Eastern U.S. Refinery Capacity Is Being Cut Back -- UNGOOD!

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machinehead's picture
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Eastern U.S. Refinery Capacity Is Being Cut Back -- UNGOOD!

From an AP article:

More than 1,000 workers [have] lost their jobs in the past few months in the refinery industry within 50 miles of Philadelphia.


In October, Sunoco announced its plan to idle refining operations [at Eagle Point, N.J.] and furlough some 400 employees, leaving a much smaller staff to handle already refined oil shipped in from overseas.

Since the Sunoco announcement, Valero said it will try to reduce its 550-member workforce by 100 at a refinery a few miles away, in Paulsboro, N.J., by offering early retirement packages. Valero also said it would close its refinery in Delaware City, Del., less than an hour's drive south, and cut 550 jobs there.

So far, the most drastic refining cutbacks in the U.S. have come in Delaware and southern New Jersey. But Anne Kohler, an analyst at Caris & Co., expects more plants to be idled in the East, on the Gulf Coast, and in Europe. She said refineries in California are likely to be spared.

http://apnews.myway.com/article/20091226/D9CQV8TG0.html

Incredible, isn't it -- cutting back refining capacity in North America's most densely-populated region, which is already heavily dependent on imported energy?

Although true as far as it goes, the only explanation the article offers for the capacity cutbacks is probably only a minor part of the overall picture:


At Northeastern plants, Valero spokesman Bill Day said, the profit margin is smaller because labor costs more there and the refineries tend to be older and less efficient than elsewhere - making them the most vulnerable to cuts. It's Economics 101.

'Econ 101' -- yah, the journos are getting pretty sassy these days, aren't they? But Econ 001 -- namely, the Crash Course -- suggests that when a country can exchange fiat scrip of no intrinsic value for real goods and services produced abroad, it will spew newly-printed dollars to import goods, even as it deindustrializes at home.

Those with a sense of history will recognize some troubling parallels. Even as it escalates quagmire wars on the other side of the globe, the U.S. is becoming ever more dependent on energy imports. One will recall that a German objective in World War I was to diversify its energy sources by seizing petroleum reserves in Romania and elsewhere in the Balkans. Germany's failure to achieve this objective was an important reason for its defeat.

Likewise, in World War II, energy was both a motivator and an Achilles heel for Japan. By the final months of the war, starving Japanese peasants were reduced to squeezing tiny amounts of synfuel from tree resin. Defeat by the then energy self-sufficient U.S. was inevitable.

Today, U.S. leaders with no knowledge of military history are aping these failed Axis Power strategies. They are escalating foreign wars with long supply lines and heavy energy needs, even as the U.S. mainland sheds refining capacity and becomes dependent on gasoline imports from ideologically hostile states such as Venezuela.

But, how would they know any better? These aren't statesmen, they're lawyers. The professional expertise of Barack Obama and Rahm Emanuel is in urban ward healing -- plundering one class of people to enrich another. Ditto for SecState Hillary Clinton, another plundering attorney. One really has to wonder about halfwit generals such as SecDef Gates and David Betrayus, though. These olive-drab soldier boys must have been sniffing glue during the class which outlined the utter dependence of mechanized warfare on energy supply and transport.

One of the reasons that our tattered superpower is headed for history's dented dustbin, is that the people in charge are spectacularly incompetent. They can't even get the simplest basics right. Ready? LIGHTS OUT!

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

So where is all the oil for the war effort being refined?  Are there refineries in Iraq and Afghanistan, where we're stealing it? Or is it being shipped back to the states, refined, and then shipped back out again in typical US style fashion?

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

Econ 101.....taught by professors Summers, Romer & Bernake. 

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

Don't fret - I am sure that the US' supply lines with Venezuela are perfectly assured for all of eternity:

Venezuela, China Sign Oil Deals

CARACAS -- Venezuela and China gave a new boost to their thriving economic ties Tuesday, signing a package of agreements that advances China strategy of locking in access to the South American country's vast oil reserves.

After two days of talks in Caracas, the China National Offshore Oil Corporation will help the government of President Hugo Chavez develop the Boyaca 3 oil block in the Orinoco-belt, a large heavy-crude basin in Eastern Venezuela.

The move is part of Venezuela's efforts to increase oil sales to China to 1 million barrels per day from the 400,000 barrels per day it says it currently supplies. Under Chavez, Venezuela has tried to curb oil exports to the U.S. and searched for new markets. Despite his efforts, the U.S. remains the main destination for Venezuela oil, with sales averaging around 1 million barrels per day.

