Saving All My Crude For You – Houston Area Crude Storage Deficit?

Houston area refineries are the first to experience the full impact of the flood of domestic and Canadian production headed to the Gulf Coast in 2013 and 2014. These refineries have traditionally relied on floating storage in the form of import cargoes in transit to buffer them against supply shocks. Now the region is adapting to new crude supplies mostly delivered by pipeline. As imports decline, the floating storage option disappears, leaving the potential for congestion caused by inadequate onshore working storage. Today we calculate the storage impact of these changes.

In Part 1 of this series covering the changing crude storage situation at the Gulf Coast – home to 50 % of US refining capacity - we discussed how storage provides a buffer or slack in the distribution chain from wellhead to refinery. In Part 2 we began a deeper dive analysis of Houston area refineries to understand how important floating storage provided by waterborne crude imports can be. Our analysis of 5 years worth of data from 2008 to 2013 showed that the typical imported waterborne barrel delivered to Houston refineries spent 17-20 days in transit. That floating storage period provides refiners with flexibility to withstand supply shocks such as refinery outages. Then we calculated “storage days” for crude delivered to Gulf Coast region refineries as a whole using data from the Energy Information Administration (EIA) reported for Petroleum Administration Defense District (PADD) III. The calculation is based on reported working storage capacity at refineries and terminals divided by average monthly crude input to refineries. We noted that the Gulf Coast at 32 storage days in April 2014 was the same as the national average since 2011 but about 68 percent higher than other waterborne fed regions like PADD I (East Coast – 19 days) and 28 percent higher than PADD IV (West Coast – 25 days). Average storage for the landlocked Midwest region (PADD II) was 9 percent higher than the Gulf Coast at 35 days. In this episode we dig into the PADD III numbers to get a Houston specific storage days value.

Houston Storage Days

Since the EIA don’t break down their storage capacity report below PADD level, we have to estimate Houston storage in order to derive Houston refinery storage days. This estimate has two parts to it. The first is refinery storage capacity. The second is merchant and pipeline storage. To get refinery storage we assumed that Houston refineries would have similar storage to PADD III as a whole and we calculated a ratio of Houston refining capacity to PADD III as a whole. The refineries that we included in our Houston area calculation are listed in column three of Table #1 below with their nameplate capacities. These refinery capacities were taken from the EIA annual refining survey that is available here. Since we ultimately want to get to a storage days number that reflects all the planned refinery and storage additions expected online by the end of 2016 we added column four to Table #1. In that column we list refinery/processing capacity additions including Kinder Morgan and Targa condensate splitters (total 135 Mb/d) and a 90 Mb/d topping unit that Valero is adding to their Houston refinery to process light crude. We will get back to those additions in a minute when we look at future storage capacity but for the moment we estimate current refinery storage based on existing refinery capacity. Our estimate of refinery storage is a ratio of 2.5 MMb/d current Houston capacity to 9.15 MMb/d total PADD III refining capacity = 0.27, multiplied by total PADD III refinery storage capacity of 73 MMBbl = ~20 MMBbl.