Over the next three years, the redrawing of the nation’s petroleum transport map will reshape the the nation’s refining industry, creating potential new winners and losers in the industry, a new study by consulting and research firm Hart Energy found.
Hart Energy forecasts the nation’s rail system will expand to carry an additional 4.5 million oil barrels per day and pipeline capacity will grow by more than 9 million barrels of oil per day, in its 2012-2016 analysis of the domestic energy industry. Driven by the rapid rise of unconventional crude development and domestic production, the new national grid could pick new favorites in the refining industry.
Refineries close to unconventional oil will benefit from larger margins, likely leading to greater utilization and new construction, researchers determined.
“Refiners without access or appetite for light U.S. unconventional crudes, that rely on waterborne imports of higher-priced light and heavy crude imports over water, or powered by fuels derived from petroleum rather than lower-cost U.S. shale gas, will likely succumb to bearish cyclical and secular global refining market forces,” the report states.
The authors project unconventional crude production, including oil from shale and other tight rock formations, will grow by 1.7 million barrels per day, primarily in the Midwest, Rockies and Gulf Coast regions.
Currently, the nation’s pipelines largely move crude and other hydrocarbons from the coast northward to the nation’s population centers. However, booming oil production in North Dakota and other northern states has left a glut of oil trapped at the Cushing, Okla. storage center. There’s a lack of transportation to carry the oil south to Gulf Coast refining hub.
“Unconventional oil production is concentrated in areas not ideally aligned with legacy pipelines and refining infrastructure,” said Greg Haas, manager of integrated oil and gas research. “If all that crude is delivered to the southern refining fleet, the onrush could remake the Gulf Coast into the ‘Cushing Coast’ with rising stockpiles, sated refineries, insufficient outbound pipeline capacity, and discounted crude prices.”
The vast majority of oil moves by pipeline. According to 2009 data from the Association of Oil Pipe Lines, about 23 percent was carried by waterborne tankers. Another 4 percent and 3 percent were moved by truck and rail, respectively, though those numbers are rising.
“Although midstream improvements are being commissioned, the rapid rise of U.S. unconventoinal oil has been a particularly riveting challenge that remains largely unaccomodated to date,” the report states.