Hmmm, I may be bad at maths but the way I see it the US currently enjoys 1,000 kbd from VZ but China wants to increase its allotment by 600k bpd meaning 600k bpd has to come from somewhere or other.

No worries, I am sure that VZ, whose petroleum output is already suffering from a western withdrawal of expertise and investment, will find a way to fulfill the 25% boost to its daily output required to meet the growing Chinese demand without stiffing its big buddy to the north.

If not?

Sooner or later a terrorist threat is going to suddenly emerge down there in Caracas requiring the US to take action.  At least, that's been the geopolitical pattern for the past few decades.

 

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

Well I believe we've already built 7 military bases in Colombia and I think there are new plans for a new base in Ecuador, so it seems an intervention is close at hand. At this point, though, the cornucopia of interventionist options is so great that I think we have put the Orinoco belt on the back burner until Iraq is fully plundered. It's heavier crude than Iraq's anyway...

That said, I am perplexed by the situation with the new oil contracts in Iraq. The first round of contract awards went to no American companies and even the second round was not exactly an American win by a landslide. I do believe we went there for oil - can you imagine this type of war if Iraq was known for its coconut exports? - but at the same time, I feel we did not even attain one of our intended objectives.

I am still trying to piece together the way this geopolitical machine operates, but as near as I can tell we secure the resources of the world with our military and allow a relatively free market as long as the dollar is the world's reserve currency...But I really do wonder what the situation in VZ or Iraq would look like if the dollar was even partially dethroned.

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

What people frequently miss is the issue of sour versus sweet crude.  The refinery in DeCity was the only one on the east coast that could refine sour crude.  Venezuela only has sour crude.

The pipeline from the gulf coast to east coast refuses to handle sour  crude - too hard on the pipe.  If we have a massive storm or terrorist strike on the gulf coast the east coast is entirely dependent on imports of sweet crude or refined product.  After WWII this refinery was deemed strategically valuable.  After 9/11 it was heavily guarded as its loss was clearly a potential problem for the east coast supply line.  

Now Biden is in active negotiations with Vz to take it over or use it as a terminal point.    Valero and its predecessors have not put any capital improvement money into this facility for ten years,  now it is too expensive to fix.  Valero is still looking to close the Paulsboro refinery.  Continued staggering from short term fix to short term fix with no eye on any long term issues whatsoever.

There will be enough refining capacity if everything is going well,  but one blip in the system and the entire east coast will feel the pinch.  Of all of the refineries to close; allowing this one to is clear evidence that there is no thought being given to economic vulnerability due to energy shortages.    Seriously we should allow VZ to control our only sour crude refinery on the east coast?   

 

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

Not only is refining capacity being cut back,  but so is energy production

Exelon Corp. will shut four 50-year-old power generating stations near Philadelphia in 2011 that the power generator says are no longer economic to operate and are unnecessary to meet shrinking demand for electricity in the region.

About 280 jobs will be eliminated, but the Chicago-based company, which owns Philadelphia's Peco Energy Co., said today that it is looking for ways to reduce that number through such efforts as putting workers in other open jobs and buyouts.

Exelon, one of the nation's largest power companies, said it will record pretax charges totaling $258 million related to the shutdowns through 2011.

The company will close two units at the Cromby Generating Station in Phoenixville and two units at Eddystone Generating Station in Eddystone, effective May 31, 2011.

"Decreased power demand, over supply of natural gas and increasing operating costs, has led Exelon Power to retire these units," Doyle Beneby, senior vice president of Exelon Power, said in a statement.

The announcement comes a day after Progress Energy said it will close 11 coal-burning power plants in North Carolina that do not have scrubbers by 2017. The units represent about 30 percent of the company's power generation from coal.

The company will continue to operate three coal-fired plants in North Carolina after 2017 that are equipped with emission controls at a cost of more than $2 billion.

The plan was prompted by state regulators' ordering the company to provide retirement plans for the coal-burning plants that lack scrubbers to reduce emissions. Some of the plants are more than 50 years old.

For Exelon, one unit at Cromby operates on coal and the other on either natural gas or fuel oil. They were put into operation in 1954 and 1955. The station will close when the units are retired.

The Eddystone units were put into operation in 1960 and both operate on coal. Two other units that run on either natural gas or coal and four oil-burning units will continue to operate at the station.

Exelon shares were trading early this afternoon at $49.59, up 57 cents (1.16 percent).

