Midwest refiners to ship more fuel to East Coast, pressuring plants

(Reuters) -U.S. Midwest refiners are gearing up to send more gasoline and diesel to East Coast buyers, hoping to fill a void created by refinery closures and cutbacks, but likely to add pressure to regional fuel producers.

Slideshow ( 2 images )

Midwest refiners, such as BP and Husky Energy, that process inexpensive Canadian crude are betting on East Coast markets to boost sales and margins. But the move could make it more difficult for PBF Energy to restore production of gasoline, diesel and jet fuel at its Paulsboro, N.J., plant.

“The midwest refining complex is a firehose to the East Coast, which is already drowning in imports,” said Zachary Rogers, senior oil analyst at consultancy Rapidan Energy Group.

Shippers are geared up to transport up to 25,000 barrels per day (bpd) of refined products on the Mariner 1 pipeline from the Midwest as soon as this week, two traders familiar with the matter said. If demand permits, refiners could double that amount, they said.

“We do expect that this service will help to lower overall fuel costs for Pennsylvania residents and business,” said a spokeswoman at Energy Transfer, which operates Mariner 1. Volumes of between 20,000 bpd and 25,000 bpd will begin this month, she said.

Gasoline prices in the Midwest traded 4 cents a gallon below the futures benchmark for gasoline on the New York Mercantile Exchange on Tuesday while New York Harbor conventional gasoline prices were 3.25 cents above the futures benchmark.

East Coast refineries produce only part of the fuel consumed in the region, with pipeline and seaborne imports furnishing most. Three refineries, owned by Delta Airlines, PBF Energy and Phillips 66, produce 700,000 bpd combined out of the 5.2 million bpd of gasoline, diesel, and jet fuel consumed last year, Energy Information Administration data shows.

The largest refiner, Philadelphia Energy Solutions, halted operations following a 2019 explosion, Canada’s Come-by-Chance, which sold fuel into the East Coast, was idled in May, and PBF Energy said in October it would shut fuel-producing units at its 180,000 bpd Paulsboro refinery.

PBF did not reply to a request for comment.

Midwest refiners a year ago began targeting the region with 120,000 bpd through a partial reversal of the Laurel Pipeline, which opened western Pennsylvania markets.

Laurel operator Buckeye Partners likely will push for the pipeline to fully reverse direction and to reach Philadelphia, said Sandy Fielden, downstream energy analyst at Morningstar.

Buckeye Enterprises, which operates the Laurel Pipeline, did not respond to requests for comment.

“The argument not to fully reverse the line now gets weaker and weaker as the East Coast refining sector shrinks,” Fielden said.

Reporting by Laura Sanicola; Editing by Gary McWilliams and Stephen Coates