DALLAS--(BUSINESS WIRE)--Increases in crude oil supplies from shale production and Canadian oil sands imports will challenge the U.S. refining system according to a new study from Turner, Mason & Company. Most shale crudes are light-sweet crudes, super-light crudes and condensates. Most Canadian oil sands crude comes to market as “dilbit,” a combination of very heavy bitumen crude and a diluent, usually a very light naphtha or natural gasoline. While some refineries started planning for the Canadian dilbit a few years ago and are now completing upgrading projects to run more heavy crude, refiners did not anticipate the surge in U.S. light crudes. The result is an incipient mismatch between U.S. refinery crude oil supplies and refining capacity.
“In effect, U.S. crude oil supplies are being dumbbelled,” noted TM&C President Mike Leger. “By that we mean crude oil streams high percentages of both light and heavy ends and a scarcity of middle range material, such as diesel, jet fuel and gas oils. With the coming onslaught of shale crudes on the light end and oil sands crudes on the heavy end, it will be increasingly difficult to avoid the dumbbell.”
The TM&C report, titled 2012 NORTH AMERICAN CRUDE OIL OUTLOOK, examines the crude oil qualities of each major producing basin, the midstream infrastructure required to move that production to market, the best markets for different crude streams, the implications for refinery operations, and the impacts of the shift in crude qualities on the production of refined products. It uses a bottoms-up forecasting approach, starting with U.S. and Canadian crude production by region, basin, and grade, then works through pipeline expansions, refinery upgrades and the dynamics of imports and exports. Based on that foundation, the study then details regional pricing implications, including North American vs. the world, light/heavy differentials, and sweet/sour differentials. The report also includes special sections on crude supply and refinery developments in the Northeast (PADD 1) and the West Coast (PADD 5).
“Growing crude oil supplies and more than a dozen new pipeline projects to bring those supplies to Gulf Coast markets are good news for refiners,” added Leger. “U.S. refiners will enjoy a feedstock price advantage relative to most of the world. But there will be challenges that result from the shifts in crude quality. As many refineries move to a lighter crude slate, they could see a reduction in capacity by as much as 10%. Ultimately the U.S. refining system could lose the equivalent of 2 or 3 average size refineries unless hardware investments relieve the bottlenecks. In addition, production of diesel, distillate fuel oil and jet fuel will fall, cutting out much of the lucrative middle distillate export market.”
The report examines in detail the implications for these export markets. Today the highest margin refined products for most refiners come from middle distillates including diesel, heating oil and jet fuel. Requirements to lower the sulfur content of these products (i.e., ultra-low sulfur diesel or ULSD) have reduced world supply and U.S. exports have quadrupled in the last five years to over 1 MMBPD as net world demand for ULSD has increased. Unfortunately, shale crudes yield significantly less diesel and other middle distillates than traditional light domestic and foreign crudes. Instead they have higher gasoline and naphtha yields. Consequently, diesel supplies and exports will decline replaced by increasing gasoline supplies and exports.
The crude quality shift will also ramp up trading in intermediate refinery streams. As refiners scramble to handle the changes in crude yields, some will produce excess volumes of light intermediate refinery streams (reformer feed and light straight run) while others will find themselves short of heavier intermediate streams, such as FCCU feed. This will result in lucrative trading opportunities to match refinery feedstock surpluses and shortages around the country.
All of these refinery system and crude supply issues are examined in TM&C’s 2012 NORTH AMERICAN CRUDE OIL OUTLOOK. For more information, visit www.turnermason.com or call 877-327-7676.
Turner, Mason & Company (TM&C)
Turner, Mason & Company (TM&C) provides management and engineering consulting services for the petroleum and petrochemical industries. The firm consists of a highly qualified staff of chemical engineers and refinery market experts, all of whom have had significant experience with operating companies. TM&C, which was founded in 1971 and is based in Dallas, TX has an international scope and serves a wide variety of clients operating in these industries. It also develops and publishes various studies and forecasts of the petroleum business, including subscription Outlook products, as well as special studies.