We are talking about 100,000 barrels of oil production behind pipe right now, and growing daily as people rush to install new smaller capacity pipelines around Texas to help haul it away.
The number of companies that believe they can growth their domestic production by 100,000 barrels of oil in the next couple of years is growing.
The irony is that the new supply is super light & sweet. A mix never expected in the US again.
Platts had an article on this exact topic in June of 2011.
The US could resume exporting some of its domestic crude oil production in 2012 when the output from Eagle Ford Shale in Texas ramps up.
But that’s the problem for US refiners: they aren’t built to process that type of crude. So the highest value for it may be outside the country.
The US exports may be to the US East Coast first. The refinery’s based on the east coast tend to have a higher sweeter demand over their Southern units.
In fact, the blow out in Brent prices has severely affected their profits due to sourcing costs increasing significantly this spring with the Libya revolution. There have been at least 3 refinery’s put up for sale or being put into mothballs until a cheaper source of crude is available.
“U.S. east coast refining has been under severe market pressure for several years. Product imports, weakness in motor fuel demand and costly regulatory requirements are key factors in creating this very difficult environment,” ConocoPhillips said when it put Trainer on the auction block.
If the three refineries on the block shut down, what does this mean for oil markets?
In the case of the US, if Texas starts to export light sweet crude by large barges to the east coast. You could see a Renaissance in US exports of refined products as these units produce above domestic demand needs.
The irony is that in the US we have removed the demand for the lighter sweet crude’s, so much so we will soon be exporting it from our primary refining center due to excess capacity in supplies. NOT DEMAND.
The energy crisis of 2005 is not the supply crisis everyone was looking for. I wonder how long it will take society to catch up to the new reality. The US is going to become an energy exporter, even if its Texas shipping crude to those Yankees up north.
Before you fall out of your chair laughing, look at this chart, conceptualize it, and then leave me a comment in the section below. I look forward to your thoughts on this chart.
It’s a chart of barrels of oil produced per year from a specific zone in Texas. It will double every year for the next few. Then think about other new zones like it coming online in the next few years. Its a small amount today, but a not so small amount by tomorrow.
- Platts Eagle Ford
- The Globe & Mail Bleak times for US Refinery’s
- Texas Railroad Eagle Ford Production Chart
- Alice considers building multipurpose convention center amid Eagle Ford boom (mb50.wordpress.com)
- “The Play”: Cuero awakens to new shade of green (mb50.wordpress.com)
- Keystone XL Pipeline: Just Build It – 24/7 Wall St. (mbcalyn.com)
- Ironically Texas May Be Forced To Export Unrefined Crude By 2012 Read (mb50.wordpress.com)
- Enbridge, Enterprise Products To Reverse Seaway Crude Oil Pipeline (mb50.wordpress.com)
- Seaway Pipeline gets turned around; oil markets react quickly (mb50.wordpress.com)
- Conoco’s Brent Control (mb50.wordpress.com)
- Enbridge buys 50% of Seaway pipeline (theglobeandmail.com)
- Oil in New York Surges Above $100 on Reversal of Seaway Pipeline (mb50.wordpress.com)
NEW YORK, Nov 16 (Reuters) – Enterprise Partners and
Enbridge plan as part of the reversal of the Seaway pipeline
project to build an 85-mile (135-km) pipeline from its ECHO
terminal in Houston to refineries in Port Arthur, a spokesman
for Enterprise said on Wednesday.
The pipeline’s open season to garner shipper commitment
will happen early in 2012.
‘It will allow heavy Canadian crude access to Port Arthur
refineries,’ said Rick Rainey, spokesman for Enterprise.
