* Seaway pipeline started flowing in reverse Saturday
* Oil hauled from Oklahoma to Texas could boost refiners
* With shale output, may overwhelm light refining capacity
* Blending with Canadian heavy could help absorb the bounty
By Bruce Nichols
HOUSTON, May 21 (Reuters) – Reversal of the Seaway pipeline
will bring U.S. Gulf Coast refiners the cheaper Midcontinent
crude oil that they have wanted for the last 18 months — maybe
too much of it.
Cheaper light, sweet crude from the Midcontinent will be a
big part of the 150,000 barrels per day the Seaway will bring to
the heart of U.S. refining at Houston when it reaches planned
initial capacity..
Feedstock costs on the Gulf Coast already are reacting to
the reversal, which started over the weekend. Light Louisiana
Sweet
fell to a discount to world benchmark Brent
after months of selling at a premium.
LLS refining margins for Texas and Louisiana refiners grew
$1.95 a barrel last week as LLS premiums have fallen from around
$16 over West Texas Intermediate to $13 and lower, Credit Suisse
said in its weekly refining report.
But the result could be a mismatch of oil supply and
refining capacity in the region, Credit Suisse said, noting
refining light crude is different from refining heavy in
important ways.
“We believe light sweet crude processing capacity in the
Gulf could be overwhelmed by 2014-2015 unless crude finds an
alternate route to the East or West Coast,” Credit Suisse said
in its weekly refining report.
The reason is Gulf Coast refiners have geared themselves to
handle heavy, sour crude in recent years because they expected
lighter grades to decline. They also are receiving an unexpected
surge of light crude from Texas’ Permian and Eagle Ford shales.
Valero Energy, which operates both light and heavy
refineries on the Gulf Coast, has studied the issue and believes
it can adjust and handle as much as 200,000 barrels per day more
of light, sweet, spokesman Bill Day said.
“There are ways to take advantage of the light, sweet crude
that’s becoming available,” Day said.
Though a refinery like Valero’s Houston refinery could run
100 percent light, a pure light feedstock might not be
economically efficient at a more complex refinery like Port
Arthur or Texas City designed to handle heavy, Day said.
“But you could blend it with other heavier feedstocks,” Day
said.
Indeed, increased imports of heavy, sour oil from Canada –
awaiting U.S. approval of the planned Keystone Pipeline – will
be key to making full use of the new U.S. bounty of shale oil,
said Adam Bedard, president of the Bentek Energy consultancy.
“We’ll see more and more blending as we mix heavy Canadian
with light sweet to generate the equivalent of an intermediate
sour, which will get it into refiners on the Gulf Coast.
Certainly there’s demand in the Gulf Coast for intermediate
sour,” Bedard told a conference in Houston last week.
(Reporting By Bruce Nichols; Editing by David Gregorio)
