The fire and shutdown on the 335,000 b/d Philadelphia refinery removed the largest such unit on the US east coast. The owner’s financial troubles now mean the refinery is for sale. Tim Smith, director of oil and tanker markets at Maritime Strategies International (MSI) considers the positive implications of the closure on tanker markets
The refinery could be refurbished but that will take time and a permanent shutdown is likely. Either way, this capacity will be out of the system for a long period and will have a sizeable effect on regional product markets and flows, particularly gasoline.
Gasoline accounted for nearly half the production at the Philadelphia refinery – 153,000 b/d from the total potential throughput.
Focusing on the east coast gasoline market (defined as Petroleum Administration for Defense Districts - PADD1), the region accounts for over one-third of US motor gasoline consumption (3.2M b/d of a US total of 9.0M b/d in Q1 2019).
Of this volume, a large proportion is supplied from elsewhere. As shown in Chart 1 the gasoline movements into PADD1 (includes both finished gasoline and blending components) largely come from the US Gulf coast by the Colonial pipeline (1.5m b/d) but also via tanker or barge (500,000 b/d).
Imports from other countries also account for a significant amount – another 500,000 b/d. Limited volumes are sourced from the midwest.
The reduction in local gasoline production from the shutdown of the Philadelphia refinery is also shown – about 150,000 b/d.
Although gasoline supply from the midwest is limited, product pipeline infrastructure in the US is continuing to evolve. Q4 should see the start of the Mariner East 2X pipeline moving NGLs and products from PADD2 to PADD1. However, beyond this there are limited plans for further product infrastructure into PADD1; pipelines are not going to provide significant incremental volumes.
The US Gulf coast is likely to be instrumental in filling the gap though. The region is the export hub of the US and provides large volumes of products to the east coast via seaborne routes.
It is likely that some product will be diverted from other markets, such as Latin America, to meet east coast requirements. Beyond this, the east coast also imports products.
This is largely from two sources, as shown in Chart 2 – Canada and Europe.
European volumes are the primary import source. However, flows are very volatile, while the trend over the last decade has been one of decline.
This highlights the fact that European refining capacity has not been growing. The other large supplier is Canada, and although these flows also see major fluctuations. Again there has not been growth, reflecting the limited capacity growth in the Canadian refining system.
The result of the Philadelphia shutdown will be positive for product tankers. Seaborne shipments of product into the east coast region will increase. Given the volume of refinery capacity and existing exports, US Gulf coast–east coast flows will contribute.
Imports are also likely to help fill the gap, and volumes from beyond the Atlantic Basin, such as Middle East and India could also increase, further supporting tonne-miles for product tankers.
Squeezed gasoline supplies on the US east coast also pose a problem as we move towards 2020 and refiners look to maximise middle distillate yield. Given the volume of refining capacity coming onstream in China, recent oversupply in Asian markets, and reduction in newbuild VLCC deliveries taking clean cargoes, could large product tankers be on the cusp of a surge in East-West trade?