Issue Brief. Date: May 25, 2006 Author: Don C. Richards, Senior Research Analyst Re: Crude Oil Production, Pipeline Transportation and Refining

Transcription

1 Issue Brief 06 IB 004 Date: May 25, 2006 Author: Don C. Richards, Senior Research Analyst Re: Crude Oil Production, Pipeline Transportation and Refining PURPOSE Given the historical decline in the production of crude oil in Wyoming, identify contemporaneous refining and transportation changes that might offer rationale for the limitations in pipeline and refining capacity for the transport of Wyoming crude oil. RESULTS IN BRIEF Wyoming's crude oil production has declined steadily, and in aggregate, dramatically, over the past 35 years. The in-state refining capacity has declined modestly in the past 20 years, and the refining capacity in the Rocky Mountain region has actually increased. At least one major crude oil transportation pipeline (and perhaps others) has been converted to other uses, reducing the ability to transport Wyoming crude oil to market. Finally, and perhaps most importantly, Canadian crude oil imports have dramatically increased, and from many reports, may continue to be the primary factor in the balance of production and refining capacities. Local and regional refiners benefit greatly from the supply of Canadian crude oil; however, these imports have the competitive potential to overwhelm Wyoming's independent oil producer's supply. BACKGROUND From Wyoming's peak crude oil production in 1970, annual production has fallen by 285,000 barrels per day, or 67 percent. In addition, crude oil production in the Rocky Mountain region over the past quarter century has declined by 48 percent since Wyoming refining capacity has declined about seven percent over the past two decades and refining capacity in the Rocky Mountain region has actually increased by approximately five percent over the same time period. There is very limited data on current or historical pipeline capacity collected or retained by state agencies (or state entities), i.e., Public Service Commission (PSC), Wyoming Pipeline Authority (WPA), Oil and Gas Conservation Commission (OGCC), or Wyoming Geological Survey (WGS) or federal agencies such as the Department of Energy or the Federal Energy Regulatory Commission (FERC). Further complicating the analysis of this issue is that the limited data related to the transportation of crude oil is summarized by region, or Petroleum Administration for Defense Districts (PADD), without regard to state boundaries. Although this categorization further complicates issues related to crude oil pipeline capacity, it also highlights the regional nature of these issues. Wyoming is located within PAD District IV, which includes the Rocky Mountain states of Colorado, Idaho, Montana, Utah, and Wyoming. LSO Research staff was not able to identify pipeline data that authoritatively speaks to the historical and current crude oil pipeline capacity in the state. Nonetheless, LSO was able to obtain and summarize a sufficient amount of data from both government and private sector sources, which appears to lend itself to reasonable, but not definitive, conclusions regarding historical and current crude oil pipeline capacities and the recent perceived and actual affects of tightening capacities. Proper assessment of the issue of pipeline capacity requires consideration of at least four separate issues: (1) regional and in-state crude oil production trends; (2) regional and in-state crude oil refining capacity; (3) inter-district and international crude oil imports and exports; and (4) other material developments in the transportation of crude oil. In other words, if one assesses all inputs (production and imports) and outputs (refining, storage, and exports), it should reveal a fair bit about a relatively closed system.

2 CRUDE OIL PRODUCTION As illustrated in Figure 1, and in more detail, Table 1, Wyoming's crude oil production increased steadily between 1916 to Since 1970, crude oil production in Wyoming has experienced a fairly steady decline, although comparatively strong, recent pricing environment encourages the employment of enhanced recovery methods, even set against a backdrop of declining production from the state's PAGE 2 OF 7 major oilfields. The bottom line assessment of crude oil production is that Wyoming crude oil production is in the neighborhood of 140,000 to 150,000 barrels of per day, down from a high of approximately 427,000 barrels per day in the early 1970s. Production trends in the Rocky Mountain region are comparable to those identified in Wyoming at least the fairly consistent declines over the past 25 years. Regional production is shown in column 2 of Table 5. Figure 1. Historical Wyoming Crude Oil Production Thousand Barrels Per Day Calendar Year Source: LSO graphic of Wyoming Oil and Gas Conservation Commission data

3 PAGE 3 OF 7 Table 1. Historical Wyoming Crude Oil Production. Crude Oil Production Crude Oil Production Crude Oil Production Calendar Calendar Annual Calendar Annual Year Annual Thousand (millions Thousand (millions Thousand Year Year (millions of barrels of of barrels of of barrels of barrels) per day barrels) per day barrels) per day NA NA Source: Annual production is provided by the Wyoming Oil and Gas Conservation Commission. Daily calendar production figures have been calculated by LSO Research staff.

