Replies to This Discussion

Permalink Reply by Thomas Malcolm Pendergast on April 11, 2016 at 2:44pm

Dear Sherre,

Sorry to say, but I think you should find more reliable sources of information.  One excellent source is the Department of Energy's Energy Information Administration (EIA).  Another is the Paris-based International Energy Agency, IEA.  The mainstream press is the very worst place to look for accurate information on energy issues.  Senator Lisa Murkowski is also highly reliable.  Visit her website.  Ibid for Pat Tiberi.

The Atlantic Center for Global Energy is my favorite source of all.  No sensational take-your-breath-away stuff there.  Just consistent, sober, in-depth, reliable information.  I would much prefer to spend one or two hours reading things from EIA, IEA, Murkowski, Tiberi or the Atlantic Center and be confident that I really understand the issues, then to spend five or ten minutes reading a piece in the mainstream press.  Because if they don't sensationalize and make it juicy, they're not going to get any eyeballs.

So your comment the " . . .oil refineries on our shores are owned by companies from other countries. These companies then bring the oil from their countries to their refineries on US soil to be refined.   These barrels of oil are then charged to our economy as imported oil.  I believe it is 25% of our barrels of oil consumption is considered imported. . . . "  is kind of misleading.

You'll see, for example, the statistics from the EIA above on the top six importers.  For the ownership of refineries, Wikipedia's list of refineries will tell you that as of January 2015, there are 137 operating oil refineries in the United States per the EIA.  It also tells you who owns the refinery and you'll quickly see that the vast majority of them are owned by U.S. or Canadian firms (or Dutch or British so they aren't real foreigners like Chinese or Saudis [who some would say are our enemies, although I certainly wouldn't say that]).

When you become a little more familiar with the history of refining in America, a very important part of our history and most interesting the deeper you dig into it (schoolls don't teach this, even at college level) especially for residents of Pennsylvania, Ohio, West Virginia and Kentucky.  This is where it all began!  Well, OK, it actually began in China.  But we did a better job of developing the resource than they did!

One of the things you'll learn is that about 20 years ago, the availability of light, sweet crude (the easiest, cheapest and most profitable to refine) was declining.  As a result, refineries were reconfigured to process more abundant heavy, sour crude.  Even though that crude commands a lower price than light sweet, the cost of processing it is more complex, more costly and less profitable.  The upshot is that most U.S. refineries today can only operate primarily on heavy (and/or sour) crudes.  Only a handful of refineries on the East Coast and the Texas panhandle still process light, sweet crude.

Today, most of the crude we produce in the U.S. is light sweet.  Since we have an abundance of light sweet and a shortage of heavy, sour, we need to export the light sweet and import the heavy sour.  The top 4 importers of crude (Canada, Saudi Arabia [Motiva refinery in Port Arthur, TX], Venezuela [Citgo refineries] and Mexico [Pemex which has no U.S. refineries and hardly any cash on hand] all bring us heavy, sour crudes.

I haven't checked the figures recently, but I think right now our exports and imports are roughly equal, 50:50.  The trend is to export more than we import but not at a dramatically accelerating rate.

You may recall from a previous posting that I mentioned Marathon's Garyville, LA refinery as being something special.  Not only is it our newest major refinery, it is unique in its ability to quickly shift the mix of its feedstocks between light and heavy crudes.  The newest and largest refinery in the world in Gujarat, India by Reliant Industries is also a flexible refinery.  A very large percentage of the technology and construction for that amazing place is being provided by American companies e.g. Fluor, Bechtel, Foster-Wheeler, Honeywell and Chicago Bridge & Iron (no, wait!  That's a Dutch company.  That's foreign.  And they don't make bridges or iron!)

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Permalink Reply by craig on April 11, 2016 at 5:15pm

"The upshot is that most U.S. refineries today can only operate primarily on heavy (and/or sour) crudes.  Only a handful of refineries on the East Coast and the Texas panhandle still process light, sweet crude. Today, most of the crude we produce in the U.S. is light sweet.  Since we have an abundance of light sweet and a shortage of heavy, sour, we need to export the light sweet and import the heavy sour."

There ya have the real problem to using our own oil in our refineries. I'm sure conversion from sour to light sweet isn't easy or cheap, and would also produce volumes of paperwork for a myriad of government agencies.

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Permalink Reply by Joseph-Ohio on April 11, 2016 at 11:56pm

Build new and convert existing refineries is the obvious answer to that minor conundrum.

We once built the existing refineries so we ought to know how to modify them and / or build the appropriate new ones (to handle the 'light sweet' production).

What - did we forget how to that ? ?

Modify existing and / or build new - and do the jobs right.

