Back to Red - Is the Shale Honeymoon Over for PADD 1 (East Coast) Refineries?

The shale boom breathed new life into East Coast refineries that were under threat of closure by their owners between 2009 and 2012. Now some of those same refineries are under threat again, this time due to poor margins as well as the high cost of compliance with environmental regulations. After enjoying three years of improved margins through access to advantaged domestic crude delivered by rail from North Dakota, five East Coast refineries are now paying international prices for imported crude again in 2016 after differentials between domestic benchmark WTI and international equivalent Brent narrowed to less than $1/bbl in the wake of the crude price crash and an end to the federal ban on most crude exports. Today we discuss PADD 1 refinery prospects.

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I Saw Miles And Miles Of Texas - Part 4: Texas Natural Gas Pipeline Flows, Capacity And Pricing

Natural gas exports out of Texas are changing everything. Pipelines built to move gas up the Texas coast are being reversed and expanded to allow southbound flow. Texas gas exports will soon be rising fast, and within two or three years Texas will flip from being a net producing region to (with exports) a net demand region. To help pull in the gas Texas will need from the Marcellus/Utica and elsewhere, the basis at the Agua Dulce hub, a key pricing point for the South Texas gas market, is likely to shift from being lower than Henry Hub to being higher.

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This blog is based on Morningstar Commodities and Energy’s recently published East Coast Refining Outlook. Contact information to request a copy of the report at the end of this blog.

East Coast Refining Fundamentals

We consider seven refineries operating in Petroleum Administration for Defense District (PADD) 1 in our East Coast analysis (Table 1). Two plants are not included because they do not produce transport fuels (i.e. gasoline, diesel or jet kerosene). These are the 11 Mb/d American Refining Group plant in Bradford, PA that produces lubricants and the 42 Mb/d asphalt plant in Paulsboro, NJ, owned by private equity investor Lindsay Goldberg and operated by Axeon Specialty Products.

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