4 PAGE 4 OF 7 CRUDE OIL REFINING Despite a reduction in the overall number of refineries in Wyoming and the Rocky Mountain region (PADD IV), the total daily refining capacity in both areas is within five to seven percent of capacities from 20 years ago. Several refineries discontinued operations in both Wyoming and in the region; however, some of the remaining refineries have expanded their capacities. Table 2 shows the present Wyoming and regional refining capacity, and Table 3 illustrates the comparable data from Wyoming's refining capacity has dropped by about seven percent, while the regional refining capacity has increased by roughly five percent. Throughout the history of refining in Wyoming, LSO Research staff was able to identify 15 total refineries, of which 10 are no longer in operation. 1 These are shown, by capacity and location, in Table 4. At least recently, it appears Wyoming's in-state crude oil refining capacity exceeds the in-state crude oil production on an average barrels per day basis. However, due to (a) the location of the oil fields, refineries, and existing pipelines, (b) imports from Canada, Montana, and North Dakota, and (c) the quality of Wyoming's crude oil, Wyoming facilities are not exclusively refining Wyoming oil. 2 Table 2. Existing Wyoming and Regional Refining Capacity. (Thousand of Barrels Per Day) Refinery (Location) Daily Capacity Refinery (Location) Daily Capacity 1) Sinclair Wyoming Refining Company 70,000 9) Cenex Harvest States Coop (Laurel, MT) 55,000 (Sinclair) 2) Frontier (Cheyenne) 46,000 10) ConocoPhillips (Billings, MT) 58,000 3) Little America [now Sinclair] (Wyoming) 24,500 11) ExxonMobile Refining and Supply Co (Billings, MT) 60,000 4) Wyoming Refining (Newcastle) 12,500 12) Silver Eagle Refining (Woods Cross, UT) 10,250 5) Silver Eagle Refining (Evanston) 3,000 13) Holly Corp Refining and Marketing 24,700 (Woods Cross, UT) 6) Colorado Refining Co. (Commerce 27,000 14) Big West Oil Co (North Salt Lake, UT) 29,400 City, CO) 7) Suncor (Commerce City, CO) 60,000 15) Chevron USA Inc (Salt Lake City, UT) 45,000 8) Montana Refining Co (Great Falls, MT) 8,200 16) Tesoro West Coast (Salt Lake City, UT) 58,000 Total 2005 Wyoming Refining Capacity 156,000 Total 2005 PADD IV Refining Capacity 591,550 Source: Energy Information Administration (EIA). Notes: Wyoming refineries shown in italics. 1 There may indeed be other refineries previously operating in Wyoming. This list, compiled primarily through the Wyoming Petroleum Association publication, supplemented with other sources, includes all refineries identified by LSO. Again, it is possible the information contained is not exhaustive. 2 A substantial portion of Wyoming's crude oil production is lower quality (higher specific gravity) crude oil. According to LSO interviews, refineries may require different qualities of crude oil inputs to develop appropriate quantities of outputs.

