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Quick, look down! It’s not just crude oil production and pipelines that are growing as a result of output gains in the Permian and other oily plays of the Lower 48. Refiners across the downstream segment are also investing to capitalize on discounted crude and clean energy demands ahead of IMO 2020.
We count six projects that will add new or expand existing crude unit capacity to help monetize the new production coming soon through new pipelines to the Gulf Coast.
The upstream investment in the Permian region is driving production higher and leading to new pipeline expansion. There are certainly new crude oil export terminal projects entering into the mix. But the industry is also announcing investment in new refinery projects.
And because terminal loading fees, clean marine fuel costs, and tanker lease rates will not enter into domestic refinery economics, the new refinery projects on U.S. soil will have the leg up on crude acquisition costs compared to those elsewhere. And since crude oil is the number one cost in the refining income statement, a lower crude acquisition cost will underpin higher margins for domestic refiners accessing the discounted domestic crude rather than their overseas counterparts.
With the Permian Basin of Texas leading all other shale plays in terms of new crude production growth, it comes as no surprise to see six refinery projects aiming at refining more of this light sweet grade of discounted crude coming from West Texas. Interestingly too, we found that four of the six pending refinery projects are planned to serve inland Texas or Mexico markets with products never having to cross any seawater.
The remaining two projects, a new refinery train by ExxonMobil at its Beaumont Refinery and an incremental crude unit expansion at the Marathon Petroleum Corp Galveston Refinery will have pride of place on the Texas Gulf Coast and will each vie to be the largest domestic U.S. refinery when completed.
Source: Stratas Advisors North American Oil Service