In the last few months, my research shows that a majority of the shale liquid hydrocarbon is not standard if we use the API definition of WTI. The WTI API gravity is set at 42, Permian, Cline and Eagle Fort shale liquids are 45 API or above.
The consequences are significant; the usual crack spread of 3.2.1 does not work for refiners. 3.2.1 means that refiners get 2 barrels of gasoline, 1 barrel of diesel out of 3 barrels of WTI. As the gravity of the crude goes up more gasoline is produced causing less production of diesel.
The majority of refineries in the US are set up to distillate from the standard WTI of 42 API. Today the US market is changing. Gasoline sales are flat, and diesel demand is rising, particularly for export to South America. In the middle term and because the H2S PPM will have to meet the new EPA standard, refineries will have to modify the process to meet the standard.
According to my research, a significant amount of the Eagle Fort production gets to Corpus Christy, go to the Loop by water ways and is piped to Chicago for the ultimate destination of Alberta and used as diluent for the Bitumen crude.
This Eagle Fort crude 45 API and up to 55 API is heavily discounted by as much a $20. ALDW as to greatly benefit from this discount. ALDW refinery has a high Nelson rating, meaning it can handle a wider API rated crude, and WTS, which as to be further discounted than none sour crude. If my reasoning is correct the ALDW crack spread should produce good distribution.
When they crack a bbl of crude they get more then a bbl of liquids. I heard it varies but Shell's big cat-cracker in Deer Park was getting 44-46 gal out of a bbl of Saudi crude.
Since Big Sping was designed for sour crude I wouldn't think they will need to make any modifications for an H2S standard change. Every bit of steel from the well head through the refinery would need to meet a different spec by other refineries if they wanted to run sour crude. It used to be a NACE spec but I don't know who's in charge anymore. Where did you hear there is a new upper limit for H2S? Must be some more dc brilliance... meeting H2S specs for alloy is expensive.
The EIA definition, The refinery Nelson rating makes the difference.
A crack spread measures the difference between the purchase price of crude oil and the selling price of finished products, such as gasoline and distillate fuel, that a refinery produces from the crude oil. Crack spreads are an indicator of the short-term profit margin of oil refineries because they compare the cost of the crude oil inputs to the wholesale, or spot, prices of the outputs (although they do not include other variable costs or any fixed costs). The 3:2:1 crack spread approximates the product yield at a typical U.S. refinery: for every three barrels of crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillate fuel.
To calculate the 3:2:1 crack spread for a Gulf Coast refinery that processes Louisiana Light Sweet (LLS) crude oil, add the spot price for two barrels of Gulf Coast conventional gasoline to the spot price for one barrel of Gulf Coast ultra-low sulfur diesel. Since prices for petroleum products are typically quoted in dollars per gallon, they must be multiplied by 42 gallons per barrel to convert to dollars per barrel. Then subtract the spot price for three barrels of LLS crude oil. Finally, divide the result by 3 to produce a crack spread in dollars per barrel.
The figure illustrates the Gulf Coast (LLS) 3:2:1 crack spread during 2012. Because the 3:2:1 crack spread is a product of the interplay of three commodity prices, each subject to different but interconnected supply and demand balances, the range of values can vary widely. Product supply shortages resulting from serious disruptions such as hurricanes or other
Nice, Ous. I just found out ALDW and NTI have a board now. Glad to hear ALDW should benefit, cause I just bought some more the other day when it hit $22.65. I'm not a fan of NTI right now, simply because of the last two quarters secondaries. I was wondering how much the narrowing spread would affect ALDW.