Released:  September 18, 2013
Next Release:  September 25, 2013

Rail is Likely Supplying an Increasing Share of East Coast Crude Oil

For much of the last decade, crude oil runs at refineries on the East Coast (PADD 1) declined as a number of refineries in the region were shuttered. As almost all crude oil processed at refineries on the East Coast was imported, PADD 1 crude imports showed a very similar decline over the same period. However, during spring and summer 2013, crude runs at East Coast refineries increased year-over-year, aided by the restart of Delta Air Lines' Trainer, Pennsylvania refinery in late 2012. Despite this modest recovery in crude runs, net East Coast crude imports have continued to decline compared with last year (Figure 1). The decline in net crude imports even as crude runs have increased is likely the result of increasing volumes of domestic crude oil being delivered to the region via rail.

Historically, East Coast refiners have relied mainly on imported crude oil that arrives via ocean-going tanker. Imported crude has often been expensive compared to growing volumes of domestic crude. The often-significant price premium for the globally traded seaborne crude oil compared to domestically produced crude oil has encouraged refiners and merchant terminal operators to invest in crude-by-rail infrastructure to deliver domestic crude to the East Coast. Last month, EIA discussed a similar trend on the West Coast. Increased deliveries of crude-by-rail to East Coast refineries have helped reduce PADD 1 refiner acquisition cost of crude in 2013. In 2012, East Coast refiners' crude acquisition costs were $10.50 per barrel above the U.S. average. During the first half of this year, that number had fallen to less than $6 per barrel above the U.S. average.

While EIA currently does not collect data on domestic movements of crude oil and products on railroads, an examination of EIA data shows that there is a growing supply of crude to PADD 1 that is not explicitly accounted for by production, imports, or other transfers. Crude oil delivered via rail to East Coast refineries is likely contributing to the increase in unaccounted-for crude oil supply above historical levels.

Figure 2 illustrates unaccounted-for supply as the difference between PADD 1 refinery runs and stock changes and the sum of net imports and PADD 1 production. Prior to 2009, the data show that unaccounted-for supply remained fairly stable, ranging between -83,000 (overestimation) to +98,000 (underestimation) barrels per day (bbl/d). Underestimation of supply can be interpreted as domestically produced crude oil shipped to PADD 1 from other PADDs via modes of transport not captured in EIA surveys, mainly railroad and truck.

From November 2009 through 2011, PADD 1 refining capacity underwent major changes as several refineries were closed, causing temporary increases in the range of unaccounted for crude supply. However, data indicate a significant upward shift in the underestimation of supply during 2013. Underestimated supply reached 300,000 bbl/d in June 2013, the latest data available. This unaccounted-for supply is likely domestic crude delivered to PADD 1 via rail. This interpretation is consistent with trade press reports of crude-by-rail infrastructure build-out.

Merchant terminal operators Global Partners LP and Buckeye Partners LP both own separate crude terminals in Albany, New York, where crude is delivered by rail and shipped out by barge down the Hudson River to refineries in New York Harbor and Philadelphia. Currently, this is the means by which most domestic crude is being delivered to the East Coast. PBF Energy, Inc., which owns and operates two refineries on the East Coast, in Delaware City, Delaware and Paulsboro, New Jersey, built a crude-by-rail offloading facility at its Delaware City refinery that has a capacity of about 120,000 bbl/d, and takes both Bakken and heavy Canadian crude. Additionally, Sunoco Logistics owns a 40,000-bbl/d rail offloading facility in New Jersey, near the Philadelphia refining center.

While EIA does report inter-PADD domestic barge and tanker movements of crude oil, the intra-PADD shipment of crude that has been railed to Albany, New York and then shipped intra-PADD by barge to East Coast refineries is not captured and is included in the unaccounted-for supply. Refineries in eastern Canada have also gained access to Bakken crudes via rail and by barge/ship from Albany.

Trade press and company reports indicate that crude-by-rail infrastructure is continuing to expand on the East Coast. The Phillips 66 Bayway refinery in Linden, New Jersey is already processing Bakken crude that is shipped to the refinery by rail and then by barge, and has plans to process more, once a 50,000-bbl/d rail offloading facility at the refinery is completed. Philadelphia Energy Solutions, a partnership between The Carlyle Group and Sunoco Inc., is developing crude-by-rail unloading facilities at their refinery in Philadelphia. Enbridge Inc., along with other partners, is developing the Eddystone Rail Company, a crude-by-rail terminal designed to provide 160,000 bbl/d of domestic crude to refineries in Philadelphia by mid-2014.

Gasoline and diesel fuel prices are both lower
The U.S. average retail price of regular gasoline decreased four cents to $3.55 per gallon as of September 16, 2013, 33 cents lower than last year at this time. Prices were down in all regions except the West Coast, where the price increased 10 cents to $3.90 per gallon, the largest one-week increase since May 13, 2013. The largest decrease came in the Midwest, where the price was $3.49 per gallon, nine cents lower than last week. The Gulf Coast price was eight cents lower at $3.30 per gallon. On the East Coast the price was $3.53 per gallon, a drop of six cents, and the Rocky Mountain price was $3.61 per gallon, a decrease of two cents.

The national average diesel fuel price decreased a penny to $3.97 per gallon, 16 cents lower than last year at this time. Prices fell in all regions except the Rocky Mountains, where the average price increased one cent to $3.94 per gallon. The East Coast, Midwest, and Gulf Coast prices all decreased one cent, to $3.98 per gallon, $3.96 per gallon, and $3.89 per gallon, respectively. The West Coast price is lower by less than a penny to remain at $4.14 per gallon.

Propane stocks show a slight decline
Total U.S. inventories decreased by 0.1 million barrels last week to end at 64.4 million barrels, about 9.6 million barrels (12.9%) lower than the same week last year. Midwest stocks experienced a build of 0.6 million barrels, while East Coast stocks grew by 0.1 million barrels. Gulf Coast stocks dropped 0.6 million barrels and Rocky Mountain/West Coast inventories fell 0.2 million barrels. Propylene non-fuel-use inventories represented 4.7% of total propane inventories.

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