Bakken oil prices strengthened to a premium against West Texas Intermediate crude May 3, following Tesoro Corp.’s announcement it was ahead of schedule on the construction of rail facilities for its Anacortes, Wash. refinery. Crude shipments from its North Dakota crude oil gathering system to the refinery would begin in September, instead of the end of the year, Tesoro officials said, and the amount of crude shipped might eventually be 60,000 barrels a day as opposed to 40,000 bpd under the current plan.
Following the announcement, which was made at a first quarter conference call, Bakken oil strengthened $3 to a $1 premium to WTI at 12:09 p.m. in New York, according to Bloomberg data. It was the first time since December that the grade has traded at a premium.
At the same time, Bloomberg showed Syncrude’s premium to WTI weakened 30 cents to $1.50 a barrel, and Western Canada Select’s discount widened 75 cents to $15.
Light Louisiana Sweet’s premium to WTI added $1.05 to $15.55 a barrel. Heavy Louisiana Sweet’s premium increased $1.15 to $15.65 a barrel.
From 30,000 bpd to 60,000
The Anacortes rail terminal was initially scheduled to deliver 30,000 bpd a day of sweet Bakken crude to the West Coast refinery, replacing the heavier and more expensive Alaska North Slope crude. The company said in mid-2011 that Bakken crude oil yielded approximately 16 percent more clean product and less fuel oil than Alaska North Slope crude, and that during the second quarter of 2011, the differential between those products was approximately $28 per barrel.
Currently the 120,000 barrel-per-day Washington refinery receives 1,000 to 2,000 bpd of North Dakota oil.
Then in March of this year, Tesoro President and CEO Greg Goff said the amount of Bakken crude had been bumped to 40,000 bpd because the 800 rail cars Tesoro ordered could handle that much crude.
Initially, Goff said shipments would be every other day: “We need to test the delivery system and how everything fits together. … Physically, if it works like we planned, you can go to every day. But you have to get the rail cars, and rail cars are in tight supply right now.”
In the May 3 conference call, Scott Spendlove, senior vice president and CFO of Tesoro, explained that the terminal was actually designed to handle 60,000 barrels a day and that Tesoro was hoping to eventually utilize that full capacity.
“The physical design of the system is designed to take, it could physically take, a unit train every day, which would be 60,000 barrels a day. We are currently permitted for less than that, but we are working through the process to hopefully increase the capability to maximize the use of the facility,” Spendlove said.
Massive investment to further expand Mandan
On May 3, Goff also said the company was on schedule and nearing completion of its $35 million Mandan, North Dakota refinery expansion, where Tesoro is increasing the refinery’s capacity from 58,000 bpd to 68,000 by the end of the second quarter this year.
When asked by Goldman Sachs analyst Arjun Murti to talk about “additional running room you see to further expand that facility after this phase, given the pretty dramatic growth in Bakken production,” Goff said that when the Mandan expansion was complete there would be, with one exception, no room for more expansions.
“The Mandan refinery, once we complete the expansion we’ve been working on, the refinery becomes basically balanced,” he said. “So we effectively use all of the assets there. And there really is no room for further expansion, with one exception. And that is … we will produce additional ultra-low sulphur diesel during 2013, by changing our yield and moving a little bit away from gasoline to diesel.”
In March, Goff had said further capacity expansions of the plant would require “massive investments” and the Northern Great Plains market “is pretty well situated” as is.
Goff also said at that time Tesoro was interested in acquisitions in the areas where the company already operates, which included the Midwest, Rockies and West Coast of the U.S. Tesoro was not interested in expanding into the Gulf Coast or struggling East Coast regions, he said.
—Kay Cashman
