The five refineries in the U.S. Pacific Northwest (PNW) performed better in 2016 than rivals on the East Coast for two main reasons. First, the changing pattern of North American crude supply has worked to their advantage. Faced with the threat of dwindling mainstay crude supplies from Alaska, refiners in Washington State replaced 22% of their slate with North Dakota Bakken crude moved in by rail. They have also enjoyed advantaged access to discounted crude supplies from Western Canada. Second, PNW refiners face less competition for refined product customers than rivals on the East and Gulf coasts, meaning they have a captive market that often translates to higher margins. Today we review performance and prospects for PNW refineries.
This blog is based on Morningstar Commodities and Energy’s recently published Pacific Northwest Refining Outlook. See contact information at the end of this blog to request a copy of the report.
The NATGAS Appalachia weekly report provides the data and insights to monitor the northeast natural gas market’s twists and turns and identify the risks and opportunities along the way, including tracking supply-demand trends, outbound capacity and their impact on takeaway pipeline utilization, and regional prices.
Back in October 2016 we described how East Coast refiners were suffering in 2016 because they had lost the crude supply advantages they enjoyed during the shale boom (see Back to Red). Lower crude prices and narrower spreads between inland shale crude in North Dakota and imported crude priced against international benchmark Brent on the East Coast have reduced crude-by-rail shipments from the Bakken. On the West Coast the crude benchmark for PNW refineries is Alaska North Slope (ANS). We have previously covered the challenges presented by declining ANS production (see In The Year 2025, After The Oil Rush and Anchored Down in Anchorage). We have also covered increased rail shipments of Bakken crude to PNW refineries (see The End of the Line).
PNW Refineries
Five refineries in the Puget Sound region of Washington State with a combined 634 Mb/d capacity serve the Pacific Northwest. BP, Shell, Tesoro, Phillips 66, and U.S. Oil own these refineries, which are located in the Energy Information Administration’s (EIA) Petroleum Administration for Defense District (PADD) 5 or West Coast region (see Figure 1). The two largest refineries, belonging to majors BP and Shell, each have coking capacity to process heavy crudes. The rest mainly process light or medium crude grades.
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About the song
“Sweet Dreams (Are Made of This)” was written by Annie Lennox and Dave Stewart and appears as the sixth song on The Eurythmics' second studio album of the same name. Released as a single in January 1983, the song went to #1 on the Billboard Hot 100 Singles chart and became The Eurythmics’ breakthrough hit . It has been certified Gold by the Recording Industry Association of America (RIAA). The song has been covered by a few artists, including JX Riders featuring Skylar Stecker, which went to #1 on the Billboard Dance Club Songs chart, as well as Swing featuring Dr. Alban, and Marilyn Manson, whose version went to #26 on the Billboard Alternative Airplay chart. Personnel on The Eurythmics’s record were: Annie Lennox (vocals, synthesizer), and Dave Stewart (synthesizers, drum machine, programming).
The album, Sweet Dreams (Are Made of This), was recorded during 1982 at The Eurythmics’ 8-track home studio and at the Church Studio in North London. Produced by Dave Stewart, the album was released in January 1983, and went to #15 on the Billboard 200 Albums chart. It has been certified Gold by the RIAA. Four singles were released from the LP.
The Eurythmics were a British new wave pop duo formed in Wagga Wagga, Australia, in 1980 by Annie Lennox and Dave Stewart. Both were previously in the band The Tourists, which broke up in 1980. They released their debut album, In the Garden, in October 1981 to very little success. With the #1 hit single, "Sweet Dreams (Are Made of This)" from their second album, the duo went on to produce a string of hit singles and LPs before breaking up in 1990. They released eight albums, one live album, one soundtrack album, two compilation albums, one EP, and 33 singles. The Eurythmics have won four ASCAP Awards, one Brit Award, one Grammy Award, four Ivor Novello Awards, and one MTV Video Music Award and have sold over 75 million records worldwide. The due briefly reunited in 1999, and released the studio album, Peace, Both Lennox and Stewart have gone on to solo careers. Lennox has released six studio albums, one compilation album, and 23 singles. Stewart has released nine studio albums, and nine singles. He is also actively involved in film, television, and soundtrack work.
Comments
Hello Sandy, thanks for the great article. It was my impression that the TransMountain would increase capacity of light crude & products from Alberta from about 240 mb/d (current estimates) to 350 mb/d. Would this theoretically replace the current ~100 mb/d of crude by rail, which is most likely Bakken light crude?
There would be about an 18-24 month gap between the DAPL and TransMountain pipelines beginning service where PNW refiners would probably be supplemented with light crude imports.
In reply to TMEP Light Crude capacity expansion by Charles Couch
Hi
Interesting questions.
I would not expect to see an increase in light crude carried on TransMountain as demand for export pipeline space is most likely to be heavy crude. For the moment, PNW refineries can revert to processing more ANS to cover any shortfall in Bakken crude - with some imports to cover the gap. Although ANS production has been down it is a slow creeping decline not a cliff face.
Sandy
Hi Sandy. Great article on the Pacific NW refineries. I am wondering if Utah's Uinta Basin waxy crude oil delivered by rail might be a good substitute for Bakken light if/when the Dakota Access pipeline is in operation and Bakken prices go too high. BP's Cherry Point refinery would seem at a minimum to be a fit given its hydrocracking capability and existing rail offload facilities.
In reply to Uinta Basin crude oil as a Bakken substitute? by Rick Dembicki
I believe the PNW refineries have processed some Uinta crude delivered by rail (see the Do Ya Think I'm Waxy blog series) , but I would not expect it to be a significant replacement for Bakken because it is harder to handle and process and production is low relative to the latter - especially since the price bust when producers abandoned drilling there.
In reply to I believe the PNW refineries by Sandy Fielden
In the event of DAPL implemented years before TMPL Expansion, what would you see as an alternative to Bakken crude to Washington State refineries then? Canadian Heavies by rail? I'm not aware if the rail racks in that region can handle the heavy crude rail cars, due to their different specs.
Would they replace it by Latam / Padd 3 grades? Canadian lights may be a good alternative as well?