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Page added on May 25, 2014
Increased U.S. oil production has yielded transportation bottleneck
The increase in crude oil production in Texas and other spots in the U.S. has created issues in the transportation and refining sectors of the oil industry.
Crude oil traditionally has been transported by truck and a network of sophisticated pipelines in Texas. However, many crude oil acquisition companies are exploring rail to get large amounts of crude to refineries.
On May 19, a large train with more than 100 cars designed to carry crude oil traveled through North Texas, which is very unusual. A majority of the trains traveling parallel to U.S. Highway 287 from Wichita Falls to Fort Worth are transporting coal produced in Wyoming to power plants in South Texas.
U.S. oil production was 8.434 million barrels per day in May 16, according to the Energy Information Administration. One year ago, U.S. oil production was 7.250 million barrels per day. Oil production has increased 1.184 million barrels per day or 16 percent during the last year.
Refinery input in the U.S. was 15.949 million barrels per day in the U.S., EIA reported on May 16. The largest refining area is the Gulf Coast, which has more than half of the nation’s refining capacity. The Gulf Coast refined 8.269 million barrels per day on May 16.
Valero Energy, one of the largest refiners on the Gulf Coast, said cheap inland US crude oil boosted its first-quarter profits and also prompted rate cuts at a pair of plants that can only run so much of it.
Valero and other refiners’ profit margins have increased recently because of ample supplies of oil produced from shale formations.
Valero officials said that there is the increase in lighter crude oil produced from shale formation in Texas will cause some operating issues, and will create “some constraints where we have to cut rates,”
Booming inland crude output is largely light sweet, which can prompt refiners to cut rates if plants are not re-configured to run more than they have traditionally run.
Valero is building special ‘crude topper’ units at its Houston and Corpus Christi refineries to increase light-sweet crude processing capabilities, and has added a similar unit to its Three Rivers refinery to do the same. Other refiners along the Gulf Coast, with plants configured to run heavier crudes like those produced in Canada or Venezuela, are making similar adjustments, including Flint Hills Resources and Delek US Holdings. Without such adjustments, refiners with too much light sweet crude coming in can face constraints like distillation units unable to handle more vapors or hydraulic capacity limits.
Valero has cut rates at its refineries in northwest Texas and Oklahoma with a combined capacity of 241,000 barrels per day.
3 Comments on "Increased U.S. oil production has yielded transportation bottleneck"
northwestresident on Sun, 25th May 2014 11:01 am
I guess for retail investors and investment managers, it is good to know that Velero’s “profit margins have increased recently because of ample supplies of oil produced from shale formations”, despite the fact that overall fracking companies are experiencing four dollars in expenses for every one dollar of earnings.
And it is heartening for them to know that there is so much “crude oil” being pumped in America that the refiners just can’t handle all of that excess.
In the meantime, over on Yahoo, Motley Fool (aptly named) is up on stage pitching “The Jaw-Dropping Potential in This American Oil Patch Could Change the World”, boldly proclaiming that America “could” become the 6th largest holder of crude oil reserves right behind Iraq. And then, the main point they want to make:
“Depending on how shale technology advances and the price of oil, these companies could be sitting on some of the most lucrative oil real estate in the world, which further solidifies their places among the best investments in the American shale boom today.”
In other words, keep that investment money coming you FOOLS!
Most of us here on this site know (or should know) that fracking operations are incurring huge amounts of debt, that any profit they might be showing is small and most likely due to accounting gimmickry, that the oil majors have cut their losses and run away from fracking, and that (as shortonoil pointed out in one of his posts) shale oil is an energy sink — the “crude” extracted could NOT power the US or global economy on its own due to the low energy content.
But they keep pushing the articles like this one to reel in the investors, don’t they? They just GOTTA have that investment money, or else. Not only that, the MUST continue to prop up and expand the illusion that there is plenty of oil to carry BAU into the future, because without that illusion everything crashes and burns.
rockman on Sun, 25th May 2014 2:52 pm
FYI – the crude that rolled into Texas came from Colorado, was loaded into a barge on a river in the SE and hauled to a coastal refinery.
Nony on Sun, 25th May 2014 6:58 pm
Midwest refiners are really raking it in. So is Warren Buffet. Just transport differentials really. System is somewhat dynamic and trying to work around various issues of limited pipelines, Jones Day restrictions, export restrictions, US refiner capability, etc.