Morningstar® Commodities Research

In-Depth Reports

California Refiners Hostage to Climate Science

Outlook Excerpt:

California refiners are under siege. Making gasoline in the Golden State is like smoking. Everyone knows it’s bad and ought to be banned, but until motorists kick the driving habit or switch to alternative fuels, refining needs to be restricted to minimize its impact on health and the climate. As a result, the 12 transport fuel refineries left in California struggle under a growing fog of state regulation, making it difficult to expand their business or even modernize their plants. Despite these constraints, refiners operate among the most sophisticated fleet of refineries in the world and produce high-specification fuels from a slate of heavy crude. They are rewarded with robust refining margins today but face a future with shrinking market share.

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Los Angeles 4:3:1 Crack Spread and Underlying Prices

Heavy Bets Pay Off for Midwestern Refineries

Outlook Excerpt:

According to U.S. Energy Information Administration data, the 26 refineries in the Midwest PADD 2 region processed an average 3.6 million barrels/day, or mmb/d, of crude oil in 2016—up 300 thousand barrels/day, or mb/d, from 3.3 mmb/d in 2010. Over the same six-year period, local light shale production in the region shot up by over 1 mmb/d—mostly from the prolific Bakken formation in North Dakota. Yet Midwest refiners did little to take advantage of the sudden abundance of local production. Instead, increasing their appetite for imported heavy crude from Canada by nearly 1 mmb/d from 0.8 mmb/d in 2010 to 1.8 mmb/d in 2016.

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Petroleum Administration for Defense District

NYISO Term 2017-20 Outlook

Outlook Excerpt:

Three transmission owner transmission solution, or TOTS, projects were completed in June 2016 to reduce the impact of the Indian Point retirement in April 2020 (Unit 2) and April 2021 (Unit 3) by adding 575 megawatts of transfer capability to the upstate New York to ConEd interface. The added transfer capability combined with the addition of CPV Valley 775 MW in Zone G (Millennium gas) set to come on line in 2018 and Cricket Valley Energy Center 1,000 MW in Zone F (Iroquois gas), will help fill the supply gap and solve the bulk NYISO power system. But we still believe that upside risk from congestion, especially from zones F to G, is likely to show up in a post-Indian Point world and that the market is probably underestimating the impact in 2020 and 2021. This would force more-expensive downstate Zone J generators to be on margin more often. From 2019 to 2020, the current forward market is only pricing in a $1.40/MW increase in Zone G on-peak spark spreads versus Iroquois gas and less than $0.60/MW of contango in fixed-price Zone G. Zone J should see similar upside from the retirement of Indian Point but could separate further from Zone G in winter if oil prices continue to rally.

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NYISO Zone A On-Peak Day-Ahead Clearing Prices and Timeline of Impactful Events

Pacific Northwest Refineries: Cheap Crude and a Captive Market

Outlook Excerpt:

The five refineries in the U.S. Pacific Northwest performed better in 2016 than rivals on the East or Gulf coasts for two main reasons. First, the changing pattern of North American crude supply has worked to their advantage. Faced with the threat of dwindling mainstay crude supplies from Alaska, refiners in Washington state replaced 22% of their slate with North Dakota Bakken crude shipped in by rail. They have also enjoyed advantaged access to discounted crude supplies from western Canada. Second, Northwest refiners face less competition for refined product customers than rivals on the East and Gulf coasts, meaning they have a captive market that often translates to higher margins.

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Crude Supply to Washington State Refineries



Research Notes

Power & Gas Research

Oil Research