East coast refiners capturing premium: PBF

OREANDA-NEWS. The exit of some banks from physical trading and rising export opportunities for US Gulf coast refiners has allowed US Atlantic coast refiners to capture higher premiums, PBF Energy chief executive Tom O'Malley said today.

The conditions have combined with new supplies of cheaper natural gas and wider flexibility for crude to boost the fortunes of a region struggling with rationalization less than five years ago.

"I do see a long-term change in the profitability and resilience of the remaining east coast refineries," O'Malley said during a conference call to discuss earnings.

The departure of banks such as Morgan Stanley, Credit Suisse and JP Morgan Chase from physical trading has left the region more dependent on domestic supply, he said. Morgan Stanley and JP Morgan both sold their physical commodities trading desks over the past two years.

"When the arb opens, there is not someone there at every moment to instantaneously take advantage of it," O'Malley said.

New markets available to US Gulf coast refiners have also increased opportunities for local refiners, O'Malley said. The massive coastal refining region now has burgeoning options in Latin and South America more profitable than merely shipping products to the US Atlantic coast.

Remaining US Atlantic coast refiners have a much better crude and energy position than five years ago. Increased natural gas production from the nearby Marcellus and Utica shale fields have reduced costs for that feedstock to near parity with the US Gulf coast, PBF president Tom Nimbley said. Regional rail infrastructure has increased access to cheaper North American light, sweet crudes, as well as Canadian heavies that only PBF can run as operators of the region's only cokers.

"I do think there are some structural changes that have happened," Nimbley said.

The company still continues to hunt for opportunities to expand out of the US Atlantic coast. O'Malley expected majors would continue to see pressure to divest refining assets, creating opportunities for independents.

"There is always something out there," O'Malley said.

Railed movements out of the US midcontinent and western Canada had slowed as the steep decline in international crude prices made waterborne barrels more attractive to PBF. The company processed 82,000 b/d of light crude and 49,000 b/d of heavy crude railed to Delaware City during the fourth quarter.

PBF shifted to waterborne medium and heavy sour crudes, such as Maya and M100, as lower prices made railed Canadian deliveries uneconomic. Purchases of Bakken crude, a light sweet feedstock, also slowed.

But interest in Bakken is picking up again, the company said. The US midcontinent crude would have to price for rail in order to sell. And the prospect of additional volumes of crude supplied to the world market by Iraq, Iran and other sources would continue to push attractive prices for medium and heavy barrels, O'Malley said.

"Certainly we see, finally, a better rent being paid for the use of these heavy refineries," O'Malley said. "We see the coking economics as a more resilient improvement."

PBF expects to during the first quarter average 150,000 b/d to 160,000 b/d at its 170,000 b/d refinery in Toledo, Ohio, and 320,000 b/d to 340,000 b/d at its 370,000 b/d US Atlantic coast refineries.

The company reported a loss of \$277.6mn during the fourth quarter of 2014, driven mostly by the decline in price of crude held in storage by the refiner. The refiner reported a \$102.1mn profit in the same quarter of 2013.