Thursday, April 5, 2012

The Bakken, the Shuttered East Coast Refineries, Preferred Sands -- Best Story of the Month?

 Deus ex machina
Preferred Sands, LLC, shows up


July 12, 2018: highest profit at the "Delta Refinery" since 2015 helps Delta "stem" rising jet fuel costs.

December 6, 2013: Delta Airlines Trainer refinery turns a profit

January 22, 2013: from the Yahoo!Finance Oasis message board:
Just drove past rows of tanker cars lined up in Albany. Hard to believe they ship by rail to Albany, load on barges, and ship down the Hudson and around to refineries in Philadelphia. I wonder what this costs. Hudson River is still open.
December 23, 2012: Update on the Sunoco/Carlyle Philadelphia refinery.

July 2, 2012, Philadelphia's Sunoco refinery: CNBC video update on Sunoco/Carlyle buying east coast refinery and supplying it with Bakken oil.  Here's the Yahoo "print" version of the story. And the Oil and Gas Journal story.

April 11, 2012: on the Kudlow Report, CNBC, this date, there was a report that Delta was coming under fire for its proposal to buy an East Coast refinery. It turns out there may be another option being seriously considered: JP Morgan would buy the refinery, and sell jet fuel to Delta at wholesale cost.  The story, it turns out, was reported earlier on CNBC.

April 10, 2012: in today's edition of the WSJ, p. C10, Liam Denning, makes a case for Delta buying COP's Phillips 66 spin-off rather than an East Coast refinery. Phillips 66:
  • half of its refining capacity in US where Bakken is being sold at discount
  • Gulf Coast refineries can export to Latin America
  • margins on the Gulf Coast 2 - 3 times those of East Coast refineries
  • will benefit from cheap natural gas
  • crude oil bottlenecks require new pipelines; Phillips 66 midstream -- 11% of earnings last year
  • 20% of earnings from chemicals; raw materials (like "wet gases") are being sold at discount; for example 60% of its capacity uses ethane (a natural gas by-product) which has fallen in price by almost half in the last six months
Maybe the best of both worlds: Delta needs to buy a refinery in Louisiana.

April 6, 2012: Suddenly "everyone" is interested in refineries! Now the WSJ reports that Delta Air is seriously considering buying COP's idled Trainer refinery near Philadelphia.
Delta Air Lines Inc (DAL), burdened by the soaring cost of jet fuel, is seriously thinking of making some of its own by buying an idled ConocoPhillips (COP) refinery near Philadelphia, people familiar with the matter said Thursday.

Delta, the world's second-biggest airline by traffic, is in talks with Conoco to acquire its Trainer, Pa., facility at a cost of $100 million to $150 million, one person familiar with the matter said. Delta would hire an outside firm to run the refinery.

The move could help supply Delta's operations at La Guardia airport and John F. Kennedy International Airport in New York, and save it most of the so-called crack spread, or the difference charged by a refinery between the cost of a barrel of crude and a barrel of jet fuel. In March, the spread between jet fuel and Brent crude, which is the benchmark that determines the price of most crudes delivered to the East Coast, was $12.85 a barrel, according to energy consultancy IHS Purvin & Gertz. The Trainer refinery, idled since October, has a processing capacity of 185,000 barrels a day, including 23,000 barrels a day of aviation fuel, according to the U.S. Energy Information Administration.
Original Post
This is what keeps me going: surprises coming out of the Bakken.

This story is incredible -- maybe the best story of the month. There will be two links.

"Anon 1" sent me the links.

This is a great story on so many levels. I just love free market capitalism, and this is a phenomenal example.

First link: Bakken oil may just "save" the two or three shuttered refineries on the East Coast.
While it appears too late to spare Marcus Hook, which has been shuttered since December, evidence of new buying interest has emerged this week for two other major plants, potentially saving the Northeast region from a summer fuel squeeze that had unnerved politicians all the way to the White House.

One of those bidders is counting on the boom in light, sweet shale oil to help resuscitate the ailing sector, which has been squeezed between costly, imported light crude, falling gasoline demand and new, more sophisticated overseas rivals.

Preferred Sands LLC, which has grown in five years to become the third-largest supplier of sand and proppants to the hydraulic fracturing industry, touts its deep connections in the shale patches of Bakken, North Dakota, and Eagle Ford, Texas, plus more than 1,500 rail cars with connections to major railroads.
Now, go to the web page of a company providing sand for fracking

Once you get a feeling for that company, return to the first link.
As production in landlocked North Dakota and Canada surged, crude prices plunged in the Midwest, giving refiners there a profit advantage that allowed them to chip away at the East Coast market. Some of that oil made it as far south as Louisiana and Texas by rail, but little of it moved east.

But late last year, Sunoco and Conoco tested light, sweet Bakken crude from North Dakota at their plants, with an estimated 10,000 and 20,000 bpd of Bakken oil railed to Albany, New York and then barged down to Philadelphia, traders said.

However, Lynn Elsenhans, then Sunoco's chief executive, said in November that Sunoco Logistics lacked the assets to bring enough crude east to make it economical.

Enter Preferred, which says its train connections give it a leg up over other bidders. It already hauls tons of sand or silica from plants in Nebraska and Arizona to the shale patches in other states, where the "proppant" is injected into wells to allow oil and gas to flow out.
Something tells me we will be seeing a two-page story in the Wall Street Journal some day tying this all together.

Wow, there are so many things I could say about this story, but I think I will let others think about it for awhile, let it simmer, but this is a huge story.

Interesting isn't it? Cushing is overflowing and now, like deus ex machina, Preferred Sands, LLC, shows up with an answer. And a means. Incredible.