Biodiesel: Steelheader.net- Steelhead, Salmon and trout fishing

Put this in another thread...

For the week ending Feb. 18, average Washington diesel prices were the highest in the continental US at $2.51/gallon (Hawaii was higher). In the four weeks running up to Feb. 18 diesel prices increased 34 cents/gallon while gasoline prices rose 10 cents, for a total difference of 53 cents (27% more for diesel). California prices have risen recently too, however Washington is now about 20 cents higher for diesel.

The dubious distinction of being number 1 has invited heightened interest. CTED Energy Policy has been talking with Washington's 5 oil refiners about the high prices. Tony asked me to brief you on our findings. As you all know oil markets are complex. We have not attempted to do more than find out what the industry has to say.

Over the past decade west coast prices for gasoline and diesel have steadily increased versus the rest of the nation. In this latest period the Pacific Northwest states all rose versus California.

High prices across the nation are of course due to high crude prices and increased environmental costs (for example the requirement to move to low sulfur diesel), among other things. Higher west coast prices reflect higher taxes generally, a somewhat isolated market where high operating capacity leaves little room for contingencies, and selective products such as California's reformulated gasoline. Timely import capability and product substitution is limited.

1. Eastern Washington, Idaho and Montana are experiencing very tight diesel supplies. The ConocoPhillips, Spokane terminal is on 80 percent allocation for a couple of reasons. First, a large Suncor crude processing facility near Edmonton had large explosions and a fire in January. They are operating at 50% capacity and will not be back to full production (225,000 Bbl/d) until this summer. Suncor provides diesel and synthetic crude to the Pacific Northwest by pipeline and barge. Second, the ConocoPhillips, Billings refinery is experiencing serious operational problems and is not able to produce consistently. So supply is tight. The prospects for March do not appear much better. The Billings refinery has scheduled a March turnaround to fix the problems. At the same time, the COE plans to shut down several Columbia River locks for maintenance. Product will not be barged to Pasco for insertion in the Chevron Pipeline to serve Spokane during that time.

2. Recently, Tesoro, Anacortes, Washington's third largest refinery at 115,000 Bbl/day conducted a major turnaround. Tesoro has been down nearly all of February and will not complete its turnaround until sometime in the first week of March. Tesoro has used increased inventory and imports to meet contract demand during the period, but did not attempt to meet 100 percent of normal demand. It covered its normal gasoline demand more completely than diesel. This required other refiners and marketers to "fill the gap." Unfortunately, coming during a time of already tight supply, it has been difficult for others to pick up the slack. ConocoPhillips, Ferndale was down a couple of days dealing with a sulfur facility. Most of the others operated at or near capacity, but import capability was constrained from Edmonton and Billings, and to some degree from California (see discussion on lubricity standards).

3. Washington's second largest refinery, Shell, Ferndale (115,000 Bbl/day) was in scheduled turnaround all January. They met 100 percent of normal demand for the period through inventory and imports, but the lost production was missed.

4. Olympic Pipeline scheduled a shut down for 5 days in February. This required additional imports.

5. The initiation of lubricity standards has made some imports difficult. According to the industry, unfamiliarity with state Departments of Agriculture regulatory processes, and differences between states have caused companies to take different positions on accepting diesel with or without lubricants. This has made it difficult to foster trades, purchase imports and deliver to traditional locations. For example, some Portland terminals are not accepting diesel that includes lubricants. Some refineries in California add the lubricant at the refinery (versus at terminals in the Pacific Northwest). This diesel cannot be barged to some Portland terminals even if it is available. I did not attempt to sort out all company positions on this issue.

6. US Oil, Tacoma is Washington's smallest refinery at ~44,000 Bbl/day. They have been operating at or near capacity during the Shell and Tesoro turnarounds but are scheduled for a 4 week March turnaround.

7. BP, Cherry Point, Washington's largest refinery at 225,000 Bbl/day has been operating at or near capacity during the Shell and Tesoro turnarounds and expects to continue such operations through March.

Looks like some bad timing for fires and operational problems. Also some exacerbating circumstances caused by initiation of the lubricity standards in January. Not meeting normal demand during a major turnaround created a gap for others to fill. Continuing problems with lubricity standards, a couple more turnarounds, continued low Suncor production and lock closures in March suggest more of the same heading into spring. ConocoPhillips being at 80 percent allocation during a period of low demand is a serious sign of a very short market

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It has always been my private conviction that any man who pits his intelligence against a fish and loses has it coming. ~John Steinbeck