Infrastructure will remain the watchword as US refiners look to further cement their role as world class product exporters in 2014, improving export capacity and rejigging refineries to increase their output of export-friendly diesel, sometimes at the expense of US-favored gasoline.
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Blessed with price-advantaged domestic crudes aiding profit margins, US refiners have been nimble in using all means of transport to get that oil to their refineries, be it building rail facilities, adding or enhancing dock facilities to accommodate barges or tankers, or using more traditional transport such as pipelines.
"The transition of the US refining system to being a net exporter to the world market has mitigated the impact of declining domestic demand," Valero CEO Bill Klesse said in a November management presentation in London.
Refiners' increased focus on export infrastructure has generally paid off. Given forecasts for weakening US appetite for gasoline and diesel, refineries are looking to Latin America and Europe to find homes for their output on the back of declining US gasoline demand, which the government forecasts to drop to by 300,000 b/d to 8.74 million b/d in 2014.
Data from the American Petroleum Institute showed November 2013 US product exports of 3.6 million b/d were an all-time high for that month.
Gasoline exports, which are sold mostly to Mexico and other Latin American countries, have been dwindling from the 536,000 b/d reached in October and November 2011, to the 363,000 b/d exported in the week of December 13, 2013, the data showed. With US gasoline demand down, refiner Motiva is mulling closing the gasoline-making fluid catalytic cracking unit at its 235,000 b/d Convent, Louisiana, refinery in 2016.
Conversely, global appetite for diesel remains voracious in both Latin America and Europe, hitting a record 1,394,000 b/d for the week ended December 13, according to the EIA data. NEW CRUDES, NEW UNITS
The continued lightening of the crude slate as refiners chase the "advantaged crude" barrel to keep profit margins healthy also means big changes at many US refineries.
Export refineries, mostly large facilities sited along the US Gulf Coast, are increasing their diesel-making capacity. Valero, the nation's largest independent refiner, is building new hydrocrackers at two of its Gulf Coast refineries: the 290,000 b/d Port Arthur, Texas, plant and 205,000 b/d St. Charles, Louisiana, refinery.
The company is also expanding its 125,000 b/d Meraux, Louisiana, refinery and when all its projects are complete, the refiner's system distillate yields are expected to grow to 43% in 2015 from 33% in 2010, creating a 1:1 ratio with gasoline production.
Refining margins on distillates, which include diesel and jet fuel, have averaged about $16/barrel in 2013 compared to gasoline, which is just under $6/b. Valero also forecasts diesel growth at two times that of gasoline, noting that Europe continues to be short of diesel but long in marginal refining capacity.
However, Valero also says as it has shifted its refinery diet toward lighter, domestic crudes, distillate yields have stayed the same while gasoline yields have increased. Solutions are refinery-specific and can cost from $10 million to hundreds of millions.
Valero is thus evaluating the addition of crude topping units at two of its Texas refineries: the 90,000 b/d Houston and the 70,000 b/d Corpus Christi plants. Topping units are distillation columns which debottleneck the refinery process at a relatively low cost per barrel, Valero says.
One of the results of the lighter crude slate is increased production of natural gas liquids, a building block for petrochemicals also used as a diluent to move heavy crudes through pipelines. API data shows November US NGL production hit a record in November 2013, reaching just over 2.7 million b/d.
As a result of the change in crude qualities, splitters are also in vogue among both refiners and midstream companies looking to cash in on the growing NGL growth and export opportunities.
Marathon Petroleum, with growing Utica Shale output in its "backyard," is increasing the size of the condensate splitter at its 78,000 b/d Canton, Ohio, refinery from 10,000 b/d to 25,000 b/d by end 2014 and adding a 35,000 b/d splitter at its 233,000 b/d Catlettsburg, Kentucky, refinery.
Splitters are the answer to the high condensate crudes like Texas' Eagle Ford, which can clog traditional refinery towers. Splitters are very basic distillation towers which are "flipped on their heads," said Al Troner, head of Houston-based Asia Pacific Energy Consulting.
A new APEC study shows export opportunities for NGLs growing as demand for the feedstock grows in Asia Pacific markets.
"The US is emerging as a major NGL exporter, supported by fast-expanding shale gas output. American condensate exports will reshape Asia Pacific markets by 2020," the APEC study said. TEXAS CITY REBORN
In February, Marathon bought BP's 400,780 b/d Texas City, Texas, refinery and rechristened it Galveston Bay.
Marathon, although traditionally a Midwest refiner, already owned an 80,000 b/d refinery in Texas City and the 490,000 b/d Garyville, Louisiana, plant, which was geared up for exports.
"Of course, we now have our Galveston Bay refinery, which is also configured for exports. In the third quarter of the year, MPC exports were about 245,000 b/d, up from 50,000 b/d in 2010, and we're continually debottlenecking and optimizing our export capabilities. So expect exports to grow," Marathon CEO Gary Heminger said at the company's 2013 investor day.
Besides revamping units at both Galveston Bay and Garyville to produce more diesel, Marathon is also working on logistics of moving crude in and moving products out, the "third leg" of its strategy to increase exports.
"And looking to future opportunities, we see that there is a potential at Galveston Bay to increase its gasoline export capacity by another 120,000 b/d. So both Garyville and Galveston Bay are ideally situated at the Gulf Coast locations with the deepwater docks to serve the export market," said Rich Bedell, Marathon's senior vice president of refining.
Low-cost dock expansions are being planned for Garyville and Galveston Bay, with a completion date of 2015. And a new 500,000-barrel gasoline export tank at Garyville is due to be finished soon.
"If we're not importing crude over the dock, we've got more room to export products," said Bedell, adding the company now sees exports reaching as high as 275,000 b/d, up from current expectations of 245,000 b/d.
Another advantage of exporting refined products is that there is no obligation under the Renewable Fuel Standard.
The EPA changed its RFS requirement for 2014 but it still hangs heavy, with refiners seeing it as an added cost of making gasoline.