Phillips 66 (PSX:US) will increase deliveries of cheaper crudes to its refineries nationwide by as much as 130,000 barrels a day under three transportation deals and a new investment.
The steps announced by the company today are the latest in a series of moves by Phillips to take advantage of rising North American oil production, following rail-car and tanker-ship orders and a 50,000-barrel-a-day deal with Global Partners LP. (GLP:US)
“It solidifies the idea that if you’re a refinery bringing in imported oil, you want to find a way to bring in shale oil from the U.S.,” said Carl Larry, a commodities broker with Houston-based Atlas Commodities LLC. “It just goes to show this fracking drilling, and the supplies coming from it, is increasing all the time.”
U.S. crude output will climb to an average 7.88 million barrels a day in 2014, up 7.8 percent from 7.31 million this year, the Energy Information Administration, the Energy Department’s statistical arm, said March 12 in its monthly Short-Term Energy Outlook. Production next year will be up 22 percent from 6.47 million a day in 2012.
Phillips’s moves will bring a variety of U.S. and Canadian crudes to refineries around the country via pipeline and rail.
A three-year deal with Enbridge Energy Partners LP (EEP:US) for loading rail cars at Enbridge’s terminal in Berthold, North Dakota, will begin in May, ramping up to 35,000 to 45,000 barrels a day by November, with the Bakken crude delivered to East and West Coast refineries. Some crude could also be sent to the Gulf Coast for processing.
A pact with Targa Resources Partners LP (NGLS:US) begun last year will provide five years of rail-unloading and barge-loading services in Tacoma, Washington, for U.S. and Canadian crudes. The oil will go to the Ferndale, Washington, refinery, with delivery capacity of about 30,000 barrels a day. Phillips’s Rodeo refinery near San Francisco could also receive crude deliveries, displacing imports from outside North America.
A pipeline deal with Magellan Midstream Partners LP (MMP:US) will move crude to near the Ponca City, Oklahoma, refinery, replacing West Texas Intermediate from Cushing with oil from the Mississippian Lime play. Magellan service will begin in late 2013, reaching full volume of 20,000 barrels a day by January 2014, Phillips said.
Phillips will also invest in its own Oklahoma assets to transport an additional 40,000 barrels a day of Mississippian Lime to Ponca City. Mississippian Lime crude comes from the Anadarko Basin, which spans Oklahoma and neighboring states. Two new pipelines carrying the grade are planned to start service this year, according to a February EIA report.
“We are aggressively pursuing increased access to advantaged crudes in North America by partnering with leading third-party transportation providers and better leveraging our own system capabilities,” Greg Garland, Phillips 66 chairman and chief executive officer, said in the statement. “Increasing our utilization of those advantaged crudes should allow us to capture significant value in our refining and marketing businesses.”
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