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Permalink Reply by Thomas Malcolm Pendergast on April 12, 2016 at 1:28am

Hi Joseph!

You're right:  Over the past 30 years, no "greenfield" refineries have been built in the States (other than three small ones that produce diesel in southwestern North Dakota).  Instead, there've been consolidations/rationalizations, redesigning and rebuilding to match up with current market conditions.

The refinery in Lima is one of the oldest in the world.  Yet, you'd never know that from looking at it because it has gone thruough continuous upgrades.

By the way, Paul Butler below thinks I come across as a "con and a shill" and asks "Do you understand the losses people like you have cost the American investment community in the last 5 years?"  Is that the way I come across to you?

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Permalink Reply by Joseph-Ohio on April 12, 2016 at 1:55am

I read you as more concerned about the corporate interests on a worldwide basis, less concerned about the domestic (to the USA) corporate interests and barely concerned at all about our domestic (the USA's) population's growth / prosperity.

For info., I'm of the exact opposite philosophy.

Does that interpretation of mine make you a 'shill' from my perspective ? ?

Can only conclude that if I first conclude that you're being paid by some interest in some manner to think that way and then to observe you so 'advertising / spreading the word'.

I'm not to that point (yet) TMP - and I hope it never results.

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Permalink Reply by Thomas Malcolm Pendergast on April 12, 2016 at 3:07am

Hi Joseph!

Thanks so much for your response.  I really appreciate the feedback.

In a sense, you read me right.  In another sense, I think there is something of a misperception.

First, where do I come from?  Raised on a farm in Granville.  Professional career:  25+ years in Japan translating for Japan Gasoline Corp. or JGC (refineries), Mitsui Engineering & Shipbuilding or MES (offshore oil rigs) and Honda.  All three of these companies are active globally, not just in Japan.

So that probably explains my international corporate interest.  But that by no means, means that I'm less concerned about U.S. corporate interests and the well-being of American people.

It was just four years ago that JGC set up an office in Houston with about 100 Japanese engineers.  Now, there are more than 4,000 employees, 90%+ Americans.  Some of those are from Ohio, especially those who got petroleum engineering degrees from Marietta College.

JGC and MES only pay me for translations, not to promote their corporate interests.  I guess you could say that I just have oil in my blood!  I love it when I see companies  - - -  foreign or domestic or both - - - working to develop and expand Ohio's resources.  So, yes, I'm keenly interested in what Ineos, Marathon-MarkWest, Antero, Range Resources, Imperial Chemical, Nova Chemical, Shell Chemical, PTT Global Chemicals, Odebrecht/Braskem, Allegheny Resins, Sunoco, CNOOC, Husky, Li Kasheng, Dalien Shipbuilding, Sinopec and many others are doing to engage Ohioans in moving our hydrocarbon resources to market.  Is that hard to believe?

Permalink Reply by Joseph-Ohio on April 12, 2016 at 3:20am

You ask :  'Is that hard to believe?'

My answer :  Yes.  Especially considering you work for and I guess are being paid by a foreign company.

Permalink Reply by Joseph-Ohio on April 12, 2016 at 2:34am

Following excerpted from today's 'Shale Gas Reporter':

'Over the next five years, low commodity prices and the drilling downturn is projected to result in $6.5 billion in lost income for Ohio landowners with mineral rights, Akron Beacon Journal reports.

In addition, the state of Ohio will lose $665 million in lost tax income over the next five years. Over the next nine years, landowners could lose as much as $12 billion and the state could lose as much as $2 billion.

The drilling downturn is expected to last for at least another 18 months when prices are predicted to increase. Until then, fewer interstate pipelines and fewer wells are expected to be completed.'

Those are the kind of things that are of greatest concern to me and mine - whereas you, apparently not so much - therein lies the difference.

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Permalink Reply by Thomas Malcolm Pendergast on April 12, 2016 at 4:10am

Hi Joseph!

I get paid to translate technical engineering documents relating to the specifications of different qualities of steel under different applications in Ohio environmental conditions, Alaska, Siberia or deepsea offshore Brazil applications.  Whoever can provide the right kind of steel for the conditions whether it be Youngstown Tube and Steel, Valourec or Timpkin in Warren/Canton, US Steel, Republic Steel or Arcelor-Mital in Cleveland/Lorrain, or Rosneftmachinenfabrik, Taganrog Metallurgical Works (usually the best for sub-Arctic pipelines), gets the order.  I don't make business decisions.  All I do is translate.

Of course royalties and tax revenues are down when the price of oil and gas (upon which royalties and taxes are based) go down.  Newspapers always report this as "lost" income.  And if prices recover?  Well, royalties and tax revenues go up.  So, some will report that as a "windfall" and thus must be confiscated through clawbacks.

