US refiners can absorb domestic light supply: AFPM

OREANDA-NEWS. March 19, 2015. US refiners will have ample capacity to run lighter domestic crudes, the industry's main lobbying group found in a study released a day before a key Senate panel hearing on relaxing long-standing crude export restrictions.

Refiners will by 2017 add 730,000 b/d of capacity to process crudes between 42°API and 50°API, according to an American Fuel and Petrochemical Manufacturer (AFPM) survey of members. Improvements to domestic logistics distributing the crudes would allow an additional 800,000 b/d of distillation, the organization said. AFPM received a response rate of 61pc.

The group rejected claims that Congress must overturn a decades-old ban on US crude exports because domestic refiners lack physical capacity for the very light crude. AFPM again connected the crude export discussion to broader, even more difficult political reforms of regulations affecting energy transportation.

"We as the US refining industry are not and should not be the excuse for lifting the crude export ban," AFPM president Charlie Drevna said. "If it's to be lifted, fine, but base it on facts and not fiction."

Drevna will testify tomorrow before a Senate Energy Committee hearing on crude exports that also features chief executives from US independent ConocoPhillips and Monroe Energy, the refining arm of Delta Airlines.

AFPM's message reflects both the Republican Congressional majority's preference for less regulation and AFPM's member's desire to preserve a crude advantage helping to keep the US industry competitive globally. It was also the latest in a string of connections to domestic oil transportation and especially rail regulation, which the refining industry considers a more significant hurdle to tapping domestic crudes than the design of their facilities.

"For the refiners, getting the crude oil has been a much bigger issue than refining it," Drevna said.

AFPM declined to identify the refiners who participated, but companies have openly discussed modifications to more efficiently run lighter-than-expected US production. Valero alone has planned 185,000 b/d of increased crude capacity at three Texas refineries by mid-2016, roughly a quarter of the capacity changed included in the survey. Such projects demand smaller investments than modifications made over the last decade to run difficult heavy, sour crudes.

But physical capacity alone will not move US barrels into refinery crude units. Production of light, sweet crude must still compete with cheaper medium and heavy grades, especially on the US Gulf coast. Drops in the light crude price further pressure more challenging grades, creating a lucrative environment for refiners who invested to run a wide slate of crudes.

Marathon Petroleum chief executive Gary Heminger, who has consistently rejected suggestions that the US has a glut of light, sweet crude, said in February refiners were not processing the supply because it was not priced competitively.

"There's been no compelling advantage to buy these light, sweet crudes," Heminger said during a call discussing fourth quarter earnings.