Increased U.S. oil production has yielded transportation bottleneck

Published on Saturday, 24 May 2014 23:11 - Written by Alex Mills Texas Alliance of Energy Producers

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.