Houston, 24 August (Argus) — US independent refiner PBF Energy is expanding rail infrastructure at its east coast refinery just a few months after its chairman said pipeline capacity would make such projects “short-lived.”
PBF will next month more than double rail offloading capacity for Canadian Heavy and Bakken crude grades at its 185,000 b/d refinery in Delaware City, Delaware, bringing capacity to 40,000 b/d. The company will nearly triple again that capacity by January to 110,000 b/d.
PBF also plans to establish an office in Calgary, Alberta, to further develop crude sourcing options.
The plans mark an about face from April, when PBF chairman and industry heavyweight Tom O'Malley described plans to rail crude east to the Atlantic coast as “short-lived” ahead of improved pipeline capacity to the US Gulf coast.
The Delaware refinery's coking capacity — unique in its region — and uncertainty over the ultimate amount of pipeline capacity for Canadian crudes helped shift the company's thinking. The company committed to lease “a significant number” of coiled and non-coiled tanker cars in addition to the rail offloading investment.
“These new crude fields in the US and Canada are game changers for east coast refineries,” PBF chief executive Tom Nimbley said in a statement, adding that domestic takeaway capacity for the crudes would continue to be constrained.
“So rail delivery of crude oil into PADD 1 should remain viable for some period of time,” Nimbley said.
O'Malley in April considered railing the crude too costly to be the lifeline northeast refiners needed. The region was facing up to 690,000 b/d of capacity falling dark by the end of the summer as Sunoco and Phillips 66 sought to quit expensive light sweet imports by exiting a trio of Pennsylvania refineries.
“I do not think the solution is so obvious that the domestic crude being produced there would reach here,” O'Malley said during testimony on the future of refining in the east coast. “It might for a year or two years, but the pipelines will be built.”
That's the outlook Canadian producers recently echoed. Steep discounts on their light and heavy crudes were easing as markets anticipated an end to logistical problems depressing prices.
But two of the east coast facilities found buyers, and independents including Phillips 66 have outlined fresh rail plans bringing crude to the east coast. Western Pennsylvania independent United Refining has increased rail access to Canadian crude for its 65,000 b/d refinery in Warren, and other test shipments of Bakken crude have found their way east.
PBF said it was the only east coast refinery with on-site rail access and had a competitive edge as other refiners make plans.
“We are also keeping our options open by barging Bakken from regional third-party terminals into Delaware City and Paulsboro, backing out more expensive, Brent-based crudes,” Delaware City refinery manager Herman Seedorf said.
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