(Reporting by Janet McGurty)
- Enbridge, Enterprise Products To Reverse Seaway Crude Oil Pipeline (mb50.wordpress.com)
- Enbridge buys $1.15 Seaway oil pipeline stake (cbc.ca)
- Crude Passes $100 (zerohedge.com)
GULF OIL CORPORATION. The Gulf Oil Corporation was an expansion of the J. M. Guffey Petroleum Company, which was organized in May 1901, and which acquired the interests of Anthony F. Lucas and John A. Galey in the Spindletop Oilfield. In this company, organized to exploit the new oil discovery, Guffey had a seven-fifteenths interest, while A. W. and R. B. Mellon and some of their associates including James H. Reed, William Flinn, J. D. Callery, T. H. Given, and Joshua Rhodes owned the balance. Later in the same year the same men organized the Gulf Refining Company of Texas for the purpose of refining and marketing the crude oil produced by the Guffey company, and a refinery was built at Port Arthur. By the fall of 1902 approximately $6 million had been invested in the two companies, and the dwindling production at Spindletop made necessary a reorganization. W. L. Mellon was placed in active charge of the Guffey and Gulf operations, although J. M. Guffey remained the nominal head for five years more. Only the most efficient management kept the two companies from going bankrupt during the period 1902 to 1907, when Texas crude production continued to decline. In January 1907 the Gulf Oil Corporation was formed with A. W. Mellon as president, and Guffey’s interest was purchased for about $3 million. The Gulf Oil Corporation then built a 400-mile pipe line from Port Arthur to the Glenn Pool field in Oklahoma, which had been discovered in 1906, and began refining Oklahoma crude in September 1907. A subsidiary, the Gypsy Oil Company, was organized under Frank A. Leovy to handle production operations in Oklahoma. Altogether the reorganization and expansion program required an additional investment of $7 million, but by the end of 1908 Gulf’s position had become relatively strong. In less than two years following the opening of the Glenn Pool pipeline Gulf’s production had more than doubled and had exceeded the refinery throughput of 11,000 barrels daily. During the next twenty years Gulf’s growth was steady, the company expanding its production operations into nearly all of the major oilfields in the United States and into Mexico and Venezuela. In West Texas Gulf became the leading producer. A network of pipelines connected Gulf’s production with refineries at Port Arthur, Fort Worth (built in 1911), Bayonne, New Jersey (1925), Philadelphia, Pennsylvania (1926), and Sweetwater, Texas (1928). By 1928 the company’s assets had grown to an estimated $232 million, while crude production rose to 78 million barrels annually.
Gulf’s organization was characterized by integration from production of crude to retailing of refinery products. In 1929 it was decided to expand the retail business, which had been concentrated in the south and east, into Ohio, Illinois, and Michigan. At the beginning of the Great Depression a $90 million expansion program was undertaken, which included the building of refineries in Cincinnati, Toledo, and Pittsburgh, the construction of an 800-mile pipeline from Oklahoma to Ohio, and the acquisition of more than 400 marketing facilities. Partially because of the expansion program the depression severely affected Gulf; for the first time in its history the company operated at a loss in 1931. The depression period brought about retrenchment and some internal reorganization of the company. In general the policy of maintaining and operating service stations was abandoned in favor of leasing them to independent operators, and each of the four major departments (production, transportation, refining, and marketing) was placed on a separate accounting basis. By the mid-1930s the company began to prosper again, and the dramatic increase in demand for oil during World War II further fueled the company’s expansion. In 1950, with a capital investment of $1,075,000,000 and owned by more than 32,000 persons, the Gulf Oil Corporation had 43,000 employees, carried on extensive production in the United States, Venezuela, Kuwait, and Canada, operated 10,000 miles of pipelines and a large fleet of tankers, and sold the products of its refineries through more than 36,000 service stations in the United States and nearly as many others in foreign countries. In 1951 Gulf Oil Corporation completed one of the world’s largest (at the time) catalytic cracking units in Port Arthur, Texas, and in the same year began construction of plants in Port Arthur for the manufacture of ethylene and isooctyl alcohol, a major move in developing its petrochemicals capacity. While the Fort Worth, Sweetwater, and Pittsburgh (Pennsylvania) refineries were dismantled in the 1950s after the facilities had become obsolete, the Port Arthur and Philadelphia refineries continued to expand and the Toledo and Cincinnati refineries were modernized. New refineries were built or acquired in the United States, with additions at Purvis, Mississippi, Santa Fe Springs, California, and Venice, Louisiana.
