OREANDA-NEWS. June 27, 2017. Storm clouds are gathering once again over US Atlantic Coast refineries, but unlike a few years ago when it was high oil prices causing a problem, this time the threat is coming from the Midwest.

Hemmed in by geography, Midwestern refiners are looking east as a logical place to sell their gasoline and diesel.

The proposed partial reversal of Buckeye’s Laurel Pipeline, a 350-mile line now carrying gasoline and diesel from Philadelphia-area refineries west to Pittsburgh, would offer Midwest refiners easier access to the East Coast market.

But the proposal to reverse a portion of the pipeline by Q3 2018 does not bode well for US Atlantic Coast refineries. Four out of five of these refineries nestle close to Philadelphia and depend on the Laurel flowing to the west as an outlet for their output. Without the flow westward some of those Philadelphia area refiners could be hard pressed to remain in business.

Between 2010 and 2013, USAC refinery capacity was reduced by about one-third, or over 500,000 b/d, to the current 1.28 million b/d as the price of crude rose more quickly than the price of gasoline and diesel.

The Marcus Hook refinery was shut down and three other area refiners were turned into terminals, slashing hundreds of jobs in the process.

Now as Midwestern plants look for a longterm solution to winnow seasonal builds of gasoline, USAC refiners are again feeling the pressure of encroachment on their market area and once again jobs are at stake.

In March, 858,000 barrels of CBOB gasoline moved via pipeline from the Midwest plants east into PADD 1, versus 175,000 barrels five years ago, EIA data showed.

If the Laurel is partially reversed even more gasoline would head east.

“We get past all that [high oil prices]. And here we are again. Now we are faced with a domestic threat and not a foreign threat,” said Denis Stephano, recently retired after decades at the 185,000 b/d Trainer, Pennsylvania, refinery.

Regulatory path to reversal

In November 2016, Buckeye’s Laurel Pipeline filed with the Pennsylvania Public Utility Commission, “to change the direction of its petroleum products transportation service over a portion of its system west of Eldorado, Pennsylvania.”

Eldorado is a Buckeye-owned terminal in Altoona, Pennsylvania, and is the terminus of a stubline off the main Laurel pipeline. It is currently served by eastern refineries in Pennsylvania as well as PBF’s Delaware City, Delaware, plant.

Monroe Energy and Philadelphia Energy Solutions along with other users of the pipeline filed a motion to modify and extend the procedural schedule with the PUC. The group is seeking clarity on market information, including volumes carried through Laurel, which reports its pipeline volumes on a company level.

This regulatory process of discovery is ongoing and as of now, litigation will last at least through November. At that time, PUC Administrative Law Judge Eranda Vera will craft a recommendation and submit it to the commission, which can accept, deny or change the recommendation. There is no timeframe for when this could happen.

Economically, the more complex refineries in the Midwest create better margins, in part due to easier access to cheaper North American crudes.

Back in 2012, the shale revolution and burgeoning output of North Dakota Bakken helped save the USAC refineries, weighed down by high crude oil prices.