5 Table 3. Wyoming and Regional Refinery Capacity in (Thousand of Barrels Per Day) PAGE 5 OF 7 Refinery (Location) Daily Capacity Refinery (Location) Daily Capacity 1) Asamera Oil U.S. Inc. 38, ) Chevron U.S.A. (Salt 45,000 (Commerce City, CO) Lake City, UT) 2) Conoco Inc. (Commerce 32,500 13) Crysen Refining Inc. 12,500 City, CO) (Woods Cross, UT) 3) Gray Refining Co. 13,400 14) Husky Oil Co. (North 25,000 (Fruita, CO) Salt Lake City, UT) 4) Cenex (Laurel, MT) 40,400 15) Phillips Petroleum Co. 25,000 (Woods Cross, UT) 5) Conoco Inc. (Billings, 48,500 16) Plateau Inc. (Roosevelt, 8,075 1 MT) UT) 6) Exxon Co. (Billings, 42,000 17) Amoco Oil Co. 48,000 MT) (Casper, WY) 7) Flying J Inc. (Cut Bank, 5,600 18) Husky Oil Co. 28,800 MT) (Cheyenne, WY) 8) Kenco Refining Inc. 4,200 19) Little America Refining 24,500 (Wolf Point, MT) Co. (Casper, WY) 9) Simmons Refining Corp. 6,300 20) Mountaineer Refining (Black Eagle, MT) Co. (LaBarge, WY) 10) Amoco Oil Co. (Salt 40,000 21) Sinclair Oil Corp. 53,000 Lake City, UT) (Sinclair, WY) 11) Caribou Four Corners Inc. (Woods Cross, UT) 8,400 22) Wyoming Refining Co. (Newcastle, WY) 12,500 Total 1984 Wyoming Refining Capacity 167,180 Total 1984 PADD IV Refining Capacity 562,055 Source: Survey of operating refineries in the U.S. (capacities as of January 1, 1984), Oil and Gas Journal Data Book, Notes: 1) Daily calendar capacity not reported; computed by LSO based upon total estimate for Colorado refining production and checked against the reported barrels per steam day to determine reasonableness. Table 4. Historic Wyoming Refining Capacity All Refineries. (Thousand of Barrels Per Day) Refinery (Location) Daily Capacity Refinery (Location) Daily Capacity 1) Sinclair Wyoming Refining Company 70,000 9) Glacier Park (Osage) 10,000 (Sinclair) 2) Frontier (Cheyenne) 46,000 10) Glenrock Refining (Glenrock) 3,213 3) Little America [now Sinclair] 24,500 11) Silver Eagle Oil (LaBarge) 2,000 (Wyoming) 4) Wyoming Refining (Newcastle) 12,500 12) Southwestern Refining (LaBarge) 1,100 5) Silver Eagle Refining (Evanston) 3,000 13) Sage Creek Refining (Cowley) 600 6) Amoco (Casper) 48,000 14) Mountaineer Refining (LaBarge) 380 7) Texaco (Casper) 21,000 15) C&H Refinery (Lusk) 190 8) RMT (Cody) 11,500 Source: LSO Summary of data provided by the Petroleum Association of Wyoming (PAW), Energy Information Administration (EIA), Oil and Gas Journal Data Book, 1985, and direct contacts with refinery personnel. Note: Refineries listed in italics are currently in operation. TRANSPORT OF CRUDE OIL BY PIPELINE According to a map provided by the Wyoming Geological Survey, crude oil pipelines cross the state's boundaries a total of 47 times. The pipelines' diameters range from a couple of inches to 36 inches. A few of the pipelines in northern and south central Wyoming simply loop into and out of the state and are included in the count each time they cross Wyoming's borders. As a result, the count of 47 double counts a few pipelines. Despite the relatively large number of pipelines, only a few actually serve as major interstate transportation conduits for crude oil, although several do provide important access to refineries in Billings, Montana, Salt Lake City, Utah, and Denver, Colorado. It should also be noted that

