* CEO of PES says expects economics of using Bakken to stay
* PES will be "by far" the largest consumer of Bakken oil -
* PES could also rail Permian, Utica oil
* Statoil is "regular supplier" of Bakken to PES
By Sabina Zawadzki
PHILADELPHIA, Oct 2 Philadelphia Energy
Solutions' 350,000 barrel-per-day Pennsylvania refinery is now
processing a fifth of all oil produced in North Dakota's
prolific Bakken shale oil formation and the plant could take
more from there or other sources.
Just a year after the company bought the plant, rescuing it
from the threat of a shutdown due to the high cost of imported
crude, the refinery is sucking up 190,000 bpd of North Dakota
Bakken crude, CEO Philip Rinaldi said on Wednesday.
About 160,000 bpd of that crude was arriving direct to the
refinery on two unit trains a day while the other 30,000 bpd was
coming by rail then barge, he said at an event in Philadelphia
marking the opening of a rail offloading point at the refinery.
PES had previously said it expected to rail in 140,000 bpd
of Bakken crude to the refinery. PES is a joint
venture of Carlyle Group and Energy Transfer Partners
"We're actually bringing in 190,000 barrels per day of
Bakken crude because we're bringing in some by a different route
which ... comes partially by train and partially by barge,"
Rinaldi told reporters.
"We've pre-invested in this railroad track so that we have
the stage to bring in a third train that would bring us to
240,000 barrels per day," he said.
As he spoke at the site, a train of 120 cars, 1.5 miles (2.4
km) long and carrying 80,000 barrels of Bakken crude slowly
rolled in. The train was operated by CSX Corp and the
crude came from the oil fields of Statoil, he said,
calling the Norwegian oil company a "regular supplier."
Rinaldi stressed the investment into the rail project was to
allow the refinery flexibility to move a variety of lower-cost
domestic crude including oil from Texas's Permian Basin and the
Utica shale field in Ohio, depending on the economics.
"We think this is a better way to bring crude oil by long
distances because this is all about flexibility for crude," he
"So, right now crude from the Bakken and North Dakota is a
very good thing but, you know what, times change, and if the
better crude starts moving down to the Utica, we can take it by
rail. If it's in the Permian Basin, we can take it by rail.
So we're connected everywhere and we don't get locked in."
However, when asked whether a diminishing spread between
U.S. and Brent crude oil futures could make the Bakken crude
less attractive, Rinaldi said while the spread was an important
indicator, "it really doesn't drive" the economics of Bakken.
He said with production of 850,000 bpd, "that crude has got
to get to the market and the only really meaningful way it will
get to the market is by rail ... We will be by far the largest
consumer of Bakken crude oil. I think those economics will stay
because they're necessary to clear that area."
In 2012, the plant was on the verge of closure, hobbled by
the high cost of importing all of its feedstock from abroad such
as the North Sea and Africa, rather than using cheaper domestic
crudes. It was a problem shared by other East Coast refineries.
Sunoco Inc shuttered a 178,000-bpd refinery in Marcus Hook
in the same state in 2001 and Hess Corp's 70,000-bpd
refinery shut in February this year.
So diversifying its own crude supplies has been core to the
turnaround of PES's fortunes. PES had annual revenues of $15
billion, Rinaldi said, adding that he was "happy" with the
profits though not disclosing the amount.
Rinaldi later told Reuters the refinery was currently buying
West Texas Intermediate (WTI) crude oil from the Permian Basin,
although did not specify at what rates, and was setting up rail
connections to bring WTI out of Cushing, Oklahoma.
Overall, however, much of the leftover capacity not supplied
by Bakken crude came from the Atlantic Basin, he said, meaning
imports from West and North Africa and the North Sea.
JP Morgan supports the refinery by providing temporary
financing for PES's purchases of oil until they are delivered to
the refinery and buying its refined products, an "activity we
could not survive without," Rinaldi said.
In July, JP Morgan said it would try to sell or spin off its
physical commodity trading assets and it is unclear where that
would leave PES.
In August, Rinaldi said PES has a "multiyear agreement" with
JP Morgan, that he did not expect surprises, but that he did not
know how JP Morgan's intention to sell would play out. Rinaldi
gave no further comment on Wednesday.