Motorists in the Northeast should be aware that a large amount of refining capacity is up for sale, and could impact local gasoline, diesel, and jet fuel prices in the future. Pending the outcome of sales, the refineries may continue operation or could be idled, resulting in much tighter supply of products, and higher prices for consumers.
According to the EIA, three refineries that compromise over 50% of the refining capacity in the Northeast are up for sale, with two of these facilities already idled. It's easy to see in our weekly EIA reports that production in the Northeast has taken a hit, with utilization rates in the 50-60 percentile, vs the national average of 80-88%.
Last fall, Sunoco decided to offer for sale two of its refineries, in Philadelphia and Marcus Hook, getting out of the refining sector, and later was joined by ConocoPhillips, who is looking to offload its Trainer facility. Then on December 1, Sunoco immediately halted operations at its Marcus Hook plant.
In 2010, according to EIA refinery reports, these facilites had the capacity to produce 315,000bpd of gasoline, 194,000bpd of distillate, and 41,000bpd of jet fuel.
This should be a large concern to motorists as spring rolls around and EPA-mandated clean burning gasoline enters production. There's certainly a potential for large swings in gasoline prices should an operating facility in this region suffer a setback. We'll certainly keep an eye on developments.
EIA comments on how this may impact transportation fuels:
"The implications of reduced regional refinery production for supply security and prices will depend on availability of required fuel types as well as specific developments in storage and logistics. Higher price differentials for wholesale products compared with the Gulf Coast and markets abroad would have to occur to incentivize producers to send more products to the Northeast. Time spreads, the difference between the price for future and current deliveries, might become more volatile in a context of reduced refining capacity in order to balance the market as meeting demand might require larger draws on stocks. When seasonal demand is weak, current sales would need to be at a steep enough discount relative to barrels for future delivery to offset storage costs and provide participants with a market signal conducive to building stocks. Participants will benefit from holding oil in storage if they can sell it in the future at a higher price. Conversely, when demand is strong relative to supply, current sales would need to be at a large enough premium to those for future delivery to attract fresh supply into the market."
Perhaps we should all combine our pennies and
buy a used gasoline refinery.