Canada’s Largest Refinery Shifts from Bakken Shale Oil to Brent Crudes
Irving Oil stops imports by rail from U.S. in favor of crudes shipped from overseas
Irving Oil’s refinery in Saint John, New Brunswick. PHOTO: AARON MCKENZIE FRASER/BLOOMBERG NEWS
The operator of Canada’s largest crude oil refinery, Irving Oil Ltd., said it has stopped importing Bakken Shale oil from the U.S. in favor of cheaper crudes from such producers as Saudi Arabia, reflecting a shift in crude costs affecting East Coast refiners during a global slump in oil prices.
The closely held company’s 320,000-barrel-a-day refinery in Saint John, New Brunswick, one of the biggest by volume in North America, has reduced purchases of Bakken crude shipped by rail to zero from a high of nearly 100,000 barrels a day two years ago, Irving President Ian Whitcomb said in an interview on Thursday.
“We’re not importing any Bakken crude right now,” he said.
The move reflects shifting economics in the energy industry even as the price of oil—including Bakken crude—has slumped to six-year lows.
A once-yawning gap, between the cost of oil produced in North America and overseas crudes priced at the Brent global benchmark, has narrowed since 2013. Refiners on North America’s east coast can now import crude shipped by sea for less than the cost of shipping it by rail from shale oil producers in North Dakota and elsewhere in the U.S.
Irving Oil’s refinery in Saint John, New Brunswick, is one of the biggest by volume in North America. PHOTO:AARON MCKENZIE FRASER/BLOOMBERG NEWS
U.S. shale oil production has surged in recent years, especially from the Bakken Shale formation in North Dakota, where a lack of pipelines led to a boom in shipments of crude by rail. Shipping by rail is more expensive than by pipeline—and in many cases by ship—and fewer refiners seem willing to pay that premium.
Refiners PBF Energy Inc. and Phillips 66 both said they increased procurement of overseas crudes at the expense of crude-by-rail in the second quarter, though they signaled it is unclear if that will continue throughout the rest of the year.
“Our ability to source sovereign waterborne crudes was far more economic to the East Coast facilities, and that’s what we did,” PBF Energy CEO Tom Nimbley said in late July.
Phillips 66 CEO and Chairman Greg Garland told investors last month, “We actually set [crude-by-rail] cars on the siding. We brought imported crudes in the system.”
But, he added, “I’d say given where our expectations are for the third quarter, I’d say cars are coming off the sidings, and we’re going to import less crude.”
The number of railcars carrying oil has dropped sharply compared to last year, reflecting both the worsening economics of crude-by-rail and better pipeline access to refineries on the Gulf of Mexico. The Association of American Railroads said earlier this month that U.S. Class I railroads originated 111,068 carloads of crude oil in the second quarter of the year, down 2,201 carloads from the first quarter and some 21,000 fewer carloads than the peak in 2014’s third quarter.
About 90% of the crude oil Irving currently buys is shipped by sea from such producers as Saudi Arabia and those in western Africa, with the remainder coming by rail from such western Canadian oil-sands operators as Syncrude Canada Ltd. and Royal Dutch ShellPLC, Mr. Whitcomb said.
A year ago, Bakken crude made up about 25% of Irving’s feedstock and in 2013 it supplied nearly one-third of its procurement volume, or about 100,000 barrels a day, the executive said. “Bakken price has gone up” relative to other crudes when crude-by-rail costs are factored in, he said.
Irving also said Thursday it would invest 200 million Canadian dollars ($153 million) in a turnaround project aimed at improving the reliability and competitiveness of the Saint John refinery.
The self-financed project will replace “aging hardware” to boost reliability and won’t change the mix of crudes refined, Mr. Whitcomb said. The upgrade, which will employ about 3,000 workers, will begin on Sept. 16 and cut the facility’s output by about 50% for the 60-day duration of the work.
The Saint John refinery produces finished energy products, such as gasoline, and about 80% of its production is exported to the U.S.
