The U.S. and Canada make quite a team. Friends for most of the past century and a half — and best buddies since World War II — the two countries have highly integrated economies, especially on the energy front. Large volumes of crude oil, natural gas, NGLs, and refined products flow across the U.S.-Canadian border, and a long list of producers, midstreamers, and refiners are active in both nations. One more thing: since the mid-2000s, the development of U.S. shale and the Canadian oil sands in particular has enabled refiners in both countries to significantly reduce their dependence on overseas oil — a big victory for North American energy independence. However, due to its smaller population and economy, Canada typically gets far less attention than its southern neighbor, so in today’s blog we try to right that wrong by discussing highlights from a new, freshly updated Drill Down Report on Canada’s refining sector.
Many countries like to talk about energy independence, but Canada is one of the few to come close to that elusive goal. For many years, Western Canada has produced more than enough crude oil to satisfy the demand of refineries in the region. More recently, a combination of rising Western Canadian oil production, and new and reworked pipelines, has enabled many of Canada’s eastern refineries to increase their intake of Western Canadian barrels. In the few remaining cases where they can’t, imported barrels from the U.S. have filled the gap, leaving crude imports from overseas accounting for just 1% of the market. Not surprisingly, Canada is also a net exporter of refined products, with refiners in Western Canada, and especially Atlantic Canada, producing far more than the country’s demand. Today, we conclude our series on Canada’s refining sector with a look at its growing reliance on Western Canadian crude oil and its ability to meet most of Canada’s need for gasoline and distillates.
Canada, like the U.S., is in the enviable position of having vast crude oil reserves as well as a robust domestic refining sector capable of satisfying national needs for gasoline, diesel, and other petroleum products. Refiners in both countries have also benefited in recent years from increasing oil production within their borders. Growth in the Alberta oil sands in particular has given refineries in both Western and Eastern Canada increased access to domestically sourced bitumen and upgraded synthetic crude oil. Today, we continue our series on Canada’s refining sector with a look at the refineries in the eastern half of the nation, and their increasing use of Canadian oil.
Long established as an oil-producing region, Western Canada has also become a major producer of refined products. With enough oil available to serve the nine refineries in the region, there is no need to import crude oil, making Western Canada one of the few parts of the world where the refineries are completely self-sufficient regarding oil supply. The region is also noteworthy in that, like the U.S. Gulf Coast, its refining capacity and gasoline, diesel, and jet fuel output is vastly greater than its own demand, resulting in a large surplus of refined fuels that can be sent across Canada and exported to the U.S. Today, we look westward, focusing on the nine refineries located in the Canadian West.
Canada may be the land of backyard hockey, lacrosse, and loonies, but Canadians have many similarities to folks in the U.S. The same holds true for Canada’s refining sector, which like its American counterpart has been adjusting to big changes in domestic crude oil production, a declining need for imported oil, and, most recently, a period of severe refined-product demand destruction caused by the pandemic. What Canadian refiners lack, though, is the attention they deserve. After all, nearly 2 MMb/d of crude oil flows through their 17 refineries. And, by the way, they now turn to U.S. producers for virtually all their oil imports — a far cry from where things stood before the Shale Era. Today, we kick off a three-part series that examines Canada’s refining sector in greater detail.
Motor gasoline, diesel, and jet fuel need to be delivered in large volumes to every major metropolis in the U.S. While most big cities are well-served, some by multiple pipelines or a combination of pipelines and barges, others are more isolated and susceptible to supply interruption. Nashville, the home of country music, is one such place; so are Chattanooga and Knoxville to its east. All three Tennessee cities depend heavily on stub lines off the Colonial and Plantation refined-products pipeline systems as they work their way from the Gulf Coast to the Mid-Atlantic states. When supplies on these pipes are interrupted — and they have been from time to time — these cities can experience shortages and price spikes, and be forced to turn to trucked-in volumes from Memphis and elsewhere. Today, we discuss a supply alternative now under development that will pipe motor fuels south from BP’s Whiting refinery in northwestern Indiana to a proposed Buckeye Partners storage and distribution terminal just west of Nashville.
For a few years now, refineries in the eastern part of PADD 2 — feedstock-advantaged and capable of producing far more refined products than their regional market can consume — have been eyeing the wholesale and retail markets to their east in PADD 1. Their thinking has been, if they could just pipe more of their gasoline and diesel into Pennsylvania, upstate New York, and adjoining areas, they could sell the transportation fuels at a premium and take market share. Well, things are looking up for PADD 2 refineries pursuing this strategy. Not only has new pipeline access to the east been opening up, but PADD 1’s refining capacity has been shrinking fast, leaving East Coast refineries less able than ever to meet in-region demand. Today, we discuss recent developments in the battle for refined-product market share in the Mid-Atlantic region.
It has been nearly a year since the novel coronavirus was first detected in China — that’s right, a year. In that time, we have seen significant parts of the world come to a near standstill, become all too familiar with video conferencing, and canceled family vacations and business travel. The fact that many of us have been stuck at home has wreaked havoc on the U.S. refining industry, with plummeting utilizations and some facilities shutting down, either temporarily or permanently. And, depending on how the U.S. transportation sector rebounds from the pandemic in 2021 and beyond, more refinery closures may be on the horizon. Today, we look at the U.S. facilities that are shutting down and tally up the capacity lost so far.
