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Oil, Oil, Everywhere But Not A Drop To Burn?
In the last few decades — indeed, in just the last few years — a combination of demand and technology has greatly expanded the amount of oil and gas reserves that can be economically extracted. Unfortunately, cars and industry can’t run off crude oil anymore than freshly-fracked methane, so those raw hydrocarbons are essentially useless until they’ve undergone a myriad of available processes to refine them into useable fuels. The whole reason for the Keystone XL pipeline, after all, is to bring heavy Canadian crude down to the Gulf Coast for refining.
A little over a year ago, The Wall Street Journal reported that American refineries — already the largest in the world — were pushing to increase their capacity at their existing plants, while others energy firms were trying to get into the business, often at a small scale. The results sounded impressive:
American refiners are set to add at least 400,000 barrels of oil-refining capacity a day [current world-wide refining capacity is about 17 million barrel per day] to existing plants between now and 2018, according to information compiled by The Wall Street Journal and the consulting firm IHS. That is the fuel-making equivalent of constructing a new, large-scale refinery.
[…]
Eighteen projects scattered across the U.S. Gulf Coast, the Midwest and the Rocky Mountain region will help increase refining capacity by as much as 600,000 barrels a day, according to Aaron Brady, senior director of IHS in Cambridge, Mass.
Unfortunately, it seems those efforts have reached — if not their limit — then a major bottleneck. As The Wall Street Journal reported on Sunday, a number of refineries around the country suffered exactly the sorts of problems you’d expect from trying to run retrofitted-but-aging plants at increased capacity: leaks, small-scale fires, and maintenance shutdowns. As a result, it seems, more and more unrefined oil is sitting around, unused.
Much of this is probably inevitable in a market as subject to booms-and-busts as energy; no one wants to invest in a massively expensive new plant only to find out that it can’t be run profitably. Markets are more efficient than the alternatives, but even they’re imperfect. Still, it seems strange that America’s refining capacity — again, the largest in the world — has remained essentially flat over the last 30 years, given the growth in demand for energy worldwide.
It should come as no surprise, however, to find the iron-gauntleted finger of the state tipping the scales and pointing accusingly. For starters:
The [Obama Administration’s] methane proposal has also drawn criticism from environmental groups, who offered only tepid praise for the plan when the EPA first announced it earlier this year. The proposal will initially target only new and modified oil and gas facilities, while existing facilities — which account for 90 percent of the industry’s methane emissions — will remain virtually off the hook from federal regulations. Experts have said it will be extremely difficult to reach the EPA’s 45 percent emissions reduction target without requiring cuts from existing facilities.
More on the same matter:
President Barack Obama’s administration is pursuing a broad regulatory effort to curb greenhouse-gas emissions from sources including power plants, refineries and automobiles. The agency announced in January that it would propose rules to cut emissions of methane, the primary component of natural gas, by as much as 45 percent by 2025.
Methane accounted for about 9 percent of U.S. greenhouse-gas emissions in 2012, according to the EPA. Environmental groups have called for federal action to reduce methane seepage from oil and gas pipes, pumps and storage tanks. The industry has sought voluntary measures, saying methane emissions are already in decline.
Independent oil refiners and a former White House official have urged U.S. regulators to tweak the U.S. biofuels program to shift responsibility for complying from refiners to fuel blenders, according to public comments on a government proposal for renewable fuel use.
And it’s not just the Feds, either:
But California gasoline prices have remained stubbornly high because of strict pollution controls aimed at reducing smog. It is difficult to find any refinery in the U.S.—or the rest of the world—that can make gasoline clean enough to burn there. The few that do, located in Asia or Europe, are a 20-day ocean journey away, making fuel imports expensive.
With a bit of luck and a lot of hard work, we may again have a government disposed to look at energy as a resource to be developed and improved, rather than as a vice to be managed. But until then, let’s hope the refineries keep things moving as best they can.
Published in Domestic Policy, Science & Technology
We have drawn down commercial crude oil (non-SPR) 13 of the past 16 weeks from a high of 490MMBbls to 456MMBbls.
Simultaneously we have increased our refined product storage such that when you add commercial crude storage to the volumes of the 12 refined products we (U.S. EIA) track we have set almost weekly records for total petroleum storage.
We are doing an excellent job of refining crude into usable products.
Two reasons: The type of crude, very light barrels from non-conventional (shale formations) and most of it being stockpiled as heavier products, e.g. record ultra low sulfur diesel fuel which is setting weekly storage records while gasoline is drawing down weekly.
Hit me up separately and I happy to link to more detailed analysis.
Hey Brent, is that you .. good to see you
I will shortly.
And I was about to say the same thing!
Brent is still trading higher than WTI though.
http://www.bloomberg.com/energy
Ah, okay, I feel a little better on re-reading this. The WSJ report from Sunday that accidentally unlinked from the piece — now back in — reported that problems were specific to gasoline. So, we’re agreed there’s an issue there, correct?
I wasn’t aware that we’re simultaneously stockpiling other refined fuels. How useful is that kind of diesel?
It seems Crude is dropping like a rock, but here in the midwest gas prices are staying high thanks to BP’s Whiting Plant in NW Indiana, but it looks like they should start dropping soon as BP was able to get their distillation tower back on line.
The refined product imbalance is pronounced in gasoline in that we have drawn down gasoline consistent with seasonal trends while building other products. There does seem to have been more refinery closures, etc. this year, but that is anecdotal only.
ULS Diesel is the diesel fuel. Also known as on-highway diesel.
The issue as I understand it has more to do with the refinery input. The liquid petroleum produced from non-conventional (shale) formations is much closer to light natural gas liquids and/or condensate than conventional crude oil.
