According to Energy Information Administration data, the 26 refineries in the Midwest/PADD 2 region processed an average 3.6 MMb/d of crude oil in 2016—up 300 Mb/d from the 3.3 MMb/d refined in 2010. Over the same six-year period, production of light oil production in the region shot up by over 1 MMb/d, mostly from the prolific Bakken formation in North Dakota. Yet Midwest refiners did little to take advantage of the sudden abundance of “local” production, increasing instead their appetite for imported heavy crude from Western Canada by nearly 1 MMb/d—from 800 Mb/d in 2010 to 1.8 MMb/d in 2016. Today we explore the trend for PADD 2 refineries to run more heavy crude even as shale output surged in their backyard.
(This blog is based on Morningstar Commodities and Energy’s recently published Midwest Refining Outlook. See contact information at the end of this blog to request a copy of the report.)
We have previously detailed the ironic circumstance that U.S. refiners struggled to process growing domestic light shale crude volumes because many refineries are configured to handle heavy crude (see Reckoning Day). We have blogged extensively on the efforts of Canadian producers to get their heavy crude to market—including to the Midwest (see If We Ever Get Out of Here). As we described back in 2014, Midwest refiners enjoyed spectacular margins during the crude shale boom because of discounted crude prices (see Midwest Crack Spread Margins). While most Midwest refiners have not increased light crude processing in the Shale Era, one exception is Marathon’s Utica strategy (see Utica Shale Strategy). More recently we covered efforts by Midwest refiners to ship more refined products into Eastern markets (see Lady Arbitrage).