Recent rapid growth in U.S. production of light tight oil has raised interest in understanding how U.S. refineries, many of which are configured to process heavier crude oil, might accommodate increased volumes of domestic light crude.
The U.S. refinery fleet, which is distributed across Petroleum Administration for Defense Districts (PADDs) as shown in Figure 1, varies both within and across regions in capacity, quality of crude oil inputs, utilization rates, and sources of crude supply.
The East Coast (PADD 1), which has 10 operable refineries, 9 of which are currently operating, with 1.3 million barrels per stream day (bbl/sd) ofatmospheric crude distillation unit capacity (ACDU). Stream day capacity, the maximum number of barrels of input that a distillation facility can process within a 24-hour period when running at full capacity under optimal crude and product slate conditions with no allowance for downtime, is typically about 6% higher than calendar day capacity, which reflects usual operating conditions including both planned and unplanned maintenance.
PADD 1 gross inputs (which include crude oil, straight-run fuel oil, and topped crude) averaged 1.1 million bbl/d in 2014 (through October, the latest data available), which is consistent with recent years. More than 70% of the region’s capacity is at refineries that do not have coking units that can upgrade heavy crude oil into higher-valued lighter products, such as distillate and gasoline. As a result, PADD 1 refineries process mostly light crude oil, as reflected in an average API gravity of crude runs averaging 34.2, the highest in the country last year. (API gravity is an inverse measure of the density of a petroleum liquid relative to water. The higher the number, the lower the density of the petroleum liquid compared to water.)
Historically, most crude supply to PADD 1 has been imported light sweet crude. The region lacks crude oil pipeline connections from domestic production regions and has very limited in-region production. However, since 2010, rising light tight crude oil production in the Bakken formation in North Dakota, combined with the expansion of crude-by-rail infrastructure, has reduced the region’s import dependence. East Coast imports of crude oil averaged 98% of gross refinery inputs in 2010 but only 51% in 2014. While access to Bakken crude oil has provided PADD 1 refineries with crude selection flexibility, actual refinery crude slates will continue to be a function of relative crude prices.
The Midwest (PADD 2) is the second-largest refining region in the country, with 27 operable refineries. The 26 refineries currently operating have 4.1 million bbl/sd of ACDU capacity, 70% of which is at facilities with coking capacity. Since 2010, several Midwest refiners have reconfigured their facilities to process more heavy crude, adding a total of 157,000 bbl/sd of coking capacity. Over the same time, ACDU capacity has increased by 148,000 bbl/sd and gross inputs have risen by 205,000 bbl/d. With the increase in heavy crude oil capacity, the average API gravity of crude inputs in PADD 2 has decreased slightly from 33.3 in 2010 to 32.9 through October 2014. Unlike the rest of the country, imports of crude oil into the Midwest are increasing, as the region runs more Canadian crude. This trend, combined with increases in regional production, has reduced PADD 2’s reliance on both U.S. and imported crude moved by pipeline from the Gulf Coast.
More than 50% of the country’s refinery capacity and most of the country’s heavy crude processing capacity is located in the Gulf Coast (PADD 3). The region’s 51 operating refineries with ACDU units have capacity totaling 9.7 million bbl/sd, 81% of which is located at facilities with coking capacity. Recent expansions have increased ACDU and coking capacity by 625,000 bbl/sd and 160,000 bbl/sd, respectively, since 2010. Despite the expanded capacity, utilization has remained steady and the region has recently set records for high levels of gross inputs.
Changes to crude oil supply patterns are most pronounced in the Gulf Coast. Net imports into the region have fallen by 2.3 million bbl/d, and light sweet crude imports have been largely replaced by domestic production. In addition, from 2010 to 2014, the average API gravity of crude inputs rose by 1 degree, indicating that average crude slates are becoming lighter. Crude oil production in PADD 3 has increased by 1.9 million barrels since 2010 and receipts of crude oil from PADD 2, including both U.S. and Canadian production, have increased as well. With more Canadian and domestic barrels moving south from PADD 2 to PADD 3 and lower demand for crude shipments from PADD 3 to PADD 2, net receipts for PADD 3 were positive in October 2014 for the first time since December 1985. Instead of being a net source of crude supply for neighboring regions, PADD 3 shipments and receipts are now roughly at parity.