Our refineries were not engineered for this kind of light input and thus why we are exchanging (not exporting) with Mexico that produces heavy barrels to blend with our light barrels and approximate something closer to historic crude oil composition.
The 1:1 crack spread for gasoline until recently has been remarkably robust, but is coming in nicely now. We should all be paying <$1.99/gallon next week :)
Yes sir, and Thank You.
A quibble: Methane (the primary component of what we call “natural gas”) doesn’t need refining to be used by industry or by natural gas-fueled vehicles. It does need treating to remove impurities, but that is a simple process compared to refining.
A process involving natural gas that is more analogous to crude oil refining in terms of complexity and cost is cracking. For example, the ethane in natural gas is cracked into ethylene, which is a building block for certain kinds of plastics. Similarly, propane is cracked into propylene.
It is not widely appreciated by the public that natural gas is the source of most of our plastics. A majority of people would probably guess that plastics come only from oil. I suppose that is because it is not intuitive that a solid plastic can be derived from a gas.
Brent – nice to see you back here.
My understanding is that no new refineries for the production of gasoline have been built in the U.S. over the past 2-3 decades. Is that correct?
That is technically correct but (unintentionally) misleading. Existing refinery sites have been expanded, increasing their output enormously.
Unless I’m misreading something, that’s not what this is saying.
Yes, Johnny Dubya makes a good point. Additionally, we export a tremendous amount of gasoline. We are the world’s refineries.
If I’m reading the linked chart correctly our capacity in 2015 is about what it was in 1982. On the other hand, it is 19% greater in 2015 than it was in 1994.
Brent lives!
I echo jetstream’s welcome!
Here’s a list of new refineries since the mid-70s. It also notes that the newest refinery with significant downstream unit capacity began operating in 1977 but also mentions a couple of examples of recent large capacity increases at existing refineries.
Crude oil distillation capacity represents but one part of refining capacity. It does not take into account more-modern coking capacity for heavy crude, for example. The following clipped from the EIA talks about inputs, but outputs correlate to inputs, obviously:
Anyway, my original point was that the factoid “there have been no new refineries built in [X] years” is not relevant. It’s like saying (and I’m making this up), “Amazon has not built a new warehouse in 5 years!” while ignoring the fact that they have, say, tripled or quadrupled the size of each of their existing warehouses.
Similarly huge expansions have occurred at many of the U.S.’s refineries. However, it is true that expansions have been offset somewhat by closures.
The planet is saturated in oil and it is a blessing. The environmentalist, who frankly are against, gas, nuclear, oil, coal, and anything that produces a high energy density, want us to go back to the stone age. I bet even then they would be against us burning a tree. Sorry wind and solar are piddle streams of energy. They will never satisfy the world population.
I wouldn’t say “never.” But progressives believe, with religious fervor, that renewables are just around the corner. I heard Bill Maher say the other day, in a comment opposing the development of nuclear power, “But we have solar!”
Um, no, Bill we do not “have solar” in any meaningful sense. How much of the U.S. would have to be covered by solar panels in order to satisfy our electricity and vehicle needs? At what cost? With current technology, the premise is absurd.
Thanks for the clarification. Helps to better understand the situation.
The Canadian oil industry is really feeling the impact of low crude prices right now. And in a couple of months they could be facing a serious political headwind (following the upcoming federal election).
It’s been amazing at how far Diesel has fallen in comparison to gasoline. A year ago Diesel was 50 cents higher than gas, now it is 20 – 30 cents cheaper.
This was quite a shock to us as well. We just completed a major refinery expansion in March, including and ULSD capacity increase from 25,000 BPD to 35,000 BPD – just in time for margins to swing completely the other way and now starve our newly expanded diesel hydrotreater.
Just goes to show how those marketing and economics guys are just guessing with our oil and money.
-E
Any thoughts on why there is such a glut in the diesel market? Is it declining demand in Europe? Or are you suggesting that the yields from shale oil are shifting from gas oil (which preferentially yields gasoline) into condensate?
-E
C and E – I think it is a combination.
I firmly believe that the drop in energy prices is primarily grounded in a rising dollar and waning demand.
I will defer to the refining experts on how our refinery infrastructure handles the light barrels. I just know that our crude input to refineries has gotten much lighter during the past 3 years.
I can only speak to our experience. We’ve been running almost entirely WTI since before I got here in 2011. Even though our suppliers swear up and down that there is no shale oil in there, the data doesn’t lie. API gravity is up, UOP K, and other indicators of paraffinicity are up. It’s getting into everything. So while we haven’t deliberately changed crude slates, it has slowly shifted.
That said, I don’t see a big shift toward diesel yields as a result of our crude slate. Right now, our cut points on all our major distillation columns (crude, vac, FCC, coker) are all set to maximize gasoline at the cost of diesel, but last year at this time the margins were completely the other way, and we were making much more diesel. In other words, this really looks to me like the bottom has dropped out of the diesel market much more so than in the gasoline market. What I haven’t figured out is why.
-E
Holy Cr@p! Brent is back…..so cool!
So this bit:
But California gasoline prices have remained stubbornly high because of strict pollution controls aimed at reducing smog. It is difficult to find any refinery in the U.S.—or the rest of the world—that can make gasoline clean enough to burn there. The few that do, located in Asia or Europe, are a 20-day ocean journey away, making fuel imports expensive.
I’m in California and there are 3 refineries, 2 of which are pretty major just up the road. They are older refineries which might suggest they are exporting their product because it isn’t clean enough for CA? Meanwhile we are importing gasoline from a Asia and Europe? That can’t be true can it?
(full disclosure, I used to work at the big Chevron refinery in Richmond)
I hope not as it’s $1.85/ gal here today! (Sorry, couldn’t resist.)
Awesome.Where is ‘here’?