"The plan was prompted by state regulators ordering the company to provide retirement plans" as a flat statement is misleading on its own.  They were offered the option of putting scrubbers in....  
While it is perhaps better that these particular generation plants be idled,  it leaves the metro area even more vulnerable to any fuel interruption.  If all generation takes place outside the city limits and there are fewer refineries able to generate back up power - the refinery in Delaware City was tied to the power grid for Delaware it was a closed loop feed system - it is s prime set up for even one good ice storm to really foul things up.
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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

And more capacity is cut.

Nathan Vanderklippe

CALGARY — From Friday's Globe and MailPublished on Friday, Jan. 08, 2010 12:00AM ESTLast updated on Friday, Jan. 08, 2010 6:26AM EST

Shell Canada Products Ltd. is closing its Montreal East refinery, making the 76-year-old plant the latest victim of the huge losses piling up among North American refiners.

Shell will convert the refinery, which employs 500 full-time personnel and up to 400 contract workers, into a terminal to distribute gasoline, diesel and aviation fuels, which industry observers say will likely be imported from Europe.

The company's decision comes in the midst of a tumultuous rationalization of the refining industry. The global recession and new fuel-efficiency regulations have brought a sudden decline in demand for transportation fuels, creating extraordinarily tight - and, over the past year, often negative - refining margins. Some observers have called on the industry to shutter as much as two-million barrels a day of refining capacity to rebalance supply with demand.

Built in 1933, the Montreal East refinery grew from an initial 5,000-barrel-a-day plant to a 130,000-barrel-a-day operation that pumps some $200-million a year into the Quebec economy. Shell invested $150-million into the operation in 2002 to make it capable of producing low-sulphur gasoline, but said yesterday it no longer fits in with the company's long-term strategy.

It is the second major Canadian refinery to close, after Petro-Canada closed its 80,000-barrel-per-day Oakville, Ont., refinery in 2005.

With new chief executive officer Peter Voser at its helm, parent companyRoyal Dutch Shell PLC has undergone a global review of its portfolio aimed at boosting profits and culling lower-performing assets. It has also reportedly entered into talks with India's Essar Oil to sell one British and two German refineries.

Shell spokesman Larry Lalonde said it will likely take "about a year" to convert the Montreal refinery to a terminal. The company told workers it will keep the plant running until "more becomes known in the coming months."

Montreal East will be at least the fourth refinery to fall victim to declining demand in the past four months. Late last year, Valero Energy Corp. closed a 210,000-barrel-per-day refinery in Delaware City, Del., which had been losing $1-million (U.S.) a day. Western Refining Inc. closed a small refinery in New Mexico last November and Sunoco Inc. shut down operations at its 145,000-barrel-a-day Eagle Point refinery in New Jersey in October.

But experts say the industry needs to cut much deeper to ready itself for worse days ahead, with U.S. motorists - a major driver of the continent's refineries - expected to burn 8 per cent less gasoline between 2006 and 2018.

"Certainly, it is a positive from the industry point of view that [Shell] is going to shut the refinery and turn it into a terminal," said Ann Kohler, a New York-based analyst with investment bank Caris & Company. But "we need to see one-million barrels of capacity or more be permanently closed."

Ms. Kohler said companies will close refineries that are inefficient, or not closely tied into their crude production or gasoline marketing operations. But the industry faces a dilemma: Refineries that currently face the worst economics are those that process the heaviest oils. It is those refineries, however, that are most likely to be needed in the future, thanks in part to growing production from the Alberta oil sands.

Analysts said it is unlikely other Canadian refineries, which are more financially robust, will close. Montreal East faced tougher economics because of its age and a relatively simple design that made it unable to process certain types of petroleum, and consequently cut into profits.

The refinery provided about 7 per cent of Canada's 1.8 million barrels of daily refining capacity. Montreal East primarily supplied the Quebec and Maritime markets. Its closure will leave behind just two refineries in Quebec, the Suncor Energy Inc. plant in Montreal and a Quebec City Ultramar refinery, which is owned by refining giant Valero Energy Corp.

Analysts said Shell will likely replace its refinery output with refined products imported from Europe, where a shift to diesel engines has left excess gasoline supply.

With files from Shawn McCarthy

 

This is interesting for many reasons,  but note the highlighted line:  again,  shortsighted and making us dependent on sweet crude or refined product which is and will become even harder to get.

 

 

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...
cmartenson wrote:

Don't fret - I am sure that the US' supply lines with Venezuela are perfectly assured for all of eternity:

Venezuela, China Sign Oil Deals

CARACAS -- Venezuela and China gave a new boost to their thriving economic ties Tuesday, signing a package of agreements that advances China strategy of locking in access to the South American country's vast oil reserves.

