May 9, 2012
Petroplex To Go Ahead With $600M Oil, Chem Storage Terminal in Louisiana
Petroplex International LLC, a development company of bulk liquid storage tank terminals based in Baton Rouge, La., along with a consortium, has raised capital for the development of a $600 million multi-modal bulk liquid terminal in St. James Parish.
The consortium consists of Macquarie Group, through its Macquarie Capital division, Quanta Services Inc. and individual investor Harley Franco, CEO and
founder of Harley Marine Services Inc. Macquarie Group is the main offtaker of
products at North Atlantic's Come-By-Chance refinery on the east coast of Canada.
Construction of the new terminal, which will have a projected initial storage capacity of 4-6 million bbl, is expected to commence during the first half of 2013. The facility is expected to begin commercial operations during 2014.
Petroplex will build a storage and distribution terminal for crude oil, refined petroleum products, fuel oil, chemicals, agrichemicals, renewable fuels and other commercial liquid commodities and will provide in-tank blending capabilities throughout the facility.
The initial phase of the project includes the design, engineering, development, and operation of a state-of-the-art storage terminal that is capable of receipt or delivery between a variety of intermodal systems, including trucks, railcars, marine barges and oceanÂ-going vessels, and connections to the existing and future pipeline infrastructure systems.
Once completed, the project will be the only dedicated independent "for-hire" terminal services company serving the growing St. James crude and refining market.
"The substantial increase in crude oil production from domestic shale formations and Canadian oil sands is rapidly changing North American product supply flows and requires new infrastructure to accommodate its storage," said Mark Helmke, President and Chief Operating Officer, Petroplex.
OPIS notes that several other midstream companies have or are working on other rail and terminal projects at St. James, capitalizing on the demand for cheap Midcon crude on the Gulf Coast.
May 1, 2012
Delta Predicts Trainer Refinery Will Produce 52,000 B/D of Jet
Delta Air Lines is defending its decision to venture into the oil refining business on several fronts while at the same time etching plans to triple refinery production at the 186,000-b/d Trainer, Pa., facility it will purchase from Phillips 66.
Delta announced on Monday that it will pay $150 million for the refinery and that its wholly owned subsidiary, Monroe Energy, will invest another $100 million to convert the facility to maximize jet fuel production. The state of Pennsylvania is providing $30 million for job creation and infrastructure improvement.
Delta Air Lines predicts that once it has completed a $100 million modification of its Trainer refinery, the plant will be able to produce 52,000 b/d of jet fuel. That's more than double the plant's current rated output of
23,300 b/d.
A filing with the Securities and Exchanges Commission (SEC) outlines Delta's strategies and planned changes.
Delta honed in on several key reasons it opted to take a shot at owning a refinery. Based on an SEC filing, Delta thinks, among other things, that owning a refinery is cheaper and easier than managing jet fuel crack spreads.
"Jet fuel crack spreads cannot be cost-effectively hedged," Delta bluntly states, underpinning the assessment with this statement: crack spreads are now 10 percent of total unit fuel costs, up from 3 percent in just two years. Of Delta's $12 billion fuel bill for 2011, $2.2 billion was allocated to jet crack spreads.
Delta believes it got the refining asset for a bargain, forking over what they called the "limited capital required to purchase and improve the asset -- the equivalent to the list price of a single wide-body aircraft."
Delta also expects to generate $300 million in annual fuel cost reduction and expects the asset to be accretive to earnings and return on capital in 2012 with "payback in less than one year."
The airline reached the $300 million in savings by back testing the refinery model back to 2006. Delta says if gasoline crack spreads remain flat, the production shift to Trainer results in the $300 million savings. If gasoline crack spreads fall, the refinery profitability will generate fuel savings for Delta, and swap agreements with BP and Phillips 66 will eliminate the risk of gasoline marketing. If the gasoline crack spread rises, Delta will benefit from lower jet fuel prices and will get better jet fuel exchanges on Trainer's gasoline production.
The purchase was also a calculated supply risk play. Delta could ill afford to have refinery closures in the Northeast reduce supply and force them to contend with the cumbersome and expensive logistics of getting fuel to key area airports, including two of Delta's hub locations -- JFK and LaGuardia.
Delta predicts that after an upgrade is completed that 32% of the refinery's output (52,000 b/d) will be devoted to jet fuel. That's up from the current 14% production rate. Acquiring the plant will provide 80% of Delta's domestic jet fuel needs, pegged at 210,000 b/d. In addition, Delta will get another 120,000 b/d of jet fuel from BP and Phillips 66, exchange partners in the deal.
The plant's 52,000 b/d of jet production will be used in Delta's Northeast operations. The plant's other production is expected to be disposed as follows:
70,000 b/d of gasoline and diesel production will go to Phillips 66 in exchange for 70,000 b/d of jet fuel in other U.S. locations. BP will take the remaining gasoline and all other products, amounting to 50,000 b/d and exchange that with an equal amount of jet in other U.S. locations.
