PBF Energy Inc. (PBF:US) is betting that shipping discounted crude by rail from Canada and North Dakota can make its East Coast refineries profitable on the heels of several shut-downs in the region.
The refiner can unload 70,000 barrels a day of light crude and 40,000 heavy oil at its Delaware City, Delaware, plant, and will add 40,000 barrels a day more of heavy oil unloading capacity by the end of the year, said Tom Nimbley, chief executive officer of the Parsippany, New Jersey-based company, in a fourth-quarter earnings call with analysts yesterday.
PBF, which has the largest share of East Coast refining capacity at 28 percent, is trying to avoid the fate of other refiners who have shut or sold plants in the region. The loss of refining capacity has tightened fuel supplies near the New York Harbor, the delivery point for gasoline and heating oil futures.
“The availability of domestic and Canadian crudes at much better differentials to our Brent marker should lead to much better results on the East Coast in 2013, and even better than that in 2014 when our ability to process Canadian heavy doubles,” said PBF Chairman Tom O’Malley.
Hess Corp. (HES:US) is shutting its 70,000-barrel-a-day fluid catalytic cracker in Port Reading, New Jersey, by the end of the month. Sunoco Inc. shut Eagle Point, New Jersey, and Marcus Hook, Pennsylvania, sites in 2010 and 2011.
Deutsche Bank AG analyst Paul Sankey referred on the call to those plants as “zombie refineries” and asked whether PBF executives thought those shuttered plants might reopen with new access to discounted crude.
O’Malley said he didn’t think they would.
By the end of this year, PBF will have unloading racks in Delaware City able to take 70,000 barrels a day of light crude from the Bakken shale formation in North Dakota, 40,000 barrels a day of bitumen, a tar-like substance from oil-sands formations in Alberta, and 40,000 barrels a day of Western Canada Select, a heavy crude made by diluting bitumen.
The company also has ordered 3,600 coiled and insulated rail cars to carry the heavy Canadian crude, which is so dense it needs to be heated before it can be transported from rail car to refinery.
“On the heavy crude side, we’re convinced that this is a very, very, very long term trend,” O’Malley said. “The movement of Canadian heavy crude by rail, particularly if you can get bitumen into the the complex, and we can, then that’s something that’s around for the next decade.”
PBF’s 182,200-barrel-a-day Delaware City refinery will run all the heavy crude brought in by train, in addition other heavy oil shipped on tankers from Mexico and Venezuela, said Nimbley. The Bakken crude will be shared by the Delaware plant and a 185,000-barrel-a-day refinery in Paulsboro, New Jersey.
The smaller crude unit at Paulsboro will run all Bakken crude. The larger crude unit will run about 100,000 barrels a day of Saudi Arab Light, Nimbley said.
Bakken crude in Clearbrook, Minnesota, was at a discount of $22.77 a barrel to Brent crude yesterday, according to data compiled by Bloomberg. Nimbley said it cost PBF $12.50 a barrel to ship Bakken oil by rail to the refinery.
Western Canada Select cost $47.98 a barrel less than Brent yesterday. The cost to ship heavy Canadian oil by rail is about $17.50 a barrel, Nimbley said.
The Bakken shipments can replace higher-priced waterborne imports of light crude from West Africa and the east coast of Canada, Nimbley said. In addition to the lower cost, PBF would expect to see a greater benefit to profit margins because Bakken is higher-quality crude for PBF’s system, he said.
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