U.S.: THE MONEY EXHAUSTED
Ever since the exponential boom of light tight oil (LTO) production flowing from the major shale plays began, American refineries have worked vigorously to process greater LTO volumes. Now a new report has stated that the load is beginning to become a burden, and the cheapest options for refineries to take on the growing amounts of LTO are over.
On Monday, the U.S. Energy Information Administration (EIA) released a report that began the process of solving the issue increased LTO. Most notably, the EIA stated that with low-cost investments exhausted, refiners will have to rely on costlier splitters and new unit installations to refine more shale oil in the future.
Essentially, without excessive spending there just isn't anywhere for the new light crude to go. The additional domestic LTO production that refiners can process by increasing capacity utilization rates is limited and crude oil refinery inputs already reached record levels last year.
According to the EIA, refiners have exhausted relatively low-cost investments in equipment modifications to remove restrictions on throughput, also known as crude unit debottlenecking. So far, debottlenecking investments have largely been to replace the gathering trays and condenser units needed to collect the greater volumes of lighter distillation products at the top of an Atmospheric Distillation Unit (ADU) column resulting from processing the surplus LTO. Because the opportunities for such investments are limited, so too is their potential impact on the amount of additional LTO that U.S. refiners will be able to process.
"It does appear that we're moving into a phase where additional investment, beyond bottlenecking, is necessary to move ahead," stated director of the EIA office who issued the report Michael Schaal in a recent Bloomberg article.
To date, increased runs of domestic LTO have mainly been facilitated by a reduction of light crude oil imports, particularly to refineries on the U.S. Gulf Coast and the East Coast. In addition, refinery utilization rates have increased, and some imports of heavier crude types have also been displaced in some U.S. regions.
Since the U.S. has no restrictions on exporting refined oil products (things such as different grades of fuel), the EIA notes that the cheapest and arguably quickest option for refineries to relieve the LTO load would be to implement stabilizers. This is a method where volatile gases are boiled off from condensate and therefore making it a processed, refined product legal for exportation. However, a stabilizer approach comes with the disadvantages of being limited by the crude oil type one could work with (that being condensate) and the large amount of unprocessed and unseparated naphtha volumes it creates.
By far, the EIA notes that the most expensive route is to build a whole new "greenfield" refinery. But, an entirely new facility averaging 250,000 barrel(s) per stream day would yield the most additional revenue for a refiner, because it would have the greatest capacity to produce finished petroleum products.
The EIA has spelled out numerous options for refiners in the upcoming years to handle increased oil production. Of course, given that the report was a "puzzle piece," as Schaal described it, to be used by the EIA to determine the limitations of U.S. refineries, the impact of lift the 40 year old export ban was left out of the study. To read more in depth about other options for refineries the EIA has addressed, check out a summation or the full report here.
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