6 some of these pipelines, both the interstate transportation lines and smaller "gathering" lines have the ability to import gas from neighboring states into Wyoming for refining. Exploring crude oil production and refining capacity (or actual inputs) from a regional level begins to illustrate key factors affecting Wyoming crude oil from a broader perspective. As shown in Table 5, throughout the mid-1980s and early 1990s, Rocky Mountain crude oil production exceeded regional PAGE 6 OF 7 refinery inputs, and as shown previously in Table 3, regional refinery capacity. As a result, there were sizeable daily transfers from the Rocky Mountain region to other regions for purposes of refining. As regional crude oil production declined through the 1990s imports from Canada increased dramatically and transfers to other regions for refining also declined. As a result of these developments, regional refineries have become more dependent upon Canadian imports and less dependent upon local and regional crude oil production. Table 5. Recent History of Production and Refinery Inputs in PADD IV. (Thousand of Barrels Per Day) (1) Year (2) PADD IV Crude Oil Production (3) PADD IV Gross Inputs to Refineries (4) Difference (2) (3) (5) PADD IV Crude Oil Imports (6) PADD IV Net Transfers Crude Oil NA NA NA Source: LSO summary and analysis of Department of Energy, Energy Information Administration (EIA) data. Note: This table does not offer a complete picture of a closed system, accounting for all inputs and outputs. Specifically, changes in stock levels are not considered, neither are a small amount of crude oil exports from the region. Further, gross inputs to refineries appear to include both crude oil and petroleum products. In addition to regional production and refining capacities, there appear to be two major interstate, interdistrict, international pipelines that transport crude oil outside of the Rocky Mountain region: the Express/Platte pipeline that originates in Canada and transports oil to eastern Illinois and the Enbridge pipeline which also originates in Canada and transports crude oil to the Great Lakes region. The primary Enbridge line is technically not located in the Rocky Mountain region; however, to the extent the pipeline transports some of the crude oil supply from Canada, Montana, North Dakota, and potentially Wyoming oil, it may reduce the refining needs of Wyoming oil. Attachment A, prepared by the Wyoming Pipeline Authority, provides a rough accounting of crude oil production, refining capacity, and major pipeline capacity for a geographic area even larger than the traditional Rocky Mountain (PAD District IV) region, using the most recent available data. In sum, it illustrates that the refining and export capacity of this seven state region exceeds the crude oil imports and production. However, full consideration of (a) the quality of oil needed by refiners, (b) location of pipelines and refineries in

7 relation to production facilities, (c) the possibility of less than full operation by refineries, etc. is not allowed by this macro review. In fact, according to a news report, in the spring of 2006 the Sunoco Refinery near Denver, Colorado was "operating at just 30 percent capacity while the company [upgraded] facilities " 3 The same article indicated, "Kinder Morgan Canada, which owns the Express Pipeline, said the pipeline is flowing well below its 270,000 barrels per day capacity due to refinery turnaround." 4 As illustrated in this article, the production/transportation/refining balances may be subject to disruptions and imbalances, notwithstanding available capacity elsewhere in the system. OTHER FACTORS AND CONSIDERATIONS LSO Research, through numerous interviews, could only identify two potential major interstate crude oil pipelines that are currently not in use for crude oil transportation. Both have reportedly been converted to natural gas transportation. Most recently, the current Pony Express natural gas pipeline (operated by KN Energy) was converted from crude oil service around Approximately ten years ago, this pipeline had a reported, but unconfirmed capacity of roughly 150,000 barrels of oil per day. Since it has been taken out of service, that capacity is no longer available for transporting Wyoming crude oil. If the reported historical capacity is accurate, it exceeds the total average daily production for all of Wyoming's current crude oil production. In addition, another pipeline previously owned by Williams and now operated by Southern Star runs from near Rawlins to the Kansas City area. Due to two changes in ownership and significant turnover in staff, few confirmed facts could be identified about this pipeline. The capacity is unknown, although it reported has a diameter of 16 to 18 inches. Further, it is not clear whether this pipeline actually transported crude oil before being converted to its current use natural gas or whether it actually transported oil products. Even the year of conversion could not be determined with accuracy. There may be other major crude oil pipelines that carried significant amounts of crude oil from Wyoming (or the PADD IV region); PAGE 7 OF 7 however, based upon multiple conversations, none could be identified at this time. CONCLUSION Given the identified refining capacity in the Rocky Mountain region (and surrounding states), refining capacity exceeds regional production. Imports of crude oil provide necessary supply needed by regional refineries, particularly in light of declining local production. However, these imports also present the possibility of overwhelming local crude oil production. Planned or unanticipated pipeline or refining disruptions also offer the potential for significant short and long-term ramifications on crude oil producers. CONTACTS FOR MORE INFORMATION Bryan Hassler, Executive Director, Wyoming Pipeline Authority, (307) Bleizeffer, Dustin, "Wyo oil dips under constraints," Casper Star Tribune [on-line edition]. 4 Ibid.

8