UPDATE 2-PBF Energy expects crude by rail to be long-term trend

Thu Feb 21, 2013 3:18pm EST

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By Kristen Hays

HOUSTON Feb 21 (Reuters) - PBF Energy Inc expects crude by rail to be a "very, very long-term trend," particularly the movement of Canadian heavy crude, Chairman Tom O'Malley told analysts on Thursday.

"That is something that is around for the next decade," O'Malley said.

The company, which runs three U.S. refineries - two on the East Coast and one in Ohio - is also positioning itself to discharge crude and condensate produced in Ohio's Utica shale oil play via rail and truck when the output becomes available, said PBF Chief Executive Tom Nimbley.

Some analysts have questioned the growing investments in crude by rail, as numerous pipeline projects seek to move inland U.S. and Canadian crude production to refining markets.

But PBF sees crude by rail as key to transforming its East Coast refineries from money losers to profit makers. Several East Coast refineries have shut down because reliance on expensive imports left them unprofitable as players with easier access to cheaper inland U.S. and Canadian crudes fared much better.

Earlier this month, the company announced it had finished its second crude unloading facility at its 182,200 barrels-per-day (bpd) refinery in Delaware City, Delaware.

The facility can discharge up to 70,000 bpd of light sweet crude oil from North Dakota's Bakken shale and 40,000 bpd of Canadian heavy crude.

On Thursday the company said its directors had approved a $50 million project to expand that facility to double heavy crude unloading capability to 80,000 bpd so the refinery can receive up to 150,000 bpd of crude via rail.

The expansion is expected to be finished in the fourth quarter this year, but O'Malley said availability of rail cars able to handle heavy crude "really puts off that 80,000 barrels a day number until the start of 2014."

Rail cars that transport Canadian heavy crude need insulation and coils suited to heat viscous Canadian heavy crude so it will flow.

"We are making investments and signing agreements in Canada to source that crude as we speak," O'Malley said.

The company began ramping up runs of cheaper crude received by rail in 2012, and O'Malley said the financial benefits will grow this year as those runs increase.

The company's net income for the fourth quarter was $165.7 million, or $1.70 per share, compared to a loss of $111.7 million, or $1.15 per share, in the last three months of 2011.

Nimbley said the East Coast refineries' profits are expected to grow both from improved coking economics and more deliveries of cheaper crude, further decreasing dependence on pricey imports.

"We believe that our East Coast system has turned a corner," Nimbley said.

He said PBF intends to run all heavy crude brought in by rail at the Delaware refinery and split the Bakken barrels between it and the 160,000 bpd Paulsboro, New Jersey, plant.

The company 's 160,000 bpd Toledo, Ohio, refinery also has increased runs of cheaper inland U.S. crude. Nimbley said PBF has ramped up its crude oil truck-unloading rack at the plant and took more than 10,000 bpd of "locally sourced" crudes there in December.

Nimbley said PBF also is "carefully monitoring" crude development in Ohio's Utica shale play and "positioning ourselves to be able to discharge crude and condensates from this region by rail or truck when they become available."

Executives also said on Thursday that a coker and a hydrocracker at the Delaware refinery and a "big unit" which they did not identify at the New Jersey refinery would undergo planned work in the fourth quarter this year.

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