Released:  March 27, 2013
Next Release:  April 3, 2013

Midwest refineries boost capacity for heavy crude oil

Despite recent national attention on rising domestic production of light sweet crude oil, especially from tight oil formations in North Dakota, some Midwest refiners are reconfiguring their facilities to process more heavy crude oil, which will likely come from Canada.

The refinery coking capacity in PAD District 2 (the Midwest) is set to increase significantly this year as refiners in the region focus on heavy crude oil. As this additional coking capacity comes online, Midwest refiners will be able to significantly increase runs of heavy crude, such as Western Canadian Select (WCS).

WCS currently sells at a steep discount to other crude oil benchmarks used in the United States, including West Texas Intermediate, Louisiana Light Sweet, and West Texas Sour, and processing WCS reduces refiner crude oil costs. When the additional coking capacity comes online, the average API gravity of crude runs in the region is likely to decrease and the product yield patterns are likely to change.

Coking is a thermal cracking process that converts heavy hydrocarbons such as atmospheric residuum, vacuum gasoil and residuals, and bitumen into lighter hydrocarbons such as unfinished gasoline and gasoils as well as petroleum coke and light gases. Coking allows refiners to increase gasoline and distillate yields from heavy crude oils (details).

Between 2002 and 2012, Midwest coking capacity increased from 400,000 barrels per day (bbl/d) to more than 480,000 bbl/d, an increase of about 20 percent (see chart). Three major coking unit construction projects have recently been completed or are in process in PADD 2. In November 2011, Phillips 66's Wood River, Illinois, refinery (which is jointly owned by Phillips 66 and Cenovus and operated by Phillips 66) completed the addition of a 65,000-bbl/d coker. A year later, Marathon Petroleum completed a 28,000-bbl/d coker at its refinery in Detroit, Michigan. Currently, a 102,000-bbl/d coker is under construction at BP's Whiting, Indiana, refinery and is scheduled for completion later this year.

These three cokers and related refinery projects will enable processing of 509,000 bbl/d of additional heavy crude, which likely will come from Canada. The increase in heavy crude processing is based on increasing overall refinery crude processing capacity and replacing existing runs of light crude with heavier crude.

The displaced light sweet crude, like other crude in the midcontinent, will find its way east, west, and south, moving by rail and pipeline to refineries in those regions and displacing imports of waterborne crude.

The additional heavy crude is expected to lead to decreases in average API gravity in the region. From 2010 to 2012, the average API gravity of crude runs in Indiana, Illinois, Kentucky, Tennessee, Michigan, and Ohio fell by 2 percent, going from 33.64 to 32.98 degrees.

Trade press reports indicate that additional Midwest refiners may undertake coker installation projects in the coming years. Husky's refinery in Lima, Ohio, and NCRA's McPherson, Kansas, facility are said to be considering upgrades that would expand coking capacity, which could lead to further changes in average API gravity and refinery yields in the region.

Gasoline and diesel fuel prices both down for the 4th consecutive week
The U.S. average retail price of regular gasoline decreased two cents to $3.68 per gallon, down 24 cents from last year at this time. The U.S. average price has declined 10 cents over the last four weeks. Prices were lower in all regions of the nation except the Midwest, where the price is $3.66 per gallon, up a penny from last week, and the Rocky Mountain region, where the price is unchanged at $3.47 per gallon. The West Coast price is down 5 cents, and now below the $4-per-gallon mark at $3.96 per gallon. The East Coast price is $3.66 per gallon, down three cents from last week, and the Gulf Coast price declined two cents to $3.51 per gallon.

The national average diesel fuel price decreased four cents for the third consecutive week, to $4.01 per gallon, 14 cents lower than last year at this time. The U.S. average price has fallen 15 cents over the last four weeks. Prices decreased in all regions of the nation, with the largest drop on the West Coast, where the price fell six cents to $4.10 per gallon. The Gulf Coast price is a nickel lower at $3.94 per gallon. The Midwest and Rocky Mountain prices are $3.98 per gallon and $3.94 per gallon, respectively, both down four cents from last week. Rounding out the regions, the East Coast price dropped three cents to $4.05 per gallon.

Propane inventories decline
U.S. propane stocks fell 0.9 million barrels to end at 40.8 million barrels last week, and are 2.9 million barrels (6.5 percent) lower than the same period a year ago. Midwest inventories dropped by 0.5 million barrels, and Gulf Coast regional inventories declined by 0.3 million barrels. East Coast stocks dropped by 0.2 million barrels, while Rocky Mountain/West Coast inventories increased slightly. Propylene non-fuel-use inventories represented 8.2 percent of total propane inventories.

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