After two days of talks in Caracas, the China National Offshore Oil Corporation will help the government of President Hugo Chavez develop the Boyaca 3 oil block in the Orinoco-belt, a large heavy-crude basin in Eastern Venezuela.

The move is part of Venezuela's efforts to increase oil sales to China to 1 million barrels per day from the 400,000 barrels per day it says it currently supplies. Under Chavez, Venezuela has tried to curb oil exports to the U.S. and searched for new markets. Despite his efforts, the U.S. remains the main destination for Venezuela oil, with sales averaging around 1 million barrels per day.

Hmmm, I may be bad at maths but the way I see it the US currently enjoys 1,000 kbd from VZ but China wants to increase its allotment by 600k bpd meaning 600k bpd has to come from somewhere or other.

No worries, I am sure that VZ, whose petroleum output is already suffering from a western withdrawal of expertise and investment, will find a way to fulfill the 25% boost to its daily output required to meet the growing Chinese demand without stiffing its big buddy to the north.

If not?

Sooner or later a terrorist threat is going to suddenly emerge down there in Caracas requiring the US to take action.  At least, that's been the geopolitical pattern for the past few decades.

 

 

Now that VZ has devalued their currency and the primary refinery which received the heavy VZ crude has closed,  what impact does this have on the eastern coast's fuel capacity.  Both the Valero refinery and the Montreal refinery were sour crude plants.  Sour crude is the primary type of crude available.  What happens next?

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...
On Our Own wrote:

What people frequently miss is the issue of sour versus sweet crude.  The refinery in DeCity was the only one on the east coast that could refine sour crude.  Venezuela only has sour crude.

The pipeline from the gulf coast to east coast refuses to handle sour  crude - too hard on the pipe.  If we have a massive storm or terrorist strike on the gulf coast the east coast is entirely dependent on imports of sweet crude or refined product.  After WWII this refinery was deemed strategically valuable.  After 9/11 it was heavily guarded as its loss was clearly a potential problem for the east coast supply line.  

Now Biden is in active negotiations with Vz to take it over or use it as a terminal point.    Valero and its predecessors have not put any capital improvement money into this facility for ten years,  now it is too expensive to fix.  Valero is still looking to close the Paulsboro refinery.  Continued staggering from short term fix to short term fix with no eye on any long term issues whatsoever.

There will be enough refining capacity if everything is going well,  but one blip in the system and the entire east coast will feel the pinch.  Of all of the refineries to close; allowing this one to is clear evidence that there is no thought being given to economic vulnerability due to energy shortages.    Seriously we should allow VZ to control our only sour crude refinery on the east coast?   

 

I am aware that I am talking to myself here,  but I think it is important to note major changes in the supply of oil and oil related products that are going on all over the country,  but primarily on the eastern seaboard.   In my above post I said One blip and we will all feel the pinch and I have been proven wrong.  There were several significant shut downs over the last week and serious issues in the Texas area due to their inability to deal with cold temperatures.  (No steam lines to deal with freeze ups)  And there was no real issue here.  Yes, prices went up,  but it was around a dime most places and no one seemed to notice.

The reports say this is proof positive of the glut of refined product.  But, as has happened before I am left scratching my head.  Everyone is talking about this glut.  Does anyone know where it is?  The storage numbers do not show any major backlogs and I even checked the floating storage units that became so popular.  Yes, there is quite alot there,  but not really more than a few days worth.  I found an article showing that there were currently too many storage tankers,  but as most of them are already empty and headed to dry dock - where is the refined product hiding?  Anyone know?

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

From the Globe and Mail article you posted above:

The global recession and new fuel-efficiency regulations have brought a sudden decline in demand for transportation fuels, creating extraordinarily tight - and, over the past year, often negative - refining margins. Some observers have called on the industry to shutter as much as two-million barrels a day of refining capacity to rebalance supply with demand.

Refining margins, like everything else, are cyclical. The next economic expansion will drive them positive again.

Usually businesses are willing to take a longer view. This is the exact point in the cycle where an acquirer would want to buy a refinery, for the margin bounceback. But it isn't happening; the plants are being mothballed.

These closures may make economic sense if too much refining capacity is being built overseas. But strategically, they make no sense. An energy-importing country which can't refine but a fraction of its own fuel is in no position to run a global military empire. Beat swords into cat crackers, say I. Boil some oil, or we'll be foiled. (I'd better copyright this, before it shows up in the 2012 presidential campaign.)

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Re: Eastern U.S. Refinery Capacity Is Being Cut Back -- ...

MH

You should copyright everything you write. You are the best here.

V

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