Drilling has stopped in Utah, Colorado and Wyoming and slowed down a lot in North Dakota and eastern Pennsylvania and California.  But not in the Utica, the SCOOP/STACK/Meramac of Oklahoma and the Permian of the Texas panhandle.  Of course were not building infrastructure in uneconomic regions.  But we're still building infrastructure in the profitable regions which include Ohio.  That's why Marathon is moving ahead with Cornerstone and their MarkWest unit is building out a second Mariner East pipeline to carry ethane to Marcus Hook terminal to load Ineos' Dragon Ships.  And all those pipelines' compressors are made by Ariel Corporation of Mount Vernon in Licking County (my home) and Knox County.  That's a huge benefit to central Ohio's economy (not dependent on royalties or severance taxes) and the well being of people living in my immediate surroundings. 

Permalink Reply by Joseph-Ohio on April 12, 2016 at 3:10am

TMP,

Answer me this riddle :

Why does our industry and the 'politically empowered' with practically an unlimited amount of oil and natural gas at their fingertips but lacking suitable refining capacity for it's type of oil production choose to and promote the purchase of crude from foreign countries and sell it's natural gas to foreign countries, as opposed to building appropriate refineries specific to the type of oil available at bargain prices and nurture development and use of more natural gas ? ? ?

New World Order priorities perhaps ?

Just so you know I don't embrace the NWO philosophy as it doesn't even have a Constitution / Bill of Rights (which my country (the USA) has both of) albeit the both of them seemingly many times being ignored.

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Permalink Reply by Thomas Malcolm Pendergast on April 12, 2016 at 6:23am

Hi Joseph!  I hope I can answer your questions.  I don't know everything but I'll give you my best shot.

Refineries in the Philadelphia area have always used light, sweet blends.  In the 1890s, their supplies came from light, sweet sources in Pennsylvania up until the 1950s after Pennsylvania conventional reserves were depleted and competition for West Texas Intermediate made that an uneconomic source.

So, up until a few years ago, they imported those blends, mostly from Nigeria, Cameroon, Sao Tome et Principe, Algeria and Libya.  They don't have to do that any more.  They get all their light, sweet here in the U.S., mainly Ohio, West Virginia, western Pennsylvania by pipelines manufactured, assembled and installed by largely local crews, and by rail from North Dakota, often on Genesee and Wyoming rails, again, a local operator.

Three refineries in Texas have always sourced their light sweet blends within Texas:  Alon's Big Spring refinery, Delek Refining's Tyler Refinery, and Valero's McKee refinery just north of Amarillo.  None of these refineries in Texas or the east coast have the cokers that are needed to process heavy crude. 

Cokers represent a very, very large, significant investment.  So once that decision is made, the company is pretty well committed to processing heavy crude blends.  That is the case for all refineries on the Gulf coast (except for Marathon's Garyville, LA refinery which was designed from the beginning to process either and/or both heavy sour and light sweet blends), plus Koch's Flint Hills refinery in Superior WI, BP's Whiting and Toledo refineries and Husky's Lima refinery.  The last three import their heavy crude from Canada and the Gulf coast refineries get theirs from Canada, Saudi Arabia and Venezuela mainly.  They can only process a limited amount of light sweet:  too high a mix and the metallurgy will be damaged beyond repair.

Unfortunately, we don't get to choose what Mother Nature has on offer.  We have to figure out what the best ways to use what she offers might be.  So in the earliest days, in Kentucky, West Virginia, Ohio and Pennsylvania, drillers were looking for sources of brine for curing meats (there was no refrigeration in those days).  When something besides brine came up out of the wells, a lot of people thought we could market it as a medicine.  That was the origin of snake oil.

Since we began producing from horizontal wells, that oil is all light sweet, unsuited for most refineries but in high demand for refineries in Europe and the Asia Pacific.  So we export that and import the heavy blends that Europe and the Asia Pacific don't want and can't use.

I hope this explanation helps you.

Permalink Reply by Joseph-Ohio on April 12, 2016 at 6:41am

Thanks for the historic foundation of why there are not many 'light sweet' refineries here in the USA but numerous points of my inquiry remain unaddressed.

Why buy foreign oil spending money and funding various hostile or potentially hostile authoritarian states when these monies could (should) be better spent modifying / building new refineries designed to use our own 'light sweet' crude (and since we don't have to in the 1st place) ? ?

Also we can strike deals with our vetted allies to furnish us the heavier crudes for use in those existing refineries we do not modify.

Then there's the whole 'why aren't we converting to and using more natural gas for a transportation fuel ? ?' question that isn't addressed.

I come up with that it must simply be the bent of both political and industrial leadership to maintain the status quo as cause.

What do you think is causal ? ?

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