The Rocky Mountain region (PADD 4) has the least amount of refining capacity, 17 refineries with 0.7 million bbl/sd ACDU capacity. Just over half of the capacity (55%) is at refineries with coking capacity. Runs in the region have increased 6% since 2010 due to a combination of an increase in utilization and expansion of capacity. The API gravity of crude processed has not changed significantly since 2010, and in 2014 averaged 33.7 through October. PADD 4 crude oil production has increased 64% since 2010 and now exceeds regional crude runs, making the Rocky Mountains the only region that is a net supplier to other PADDs.
The West Coast (PADD 5) has 30 operating refineries with 3.1 million bbl/sd ACDU capacity, two-thirds of which is at facilities with coking capacity. Gross inputs in the region have been steady, averaging 2.6 million bbl/d since 2010. Due in large part to the quality of crude oil produced in California, PADD 5 runs have the lowest API gravity in the country, averaging 28.4 in 2014. Refineries in the region also run other domestic crudes; e.g., Alaska North Slope and Bakken. The region runs roughly equal amounts of domestic and imported crude oil, but declining Alaskan production has been offset by crude receipts by rail from PADD 2.
With U.S. crude production in 2015 expected to average 9.3 million bbl/d, 700,000 bbl/d above the 2014 level, domestic refiners will continue to face changing supply and demand conditions, even as continued production growth in the first months of the year transitions to a more static production outlook as the effects of the recent sharp decline in oil prices are reflected in drilling decisions. Changes to infrastructure, refinery capacity, crude oil price differentials based on quality, and policy decisions will also affect refinery operations in the coming year.
U.S. gasoline and diesel prices fall, Midwest and Gulf Coast gasoline prices below $2 per gallon for first time since 2009
The U.S. average price for regular gasoline on January 5, 2015 was $2.21 per gallon, down nine cents from the previous week and $1.12 per gallon less than the same time last year. For the first time since 2009, two regions have average prices below $2 per gallon: the Midwest (down 11 cents to $1.97 per gallon) and the Gulf Coast (down 8 cents to $1.99 per gallon). The Rocky Mountain price fell 11 cents to $2.11 per gallon. The East Coast price declined eight cents to $2.36 per gallon, while the West Coast was down four cents to $2.58 per gallon.
The U.S. average price for diesel fuel declined eight cents to $3.14 per gallon, down 77 cents from the same time last year. The Midwest and Rocky Mountain prices declined 10 cents, to $3.10 per gallon and $3.14 per gallon, respectively. The Gulf Coast was down eight cents to $3.05 per gallon. The East and West Coast prices both fell five cents, to $3.20 per gallon and $3.22 per gallon, respectively.
Propane inventories fall
U.S. propane stocks decreased by 1.6 million barrels last week to 75.7 million barrels as of January 2, 2015, 33.2 million barrels (78.3%) higher than a year ago. Gulf Coast inventories decreased by 1.1 million barrels and Midwest inventories decreased by 0.4 million barrels. Rocky Mountain/West Coast inventories decreased by 0.1 million barrels, while East Coast inventories increased by 0.1 million barrels. Propylene non-fuel-use inventories represented 4.8% of total propane inventories.
Residential fuel prices decrease
As of January 5, 2015, residential heating oil prices averaged less than $2.97 per gallon, nearly 8 cents per gallon lower than last week, and $1.05 per gallon less than last year’s price for the same week. Wholesale heating oil prices averaged $1.91 per gallon, 9 cents per gallon lower than last week and $1.16 per gallon lower when compared to the same time last year.
Residential propane prices averaged less than $2.36 per gallon, 1 cent per gallon lower than last week, and over 47 cents per gallon less than the price at the same time last year. The average wholesale propane price decreased by almost 4 cents per gallon this week to less than 59 cents per gallon, just under $1.10 per gallon lower than the January 6, 2014 price.