Domestic crude puts U.S. refineries in a sweet spot

Demand for gasoline is dropping in North America, but many U.S. refineries — especially those along the Gulf Coast — don’t need to worry just yet.

Demand for diesel is expected to rise slightly here. But the bigger boost will come from continued exports to Latin America.

U.S. refineries have another edge, too: They can use lower-cost domestic crude oil from the nation’s rapidly expanding shale plays, instead of relying on higher priced imported oil.

Rodrigo Favela, executive director for refining, planning and evaluation at Hart Energy, told an audience at Hart Energy’s monthly breakfast for energy executives that global demand for refined products will grow 33 percent over the next two decades, driven by growing need in developing countries.

The highest volume growth will come from Asia, including China and India, followed by the Middle East and Latin America, he said.

Developing countries also will drive demand for energy overall between now and 2040, said Roland Moreau, manager of safety, security, health and environment for Exxon Mobil’s upstream research division.

Moreau recapped Exxon’s global energy forecast, which was released in December. In that document, the Irving-based oil company predicted the world will need 85 percent more electricity by 2040 than it used in 2010, with increasing reliance on natural gas and nuclear power.

“Good news for everyone in the room,” Moreau said. “Oil and gas and coal aren’t going away.”

But he said use of natural gas will overtake coal globally by 2025, largely because there will be an increased cost associated with the carbon emissions from coal.

In the United States, that transformation already is happening, as more electric generating plants switch from coal to natural gas to take advantage of low prices and abundant supplies produced by shale gas drilling.

Shale oil has had a similar impact on refineries, which reported strong profits for the fourth quarter of 2012 in part because they have been able to switch from imported crude oil to cheaper domestic crude.

Greg Garland, chairman and CEO of Phillips 66, told analysts recently that the company has backed out imports of light sweet crude at its Gulf Coast refineries, relying on less expensive crude from shale plays.

Phillips 66 also increased exports of refined products to 140,000 barrels a day for the quarter — up to 180,000 barrels a day in December — allowing it to keep refineries running at closer to capacity.

Favela said those advantages will continue to leave U.S. refineries, especially those with facilities along the Gulf, in a strong position to export to Mexico and South America.

Announced refinery expansions in Mexico, Brazil and elsewhere in Latin America have been delayed, he said.

And although they are likely to be completed at some point, the availability of low-cost imported gasoline and diesel from U.S. refineries makes additional delays easier for those countries to absorb, he said.