Crude by rail receipts continue to be an important source of supply for West Coast refiners

This Week in Petroluem has previously examined crude oil supply patterns on the West Coast, noting the increase in unaccounted-for supply, and then linking the increase to movements of crude by railroad. EIA’s recently launched crude-by-rail data enable a more detailed analysis of emerging crude oil supply patterns on the West Coast. The data indicate that most crude-by-rail deliveries into PADD 5 are destined for refineries in Washington state, and that despite recent delays in crude-by-rail projects in California, refineries in the San Francisco and Los Angeles areas are not entirely without access to domestic crude oil from other regions.

Historically, the three largest PADD 5 refining centers—the Puget Sound area in Washington state, San Francisco, and Los Angeles—were supplied by in-region domestic crude oil production and imports, arriving by marine vessel and pipeline. However, West Coast crude oil production has been declining for decades, particularly in Alaska. While total U.S. crude production increased nearly 3.2 million barrels per day (b/d) from 2010 to 2014, PADD 5 production decreased by 0.1 million b/d. With no major crude oil pipelines connecting the West Coast to other parts of the country, refineries on the West Coast adjusted to the declining in-region production by increasing imports from 0.2 million b/d in 1990, to an average of 1.1 million b/d over the past five years, mostly from Saudi Arabia, Canada, Ecuador, Iraq, and Colombia.

As U.S. crude production increased in areas with insufficient pipeline takeaway capacity, midcontinent U.S. crude prices such as West Texas Intermediate (WTI) and Bakken fell compared with prices for Brent, making crude by rail to the West Coast viable. Crude-by-rail movements to the West Coast went from an average of 23,000 b/d in 2012 to 93,000 b/d in 2013, increasing again to 157,000 b/d in 2014. Of the crude by rail moving to the West Coast, nearly 90% came from the Midwest (PADD 2), an average of 140,000 b/d in 2014 (Figure 1).

The increase in crude-by-rail movements was possible only after crude-by-rail unloading infrastructure was significantly expanded on the West Coast. However, completion of these projects has not been equally distributed across the region. Currently, almost all operating facilities capable of unloading unit trains consisting of 80-120 tank cars, or an average of 70,000 barrels of crude oil, are in the Pacific Northwest.

The types of domestic crude oil most commonly transported by rail—Bakken from the Midwest and Niobrara from the Rocky Mountains—are light sweet crudes. Typically, Washington state refineries process lighter and sweeter crudes compared with the slate at California refineries, which are configured to run heavy sour crude oil similar to what is produced in California. However, crude oil is often blended to produce an optimum feedstock for a particular refinery, allowing flexibility and opportunities for crude by rail.

With rail access to domestic light sweet crude oil and pipeline and rail receipts of heavy Canadian crude, Washington state refineries have begun to replace declining production of Alaska North Slope (ANS) crude oil. Trade press reports indicate that refineries are blending light-sweet crude oil such as Bakken with a heavier API crude oil such as Western Canadian Select (WCS) to create a crude mix with characteristics similar to ANS.

In California, regulatory and permitting problems have delayed construction of, or forced a cessation of operations at, several crude-by-rail unloading facilities. Earlier this month, the Plains-All American facility in Bakersfield, California, which unloads crude-by-rail shipments and then flows the oil via pipeline to California refineries, suspended operations. These delays may limit future increases in crude-by-rail movements to the West Coast, as the many projects which had been planned to be completed and operational in 2015 will either be cancelled or delayed further.

Despite permitting delays, refineries in California receive some domestic crude oil by rail from other PADDs. California Energy Commission (CEC) dataindicate that California receives crude by rail from PADD 4, specifically Utah and Wyoming, but the shipments have fallen recently, likely as a result of operations ceasing at a number of unloading facilities. EIA crude-by-rail data indicate that 5,000 b/d of crude from the Gulf Coast (PADD 3) went to PADD 5 in 2014, with CEC data specifying that the crude oil is from the western Permian basin in New Mexico (Figure 2).

Several facilities in Washington and Oregon have the capability to unload crude-by-rail trains as well as to load the crude oil onto marine vessels. Thus, domestic crude oil can be delivered to refineries along the coast in Washington and California via coastwise-compliant marine vessels. Additionally, some crude oil production in California has been transported by rail to refineries within California, albeit in limited quantities.

Future increases of crude by rail to West Coast refineries will depend on the economic viability of crude by rail versus imported crude oil, the flexibility of refineries to modify their crude oil slate, and the regulatory outcomes for new or existing crude by rail facilities.

U.S. average retail gasoline and diesel fuel prices increase

The U.S. average retail price of regular gasoline increased three cents from the prior week to $2.77 per gallon as of May 25, 2015, down 90 cents from a year ago at the same time. The only price to decline was the West Coast price, down three cents to $3.49 per gallon. The Midwest price rose six cents to $2.66 per gallon. The East Coast and Rocky Mountain prices both increased four cents, to $2.67 per gallon and $2.73 per gallon, respectively. The Gulf Coast price increased two cents to $2.49 per gallon.

The U.S. average price for diesel fuel increased one cent from last week to $2.91 per gallon, $1.01 per gallon less than the same time last year. The Rocky Mountain price increased two cents to $2.83 per gallon. The East Coast, West Coast, Gulf Coast, and Midwest prices each increased one cent per gallon, to $3.01 per gallon, $3.17 per gallon, $2.80 per gallon, and $2.80 per gallon, respectively.

Propane inventories gain

U.S. propane stocks increased by 2.2 million barrels last week to 73.2 million barrels as of May 22, 2015, 31.1 million barrels (74.0%) higher than a year ago. Gulf Coast inventories increased by 1.0 million barrels and East Coast inventories increased by 0.6 million barrels. Midwest inventories increased by 0.4 million barrels and Rocky Mountain/West Coast inventories increased by 0.2 million barrels. Propylene non-fuel-use inventories represented 7.3% of total propane inventories.