Reduced refining activity in the US Northeast, as reflected in recently announced plans to idle more than half of the region's refining capacity, is likely to affect product supplies, the US Energy Information Administration said. "The transition period as supply sources shift could be problematic for ultralow-sulfur diesel [fuel], gasoline, and jet fuel supplies," it said in a Dec. 23 analysis.
Prolonged uncertainty in the coming months over disposition and operation of pipelines, ports, storage facilities, and other important logistical assets may compound adjustment challenges, it continued. Prices could grow more volatile because of reduced short-term product flexibility due to longer delivery times and potential transportation bottlenecks from sources outside the region, EIA said. "Finally, an increase in demand for ULSD due to changing state requirements could further exacerbate supply issues," it added.
Three southeastern Pennsylvania refineries that represent more than 50% of the Northeast's total capacity could be sold, and two of them have been idled already, according to the analysis. It noted that Sunoco Inc. announced plans in early September to sell its plants at Marcus Hook (which it idled on Dec. 1) and Philadelphia, with the intent of leaving the refining business in 2012. ConocoPhillips Co. announced later that month that it planned to shut down its Trainer refinery prior to its sale, along with associated pipelines and terminals, EIA said.
It said that the three refineries produced a combined 315,000 b/d of gasoline, 194,000 b/d of distillate (including 143,000 b/d of ULSD and 51,000 b/d of home heating oil), and 41,000 b/d of jet fuel in 2010. "Production losses from the Trainer facility idling were offset, at least in some measure, by the return to full operations in October 2011 of the Delaware City, Del., refinery, which had been idled since late 2009," EIA said. "The idling in December of the Marcus Hook refinery removed 15% of the operating Northeast refining capacity."
Alternative sources
EIA said alternative sources could be used if Northeast refinery production remains sharply curtailed. The US Gulf Coast could contribute significantly, especially since its refinery capacity is more sophisticated than the Northeast's and growing, the analysis said. "The main product pipeline to the Northeast, Colonial, would be the preferable transportation option if, as expected, additional capacity were available," it said. "Waterborne transportation via tanker or barge on Jones Act vessels is another possibility."
More products could be imported, and rail shipments from refineries in the Midwest might begin rail shipments of products in addition to propane and ethanol, although expected volumes would be relatively small, EIA said. "More output from the remaining Northeast refineries is expected, but not enough to replace lost volumes," it said. "Other refiners in the region may see an opportunity to expand or upgrade their own capacity in the longer term."
EIA noted that it plans to issue a more comprehensive analysis in January. This one came in response to a Nov. 7 request by three US House Democrats for the US Department of Energy's independent statistical and analysis service to evaluate possible supply impacts from the announced refinery sales and closures. One of them, Rep. Edward J. Markey (D-Mass.), who is ranking minority member of the Natural Resources Committee, said on Dec. 23 that EIA's analysis "shows that these oil companies are putting profits ahead of the people living in the Northeast."
National Petrochemical & Refiners Association Pres. Charles T. Drevna also responded to EIA's analysis. US refiners want to continue supplying proven and reliable petroleum products to consumers, but are unable to stay in business if their costs exceed their earnings because they don't receive, nor have they requested, government subsidies, he said on Dec. 23.
"Unfortunately, existing and proposed federal overregulation that has little or no environmental benefit—along with permit delays—has raised the cost of manufacturing fuels in America by billions of dollars and threatens further massive cost increases," Drevna continued. "Anyone interested in the best interests of American consumers, the survival of refineries in America, and the preservation of refinery jobs should oppose such overregulation. This would be the most effective action to prevent refinery closures."
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