US refiners unfazed by end of export ban: Update
Independent refiners offered only muted reaction today to language in the US Congress' omnibus tax and spending legislation that lifts restrictions against exports of most US crude. That legislation could pass Congress by the end of the week.
Most independent refiners declined to comment as they reviewed the export language and a proposed tax incentives for independent US refiners meant to entice support from legislators from refining districts.
Stephen Brown, vice president of government affairs for Tesoro, which supported lifting the ban, said neither proposal mustered a strong reaction from his company or industry colleagues.
"Is there a groundswell of relief going around the industry right now because this language is in here? No," Brown said. "I'm not hearing a groundswell of panic, either."
No one who discussed the proposal with Argus expected a sudden rush of US crude to new overseas markets. Experts instead expect a tighter, tamer relationship between US and global crude going forward compared to recent blowout discounts between benchmarks. Exports could also mean refinery complexity, rather than location, will become a driving force determining the options available to US refiners.
"The impact is probably going to be far less than people think," industry consultant Andy Lipow said.
A resurgence of domestic crude production in recent years upended US crude flows. Inland refiners that spent years processing crude piped past US Gulf coast facilities suddenly enjoyed first access to both quality light sweet and discounted heavy sour North American production. Much of the new crude production flowed out of reach of legacy gathering and logistics systems, creating steep discounts compared to global prices for refiners able to tap the new barrels. These dislocations created new advantages for refiners near Texas, Oklahoma, Colorado, Utah and North Dakota shale fields.
A rising glut of global crude supplies and improving logistics to move stranded North American production through the US sharply narrowed the discount US production receives to global price benchmarks.
The spread between Brent and West Texas Intermediate (WTI) futures has averaged \\$3.09/bl in the fourth quarter — just a third of the quarterly average over the past five years and down by 17pc from the same quarter last year. The spread between the two benchmarks for March, effectively the current focus month for refiners, neared parity in early trading today.
At such prices, inland US crudes struggle to reach the US coasts, let alone leave them. Conditions this quarter erased most any economic advantage in rail access to midcontinent production for both east and west coast refiners that depended on such movements just two years ago.
Overseas buyers need still larger discounts to cover the cost of shipping, loading and delivering the crude versus other import options.
"The lifting of the export ban ensures that we're going to have narrow differentials for WTI, Bakken and other US grades — but that's where we are at right now," said Chi Chow, Tudor Pickering Holt managing director of US refining research.
Most US refiners will continue to hold a transportation advantage to overseas competitors. Higher costs for waterborne movements between US ports compared to overseas destinations could make imported crude more competitive than US production at some eastern US Gulf coast or at Atlantic coast destinations, Lipow said. South Texas production normally headed from Corpus Christi, Texas, to Port Arthur or St James, Louisiana, may begin traveling to Latin America or the Caribbean.
But US Gulf coast refiners in particular vying to supply those same countries with refined products maintain strong advantages on energy costs, feedstocks such as natural gas and refining complexity.
Legislators also offered an increase in manufacturing tax credits for refiners as a way to offset some of that disadvantage for east coast refiners, which lack cheap access to domestic crude. But no east coast refiner would comment today on whether the proposal would satisfy them. The Congressional Budget Office estimates the expanded tax credits would cost about \\$1.35bn over five years.
"It not only pits different segments of the refining sector against each other, but is crafted so narrowly that it provides virtually no benefit to any refiner," said Chet Thompson, president of refiner industry association the American Fuel and Petrochemical Manufacturers.
The agreement appeared to catch many US refiners by surprise. Although the industry fielded numerous questions on the topic over the past six months, general consensus considered it an untouchable issue until after a 2016 presidential election.
US independent refiners noted the growing focus on crude exports over the fall. Industry veteran and PBF Energy executive chairman Tom O'Malley in late July saw "no chance" Congress tackled exports before the 2016 presidential election. By September, Phillips 66 chief executive Greg Garland said the issue had "picked up steam."
But Garland also considered any lifting of the ban immaterial to the company in 2016. The company said it had no new comment today.
Refiners had pushed for matching changes to other shipping restrictions, including the Jones Act, which requires movements between US ports to be done by costlier US crewed and owned vessels. That regulation remains untouched.
"We are disappointed with the entire package, because it does precisely what we asked Congress not to do: trade some free market principles for others," Thompson said.
It wasn't clear why it became so urgent for Republicans to lift the ban so quickly, considering the limited immediate opportunity, Tesoro's Brown said. The party had paid a hefty price on items including solar and wind incentives, environmental protections and carbon policy, he said.
"Was that a real good trade off?," Brown asked. "We don't think so."
Комментарии