U.S. refiners turn to tanker trucks to avoid 'dumbbell' crudes

Mon Mar 23, 2015 12:07am EDT
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By Kristen Hays

HOUSTON (Reuters) - In a pressing quest to secure the best possible crude, U.S. refiners are increasingly going straight to the source.

    Firms such as Marathon Petroleum Corp and Delek U.S. Holdings are buying up tanker trucks and extending local pipeline networks in order to get more oil directly from the wellhead, seeking to cut back on blended crude cocktails they say can leave a foul aftertaste.

While the business of hauling crude from individual oil wells to bulk storage depots or pipeline hubs has become a lucrative niche in recent years thanks to the shale oil revolution, refiners are getting into the "first mile" game for a different reason: taking control of their supply chains to secure a more predictable, consistent stream of crude.

    Phillips 66, the nation's fourth-largest refiner, has added trucks and offloading equipment at several of its refineries to help reduce its reliance on oil coming from Cushing, Oklahoma, the nation's biggest crude oil crossroads and storage hub. Here, a growing volume of Canadian oil sands is often mixed with lighter domestic shale crude, resulting in blends that can be less profitable than similar oil fresh from the field.

Phillips 66 executives say operations at its 200,000-barrel-per-day refinery in Ponca City, Oklahoma, only 62 miles (100 km) from Cushing, have improved since it began getting more of its crude directly from wells in the Mississippian Lime shale patch nearby.

"That's really the key," Phillips 66 President Tim Taylor told Reuters. "With Cushing, you can get a blended barrel that hits the spec, but it's not as consistent as you'd like."

    Others are also seeking to cut out the middleman where possible, delving into an industry once dominated by independent local players and stepping up pressure on bigger midstream transport and logistics firms to meet their needs.

In December, Delek Logistics Partners LP paid $11.5 million to buy 120 trucks and 200 trailers used to haul crude and asphalt, mostly for its parent firm's East Texas and Arkansas refineries.   Continued...

Used oil barrels are stacked at a storage facility in Seattle, Washington February 12, 2015. REUTERS/Jason Redmond