Texas Oil will be used as North Dakota’s alternative ?

U.S. East Coast refiners are interested in buying increasing volumes of domestic crude oil from the Gulf Coast. This is the latest upheaval in the wake of the opening of the Dakota Access pipeline.

Major U.S. East Coast refiners profited from railing hundreds of thousands of barrels of discounted Bakken crude to their plants daily from 2013 to 2015. But after North Dakota authorities have built  more and more pipelines, the shrinkage began to disappear.

Today, at least two East Coast refiners, Phillips 66 and Monroe Energy, are looking to move more crude. By ship, from Texas sending it to the Philadelphia area.

The Dakota Access pipeline starts up in May, giving the Gulf approach to the Bakken shale play. It will likely exhaust any long-term economic incentive for Bakken-by-rail, which is more expensive.

This option is way more expensive than oil imported to the East Coast, typically from Nigeria. Analysts and traders expected that once the Dakota line came into service, East Coast and West Coast refiners would rely on foreign barrels.

Flagged Vessel Transportation

Shipping sources say that costs could range between $2.60 to $3.50 a barrel. Speaking for the two-week round trip on a U.S. flagged vessel. That is lower than the peak, brokers said, because a number of spare vessels are available. Taking a cargo of Nigerian Bonny Light to Philadelphia costs about $1.40 a barrel, brokers said.

They also said that bringing U.S. oil via tanker to the East Coast gives refiners access to a variety of crude stages available in Texas. And most of U.S. oil now finishes in Texas.

“It’s about optimizing assets. From Texas, you could bring up Eagle Ford, Permian or even Bakken crude.” (Reuters)

That journey could guarantee a steady supply of domestic crude, as both Phillips 66 and Monroe Energy already have U.S.-flagged Jones Act tankers contracted.
So, bringing that crude would not be difficult. Refiners use their tankers to mix products to higher margin regions or to bring crude to their refineries.

“Even with added Gulf shipments to the East Coast, refiners there should still receive the bulk of their supply from foreign sources due to economics”, said Sandy Fielden for Morningstar. (Reuters)

East Coast refiners

West Africa produces crude that is “gasoline rich,” he said, important for East Coast refiners. He said he doubts sending Jones Act tankers makes a lot of sense financially because the spread between global benchmark Brent LCOc1 and U.S. West Texas crude CLc1 futures is not enough to justify the shift.

Tim Taylor, Phillips 66 President said last year that the combination of the Dakota pipeline and water could potentially supply the 285,000 barrel per day Bayway refinery in Linden, New Jersey.

Transporting crude by water from the Gulf up the Eastern Seaboard is not a new ”project”. Since October, NARL Refining LP has booked at least seven cargoes from Texas ports to its 130,000 bpd Come-By-Chance refinery in eastern Canada (Newfoundland).  NARL booked just four Texas cargoes, in the previous ten months.