In order to boost jet production, gasoline output will fall substantially (9%), at the 185,000-b/d plant. Current gasoline production is pegged at 52% of output, but after the upgrade, gasoline production will fall to 43% of output.
Diesel production, currently at 19% of output is expected to shrink to 18%.
The $100 million modification will be on top of a $150 million purchase price. Modifications to the plant will "focus on shifting existing equipment from gasoline production to jet fuel production," the SEC filing said.
The Trainer plant has a hydrocracker, and the presence of that unit appears to be the key to Delta's plans, say refinery experts. "That is one way to squeeze more jet out," a source said. Straight refinery runs of crude, not through a hydrocracker, typically yield 10% to 15% jet. Sources confirm that jet production could be boosted to Delta's targets using the hydrocracker.
One expert speculated that Delta might sacrifice naphtha and natural gas liquids yields from the hydrocracker in favor of jet.
Another possibility to boost jet production is with a catalyst change, one source said.
Picking the right crude could help as well. The talk is that Delta may purchase crude oil from the Bakken shale. Some Bakken crudes yield up to 50% diesel and jet. Those would be of particular interest to Delta, especially because Bakken crudes are priced at substantial discounts to Brent crude, which is readily available in the Atlantic basin market.
The complication is the logistics of getting Bakken crude to Trainer and the potentially limited window of pricing opportunity. No pipeline currently exists to pump Bakken crude, extracted in the Dakotas, to Trainer. Crude from the Bakken shale would be sent via rail to Albany, N.Y., transloaded onto a barge and brought to Trainer over the water. The shipping cost per barrel is thought to amount to $20/bbl. And there's profit in that deal, given the discount of Bakken crude to Brent.
However, one source expects that as the connectivity between the crude storage hub in Cushing, Okla., and the U.S. Gulf Coast improves that will take away the cost advantage of buying Midcontinent crude. This might take as little as two years. The reversal of the Seaway pipeline, for instance, is slated to begin in the middle of May. That pipeline is being reversed to bring crude south. Other pipeline projects are either in development or on the drawing board, and rail projects are under construction.
April 25, 2012
New Keystone XL Route Selection Seen Taking 6-9 Months
TransCanada has begun the process of re-routing the Canada-U.S. extension of its Keystone crude oil pipeline (known as the Keystone XL line) by presenting Nebraska with its analysis of "corridor alternatives," including its own recommendation.
The rewind on one of the biggest stumbling blocks the 700,000-b/d project has encountered could mean that the Canadian pipeline company takes another run at U.S. approval before the year is out.
As previously reported, the Nebraska Department of Environmental Quality
(NDEQ) recently received TransCanada's report. It is now available on NDEQ's website. Under a law passed last week, Nebraska now has the authority to vet major oil pipeline projects proposed in the state which will be included in a federal agency environmental review.
The NDEQ director envisions the review taking about six to nine months -- from initial information sessions to submission of a final report to Nebraska's governor, agency spokesman Brian McManus told OPIS.
The Keystone XL's initial route cut through the Sandhills region of the state and would have run above a huge aquifer that serves the water needs of eight states. During 2011, the project met with stiff opposition from environmental groups and grassroots organizations, particularly in Nebraska.
After a failed federal attempt to delay a decision until early 2013, the Obama administration denied the project a permit in January 2012.
Roughly speaking, TransCanada's preferred new route is longer, pulling east to clear the edge of the Sandhills area and then dropping south to rejoin the initial route in Merrick County. The new route impacts the fewest additional landowners, has fewer waterbody crossings and results in fewer impacts to irrigated lands, according to TransCanada.
With public participation a major tenet of the new law, Nebraska officials will conduct a number of public information meetings and provide TransCanada with the feedback they receive. The company will then finalize the route it wants the state to evaluate and do more in-depth definition of that route.
After NDEQ and its contractor evaluate the route in a way that satisfies the National Environmental Policy Act (NEPA) requirements, their report will go through a public comment period and be finalized before submission to the governor. The governor will then transmit his decision on the route to any federal agencies involved in approval of the pipeline.
The first information sessions to present the report to the public are seen beginning in May, McManus said.
TransCanada recently said it would go forward with building the southernmost leg of Keystone XL between Cushing, Okla., and the Gulf Coast, but disclosures on the timing of its re-application for a U.S. Presidential Permit haven't been forthcoming.
April 23, 2012
Trainer Refinery Restart May Take Longer Than Expected
The ongoing talk of ConocoPhillips selling its Trainer, Pa., refinery to the joint leading bidder -- Delta Airlines and JP Morgan -- has picked up steam in the past few weeks.