For the past several months, U.S. refineries have been producing more distillate than demand warrants, resulting in a glut of distillate fuels, especially ultra-low-sulfur diesel and jet fuel. The disconnect between supply and demand has been particularly stark in the Gulf Coast region, where just a couple of weeks ago distillate stocks sat 39% above their 10-year average after coming perilously close to tank tops in August. The culprit, of course, is COVID-19, or more specifically the effects of the pandemic on air travel and the broader economy. Demand for motor gasoline rebounded more quickly than demand for ULSD and jet fuel, and refineries churned out more gasoline to keep up, but that results in more distillate too. Now, finally, there are signs that distillate stocks may be easing back down. Today, we discuss the build-up in ULSD and jet fuel stockpiles, the ways they might revert to the norm, and the potential for storing distillate now and selling it at a higher price later.
If you’ve filled up the tank in your car, SUV, or pickup in the past few days, you probably bought your first batch of winter-blend gasoline since the spring. It’s unlikely that you noticed a difference — only a refining geek with a nose for this sort of thing would — but winter gasoline has a higher Reid Vapor Pressure than summer gasoline, and therefore evaporates more quickly and emits more fumes. There’s a logic to EPA’s mandated switchover from lower-RVP gasoline to higher-RVP gasoline each September, and their switch back to lower-RVP each April/May. For one thing, using different gasoline blends during the colder and warmer months helps ensure that your engine runs well year-round; for another, reducing gasoline vapor pressure in the summer reduces emissions that contribute to smog. Today, we discuss gasoline RVP, why it matters, and how refineries ramp it up and down. (A hint is in the blog’s title.)
For U.S. refineries, the severe demand destruction that occurred this spring led to the worst financial performance in recent history. Not only did refiners produce less diesel, motor gasoline, and jet fuel in the second quarter than any quarter in recent memory, their refining margins were sharply lower than the historical range — a one-two punch that hit their bottom lines hard. The situation has improved somewhat this summer, but it’s still tough out there. So tough, in fact, that it’s reasonable to ask, does the coronavirus and its impacts to the energy sector signal the end of an era for refiners across the U.S.? Today, we review the decline in fuel demand and profitability in the second quarter and discuss the uncertainties refiners face in the second half of 2020 and beyond.
The global effort to stop the spread of COVID-19 brought the commercial aviation sector to its knees, and slashed demand for jet fuel to its lowest level in 50 years. That, combined with lower demand for motor gasoline and — to a lesser extent — diesel, forced refineries in the U.S. and elsewhere to substantially reduce their crude oil input and to make major changes in their operations, all with the aim of bringing refined product supply and demand into closer balance. After a horrific spring, U.S. jet fuel production and demand have been rebounding somewhat in recent weeks, but getting back to pre-coronavirus levels may take a long time. Today, we review the flight from hell that the jet fuel market has suffered through so far this year, and how it is affecting refineries.
Earlier this month, Shell announced that it was exploring the sale of yet another refinery — this time, it is the company’s Convent facility in Louisiana, which is one of the two refineries in the state that remain with Shell from the unwinding of its former joint venture with Saudi Aramco. Convent, with a capacity of 240 Mb/d, is near the middle of the pack in terms of refinery size and possesses some unique characteristics that could make it an attractive option for the right buyer and market conditions. But Shell’s announcement also raises a question, namely, how does the prospective sale compare with the company’s stated intent to focus on a smaller set of refineries integrated with Shell’s key trading hubs and petrochemicals operations? Today, we review the refinery’s characteristics and how it stacks up against its nearby rivals.
U.S. exports of motor gasoline and diesel to Mexico increased steadily from 2013 through 2018 as demand for refined products south of the border increased and throughput at Pemex’s six older, investment-starved refineries declined. U.S.-to-Mexico shipments of gasoline and diesel sagged in 2019, though, as Pemex started to implement a major refinery rebuilding program, and fell further in the spring of 2020 as the social and economic effects of COVID kicked in and Mexican demand for motor fuels plummeted. So what’s ahead for U.S. refined product exports as Mexican demand gradually rebounds later this year and in 2021? As we discuss today, that will largely depend on the Mexican government’s determination to have its debt-laden energy company produce gasoline and diesel at a loss and proceed with expensive refinery projects.
Mexican demand for motor gasoline and diesel has plummeted this spring due to COVID-19 — so has demand for LPG. So far, Pemex — Mexico’s state-owned energy company and by far the country’s largest supplier of these commodities — has responded by slashing how much gasoline, diesel and LPG it is importing from the U.S. and holding its own production steady, despite the fact that Pemex’s refining margins are now deep in negative territory. What does Pemex’s focus on money-losing refining mean for U.S. exports to Mexico going forward? Today, we begin a short series on the ongoing competition between U.S. refiners and Pemex for market share south of the border.