AFPM ’15: Study shows US refiners can handle expanding crude supply

By Ben DuBose
Online Editor

SAN ANTONIO -- A recent third-party survey of US refiners shows that AFPM members have ample capacity to handle expanding US crude supply, specifically with regards to the use of growing light sweet crude.

"This survey was conducted in response to recent news reports and several studies that focused on the benefits of allowing crude exports by perpetuating a misunderstanding that US refiners are not able to keep up with the increasing amounts of very light crude oil that is being produced in the US," Drevna told the media at a Monday press conference at the AFPM’s Annual Meeting.

"This is not true," Drevna said.

A total of 23 companies provided information on 69 refineries, representing about 61% of US refining capacity in 2014. The survey found that the respondents are planning to run more than 730,000 bpd more very light crude oil in 2016 than last year, and with more favorable access and economics, they have the capability to run 1.5 million bpd more of the new crude oil in 2016 than what they ran in 2014.

The US Energy Information Administration's (EIA) February forecast shows lower 48 crude production, which encompasses this light tight oil production, increasing 720,000 bpd -- which is less than the respondents' plans. Moreover, that survey does not even take into consideration the plans and potential for the remaining 40% of capacity not represented in the findings.

"Our survey was not based on modeling or hypothetical scenarios as the others were, but on a survey of refiners' capabilities," Drevna said at the press conference.

"So in other words, it's based on facts," Drevna stressed. "This was done by asking our members what they have been doing and what their plans are on the near-term to deal with this new light crude oil."

The voluntary survey was conducted in November and December of 2014 by third-party contractor Veris Consulting.

US production averaged almost 8.7 bpd in 2014, a 73% increase over 2008 when production was about 5 million bpd. Much of that recent increase has come from tight oil formations, resulting in crude that is very light and sweet.

But over the past 30 years, many US refiners have added capacity for processing heavy sour crude. This apparent disparity has been a source of confusion over refiners' capacity to process the rising volumes of new light crude.

"With almost 40% of the industry unrepresented in the survey, it is clear the US industry in total is planning to run even more volumes of light, sweet crude than reported by the respondents," Drevna said.

"This survey -- based on actual refiners' plans -- tells us that they will not be constrained in the next few years and will be able to continue to use the new crude oil being produced," he added.

Drevna says gaining access to this crude will be a continuing issue, but he believes the survey shows there is time to have the debate needed to better understand and respond to the energy market changes.

Even though US refiners have ample capacity to handle the growing crude slate, Drevna says AFPM is not opposed to the US lifting its ban on crude exports. That issue is currently being debated in the US Congress.

However, the AFPM president believes more steps should be taken if the nation opts to go that route.

"As an organization that supports a free market, we are not opposed to crude oil exports," Drevna said at the press conference. "But don't be fooled into thinking that the restriction on crude exports is the only barrier to a free market.

"Refiners currently struggle with a number of barriers, including the Jones Act and the Renewable Fuel Standard, that inhibit an energy policy truly based on a free market," the president concluded. "The debate can't happen in silos -- we must take a holistic approach because you can't change one policy without understanding that it will impact other policies.

"You must consider all the unintended consequences."

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