Increasing its capital expenditures in the 1950s, Gulf joined with B. F. Goodrich Company to form a new company, Gulf-Goodrich Chemicals, Incorporated, through which Gulf maintained an important position in the manufacture of synthetic rubber from petroleum-derived feedstocks. It also acquired Warren Petroleum Corporation in 1956 and that same year increased its interest in British American Oil Company by trading Gulf’s Canadian properties for 8,335,648 common shares of British American stock, bringing Gulf’s interest in that company to 58 percent. Gulf also extended its exploration and production operations in the 1950s, including an extensive program for exploration of underwater leases in the Gulf of Mexico off Louisiana, which became one of the company’s leading domestic producing areas. With the conclusion of World War II, Gulf, as a 55-percent participant in Kuwait Oil Company, resumed operations in Kuwait to put into production petroleum discovered there about the time of the war’s outbreak. Production from these vast reserves climbed steadily and yielded for Gulf’s interest an average of more than 1.3 million barrels per day in 1967. Gulf owned or had an interest in twenty-two refineries in addition to those in the United States. Adding to its European refining capacity, refineries at Milford Haven, Wales, and Huelva, Spain, went on stream in 1968 and a permit was obtained for construction of a refinery at Milan, Italy, to further strengthen Gulf’s capacity to supply products for its growing European markets. Discoveries in Bolivia and Nigeria were developed in the 1960s and added significantly to Gulf’s foreign oil production. Production from discoveries in Colombia and Cabinda was expected to begin before the end of 1968, and substantial discoveries were made in Ecuador. Gulf was producing oil and gas from eleven nations as its explorations continued in thirty countries. A milestone in Gulf’s marketing operations was reached in 1966. With the acquisition in 1960 of Wilshire Oil Company of California and in 1966 of mid-continental retail outlets and storage and distribution facilities of Cities Service Oil Company, Gulf for the first time had service station representation in all forty-eight adjoining states of the continental United States. Gulf’s transportation facilities moved more than a million barrels of crude oil daily from oilfields to refineries throughout the world by pipelines and tankers. In 1968 the world’s largest ship, the 312,000-deadweight-ton tanker, Universe Ireland, was placed in service for Gulf. It was the first of six such tankers planned for use by the company to deliver Middle Eastern and West African crudes to deepwater terminals at Bantry Bay, Ireland, and at Okinawa for transshipment to European and Far Eastern refineries by smaller vessels. Refining capacity was increased along with Gulf’s expansion in other petroleum operations. The company owned full or partial interest in thirty United States and foreign refineries. In 1967 the company processed an average of 1,295,000 barrels of crude oil daily. By the 1960s Gulf had become a major producer of petrochemicals, plastics, and agricultural chemicals. In 1967 Gulf entered the field of nuclear energy. In this program it began uranium exploration and acquired the General Atomic Division of General Dynamics Corporation, renaming the subsidiary Gulf General Atomic Incorporated. At the end of 1967, with total assets of $6.5 billion owned by more than 163,000 shareholders, Gulf Oil Corporation had 58,000 employees working in more than fifty nations to provide the world with petroleum and other energy-producing products.
Gulf fell on hard times in the 1970s. Several of its key management figures were implicated in illegal political contributions in the early 1970s, and their successors, in the eyes of many in the oil community, failed to provide clear and aggressive leadership. The company’s long and valuable association with Kuwait ended in 1975, when Gulf’s operations there were nationalized by the Kuwaiti government. In spite of costly attempts to find new sources of oil, the company’s reserve supply was rapidly dwindling by the late 1970s, declining by 40 percent between 1978 and 1982. In 1983 Gulf was still the sixth largest oil company in the United States and managed to turn its oil reserve crisis around, replacing 95 percent of its reserves by the end of the year. Because of what many perceived to be its weak and excessively bureaucratic management structure, Gulf seemed a good candidate for a takeover. In August of 1983 Thomas Boone Pickens’s Mesa Petroleum Corporation, rebounding from an unsuccessful attempt to acquire General American Oil Company, began to buy up shares of Gulf Oil. After Mesa had gained control of 11 percent of Gulf’s stock, Pickens engaged in a proxy fight for control of the company. Gulf executives fought Boone’s takeover and eventually invited takeover offers from other companies and collections of investors. On March 5, 1984, the Gulf board voted to sell the company to Chevron (Standard Oil of California) for $13.2 billion. Gulf operations were merged into Chevron in what was the largest corporate merger to date.
Craig Thompson, Since Spindletop: A Human Story of Gulf’s First Half-Century (Pittsburgh: Gulf Oil, 1951). Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (New York: Simon and Schuster, 1991).
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