However, actual production at the idled Northeast refinery restart may take longer than expected. An operational restart at Trainer may not have an actual impact on PADD1 production and supplies until the end of this year or early next year, according to industry sources close to the Northeast refinery.
Traders in the Northeast expect the Trainer refinery to restart eventually and the Philadelphia plant to remain operational amid heightened interest to buy both refineries for refining purposes. With both refineries running, the higher production capacity in the Northeast will put pressure on gasoline prices and crack spreads as well as refining margins eventually.
A restart process for the Trainer refinery would take about four to six months, in addition to another one to two months to close the deal, sources said.
The new owner would need to rehire workers and possibly to train new staff.
The restart process will include securing crude supplies, restarting the processing units and carrying out maintenance if needed.
The Trainer refinery may have skipped a turnaround prior to shutting down last year in order to avoid paying for maintenance.
In addition to the maximum of six months for the refinery restart procedure, the refinery sale could take another 30-60 days to close if a new owner commits to buy.
Meanwhile, ConocoPhillips plans to keep the Trainer refinery idling until the end of May while it continues to negotiate with potential buyers.
The refinery will be permanently shut at the end of May if no buyer is found.
Potential buyers would need to address the glaring issue of poor operating margins at Trainer, which processed West African crude and Eastern Canadian crude. Occasionally, it takes in North Sea crude.
The Trainer refinery was also hurt by a relatively weak gasoline crack spread last year.
Unlike Eagle Point, Trainer does not have waterborne access. This limits the flexibility of Trainer to operate as a potential import and export terminal for oil products.
However, with some modifications, Trainer could be connected to Colonial Pipeline and have waterborne access. Trainer has a terminal rack access into the Buckeye pipeline system.
Meanwhile, there are approximately 55 employees still working at the refinery to assist with maintenance and sales process activities, said Rich Johnson, a ConocoPhillips spokesman.
There were about 410 employees at the Trainer refinery, and 11 more at the associated pipeline and terminal assets.
April 16, 2012
Another Fuel Distributor Eyes Larger Slice of New England Retail Marketshare
Another fuel distributor and gasoline station owner is eyeing a slice of the New England retail fuel supply market share left vacant by Green Valley Oil.
East Haven-based AF Forbes in northern Connecticut is one of the several suppliers looking to fill that supply void, industry sources told OPIS on Monday.
An unbranded wholesale supply manager at AF Forbes declined to comment when asked about supplies to BP dealers.
Sources said that the Gasoline and Automotive Service Dealers of America
(GASDA) and attorneys met last Friday with retail dealers.
The retail dealers in attendance were advised by GASDA to pick up unbranded supplies from AF Forbes.
This move could be initiated by BP's termination of supplies to regional distributor Green Valley Oil last Friday.
BP supply and logistics staff is working around the clock to identify new distributors and make the necessary changes to arrange for fuel deliveries to the 218 BP-branded sites supplied by Green Valley Oil.
During the meeting, these dealers in Connecticut also discussed the settlements of deposits with and payments to Green Valley Oil, sources said.
Some dealers are hoping to be reimbursed for their deposits with Green Valley, and Green Valley also wants to be paid for what it is owed. They said that Green Valley is ready to work with the dealers to settle the debts and deposits.
Michael J. Fox, president of GASDA, had repeatedly declined to comment on the supply issue when contacted by OPIS.
It is noted that these dealers had been without gasoline supplies for several weeks, but they are prohibited contractually to buy fuel from another supplier.
More than 30 retail gasoline dealers have kicked in money to hire and retain a Stamford-based oil industry attorney, Barr and Morgan, to sort out the fallout of the ongoing Getty Petroleum Marketing debacle.
The attorney, who also represents GASDA, is to sort out a number of issues, including contractual terms for master leases and fuel supply shortages.
With the outcome of the legal spat between Getty Marketing and Getty Realty remaining unclear, dealers face uncertainty over the future of their retail site leases.
As for fuel supplies, dealers are contractually prohibited from buying supplies from the open market or another supplier even if they fail to receive supplies from Getty or Green Valley.
Dealers could seek a release from contractual obligation to Getty Marketing or Green Valley as they are not receiving regular supplies.
Meanwhile, OPIS reported last week that Pennsylvania-based fuel distributor and gasoline station owner Lehigh Gas is aiming to secure a piece of the retail fuel supply business in New England left vacant by Green Valley Oil.
Lehigh is in discussion with Getty Realty and New England dealers, including Massachusetts and Connecticut, to supply fuel to dealers who failed to receive gasoline from Green Valley Oil for the past several weeks.
There is no fuel supply agreement so far.
Lehigh, which already owns some ExxonMobil branded gasoline stations and is supplying fuel in New England, is hopeful of securing a generous slice of that business, but it is not likely to get the entire pie.