By OGJ editors
HOUSTON, June 30 -- A shift in drilling emphasis from conventional to unconventional plays the past 2 years, particularly the Marcellus shale, has resulted in a substantial drop in crude oil production available to refiners in the Appalachian basin, said Ergon Oil Purchasing Inc.
Ergon, which operates refineries in West Virginia, Arkansas, and Mississippi, said the average load volume of crude oil it purchases from tank batteries in the basin is shrinking.
The company enacted a tier posted price schedule under which it pays $2-3.50/bbl less than its posted price to truck less-than-full loads from leases. The changes took effect June 1.
Ergon said, “To remain competitive with our finished products, it is important that we deliver crude oil to our Newell, W.Va., refinery at a price competitive to refineries with lower gathering, storage, handling, and transportation costs. This is extremely difficult due to the age and geography of the Appalachian basin.”
The 20,000-b/d Newell refinery processes 100% Appalachian grade paraffinic crude oils, particularly Pennsylvania grade gathered from 40,000 points throughout Ohio, Pennsylvania, West Virginia, Kentucky, and New York, Ergon said.
Ergon pays full posted price for loads of 156 net bbl of crude oil or more from one or more tanks at a single location. If basic sediment and water exceeds 2%, however, the price paid is subject to tier two posting.
Tier two posting covers loads of 60-155.99 net bbl of crude oil from one or more tanks at a single location at $2/bbl less than Ergon’s posted price, and tier three posting applies to loads of 30-60 net bbl of crude oil at $3.50/bbl less.