Crude processed by U.S. refiners gets lighter and lighter

June 2, 2015

Reuters Opinion

The below excerpt is from the lower portion of original article.

Read entire article here.

____________________________

... Domestic shale production, much of it transported in tank cars along the railroads, has become increasingly important for East Coast refiners, since it matches the needs of their refineries most closely.

In February, rail receipts of crude accounted for more than half of all crude processed on the East Coast, according to the Energy Information Administration.

PROCESSING OPTIONS

In the short term, the plunge in oil prices and the downturn in shale drilling are likely to cause domestic crude production to stabilise, removing some of the pressure on the refining sector and shale prices.

In the longer term, however, there are important questions about how to handle the growing volume of very light shale production.

One option is to lift the ban on crude exports, allowing the market to find the most efficient way to process available feedstocks (exporting some light oils while continuing to import some heavier ones).

If the export ban remains, refineries would have to make capital investments to handle a large volume of lighter feedstocks.

There are some options to replace more light oil imports, increase capacity utilisation, and debottleneck existing units (for example by adjusting the trays and condenser units in distillation towers).

But most of these cheap options have already been taken, according to an assessment produced by the EIA ("Technical options for processing additional light tight oil volumes within the United States" Apr 6, 2015).

To handle an increased volume of domestic light crude, refiners would need to invest in new distillation and secondary processing units, most of which are expensive, according to the agency.

In reality, the refining system may be running out of easy options for handling light oil.

If the export ban is not lifted within the next couple of years, substantial discounts between domestic and international crudes could re-emerge and even widen in future.

Read entire article at Reuters.