Rock the Basin – Can Houston Refineries Absorb New Permian Crude Supplies?

Permian crude production is set to increase 0.4 MMb/d to 1.8 MMb/d by December 2018 (Bentek). New pipeline capacity currently being built and planned to be in place by the end of 2015 should comfortably handle the output by then – primarily pushing Permian crude into the Houston market. The bigger question is whether Houston region Gulf Coast refineries can process the new crude without significant reconfiguration. Today we review whether Gulf Coast refiners can handle incoming Permian production.

Previously in this series on the Permian Basin we looked at crude production, existing pipeline takeaway capacity and local refinery consumption (see Rock The Basin – A Tight Pipeline Balance For Permian Crude). In Part 2 we looked at new pipeline capacity coming online in the next two years out of the Permian and compared it to the production forecast (see Opening the Permian Crude Floodgate). Although production and takeaway capacity are currently tightly balanced at 1.4 MMb/d, congestion should be eased by the end of 2013. In this episode we look at where the new pipelines out of the Permian are delivering crude and whether adequate refining capacity is available at those locations.

As we described earlier in the series there is now at least 75 Mb/d and probably closer to 90 Mb/d of crude takeaway capacity from the Permian available on the reversed Longhorn pipeline. That capacity will expand through the end of 2013 to 225 Mb/d. The Longhorn ships crude from Crane in the Permian Basin to the Magellan East Houston terminal on the Texas Gulf Coast. The East Houston terminal offers direct pipeline access to Houston Ship Channel (HSC) and Texas City refineries. The East Houston terminal is also the origination terminal for Shell’s Ho-Ho pipeline with 200 Mb/d capacity to Port Arthur (see Oh-Ho-Ho It’s Magic). Upon completion (currently projected for the end of 2013) the Ho-Ho reversal project will extend from East Houston across the Gulf Coast to St James, LA. At the moment Ho-Ho extends as far as Port Arthur and provides access to Beaumont and Port Arthur refineries as well as the Exxon Baytown refinery. Don’t worry if you can’t keep track of all these refineries -- we have tables lower down to summarize.

Also opening up from the Permian basin are extensions to the West Texas Gulf (WTG) pipeline operated by Energy Transfer Partners affiliate Sunoco Logistics. The main leg of the WTG pipeline comes south from Longview, TX into Sunoco’s Nederland Terminal - about 100 miles East of Houston and 350 miles West of New Orleans. Nederland is located on the Sabine-Neches waterway between Beaumont and Port Arthur, Texas (see Nederland Crude Wonderland). The Sabine River connects to the Gulf of Mexico, providing waterborne access to the entire Gulf Coast region. The expansion of the WTG was supposed to have provided 40 Mb/d of capacity from Longview to Nederland by early 2013 but the final leg of the project uses the ExxonMobil Pegasus pipeline that has been out of service since a rupture in Arkansas in April of this year. However Phase 1 of Sunoco’s Permian Express pipeline that runs from Wichita Falls, TX to Nederland has recently opened. Permian phase 1 has 90 Mb/d capacity to transport Permian crude via a connection with the Basin pipeline in the Texas Panhandle.

The smaller Kilgore Pipeline leg of the WTG pipeline travels further west from Longview into the Houston Oiltanking (OTI) terminal on the HSC (see Crude Accommodation at the Oiltank Inn). The Kilgore delivers 40 Mb/d of Permian crude into Houston area refineries connected to OTI as well as dock access to Louisiana refineries. Between them all of these pipelines into the Houston and Port Arthur regions have current capacity of 220 Mb/d rising to 355 Mb/d by the end of 2013. Another 40 Mb/d of capacity will open up when Pegasus comes back online (ExxonMobil has fixed the rupture but awaits new permits). Phase 2 of the Permian Express will also come online in Mid 2014 to add another 200 Mb/d. For the moment though we have approximately 220 Mb/d of Permian crude looking for a home in the Houston/Port Arthur region.

Refinery capacity in the Houston region is spread between the HSC, Pasadena, Galveston and Texas City. The table below summarizes the existing refineries, locations and nameplate capacities. The two columns on the right of the table are estimates of the type of crude processing capacity at each refinery based on company websites. Permian crudes are either West Texas Intermediate (WTI) that has a typical API gravity of 38-40 degrees with a sulfur content of 0.3 percent – making it a light sweet crude and West Texas Sour (WTS) that has an API gravity of 32.8 degrees and a sulfur content of 1.98 percent – making it a light sour crude. The Houston region refineries have total nameplate capacity of 2.25 MMb/d approximately two thirds of which (1.5 MMb/d) is heavy crude and 750 Mb/d is light or medium crude capacity.

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