Refiners outside California reap USWC windfall

OREANDA-NEWS. US Gulf coast and Rocky Mountain refiners able to access west coast markets by pipeline are reaping the benefits of unplanned outages in California.

US west coast gasoline prices have climbed higher following shutdowns forced by last week's explosion on a gasoline-producing unit at ExxonMobil's 155,000 b/d refinery in Torrance and a union work stoppage early this month amid turnaround work at Tesoro's 168,000 b/d Golden Eagle refinery in Martinez.

Torrance's 110,000 b/d fluid catalytic cracking (FCC) unit will remain shut during a potentially months-long investigation on the cause of an 18 February blast. Torrance supplies an estimated 15pc to 20pc of southern California's gasoline supply.

Tesoro continues to move product through the Golden Eagle refinery as a terminal and continues to work on start up plans. But national negotiations between the United Steelworkers (USW) and refining industry representative Shell have made little visible progress since the beginning of a 1 February work stoppage.

Prices for Arizona grade gasoline, which follow southern California gasoline on a roughly two-week lag, have increased by almost \$31/bl since the beginning of February, according to Argus assessments. US Gulf coast prices have over the same period climbed higher by just \$8.40/bl.

The conditions have increased interest in HollyFrontier's UNEV pipeline, connecting the Salt Lake City area in Utah to Las Vegas, Nevada. The refiner's 100,000 b/d Navajo refinery in Artesia, New Mexico, and Western Refining's 125,000 b/d refinery in El Paso, Texas, are also sending gasoline by Kinder Morgan pipeline into Arizona.

"Obviously, at some point, cargoes will find their way into the LA market," Western Refining chief executive Jeff Stevens told analysts today during a call discussing earnings. "Until that happens, we're going to enjoy pretty robust margins."

Western Refining will maximize gasoline shipments into Arizona outlets during the quarter, Stevens said. Roughly 40pc of the El Paso refinery's output, or 26,000 b/d, will go to the premium market. The company also estimates it can increase diesel shipments to the market by 10pc to 20pc during the supply crunch. El Paso averaged 53,285 b/d of diesel production in the fourth quarter of 2014. Western did not identify what portion could ship to Arizona.

HollyFrontier was working within contractual commitments to other customers to move product from its 31,000 b/d refinery in Woods Cross, Utah, to the Las Vegas market.

"There's a pretty strong driver to move product from the Rockies down to the Las Vegas market," chief executive Mike Jennings told analysts yesterday during a call to discuss earnings. "It's just really a question of available barrels to do so."