June 21, 2012 / 4:08 AM / 6 years ago

Analysis: Texas refinery crisis rattles Saudi oil export drive

DUBAI/NEW YORK (Reuters) - Saudi Arabia’s unexpected surge in oil exports to the United States this year has fallen into question following a deepening crisis this month at the kingdom’s jointly owned and newly expanded Texas refinery.

With the huge 325,000 barrel per day (bpd) crude oil unit at Motiva’s Port Arthur, Texas, refinery now expected to be out of commission for as long as a year, crippling the biggest plant in the United States just weeks after the completion of a $10 billion expansion project, the Saudis are likely to throttle back U.S. exports that hit four-year peaks in recent months.

But a deeper look at detailed import data suggests that any curbs on production may not be as deep as many expect. In fact, a Reuters analysis of government data shows that the 27 percent jump in Saudi shipments in the first quarter was driven by higher sales to a variety of customers, not only Motiva, which the kingdom jointly owns with Royal Dutch Shell (RDSa.L).

The world’s top exporter boosted shipments to independent refiners Valero (VLO.N), Marathon Petroleum (MPC.N) and PBF Energy (PBF.N) as part of a 300,00 bpd rise in the first quarter, according to U.S. Energy Information Administration data. Some of that increase was due to unusually low imports in early 2011.

But only about a quarter was destined for the Motiva refinery in Port Arthur, according to a Reuters analysis of more detailed data that identifies which plants consume imported oil. The increase in sales to Valero was nearly twice as large.

To be sure, the kingdom’s state oil firm Aramco must still scramble to rearrange its shipping plans to avoid surplus crude piling up in Motiva’s storage tanks or driving prices lower still by reselling excess oil, measures that are almost certain to require throttling back full-on output.

An industry source in Saudi Arabia said that Motiva had reduced its orders for deliveries of crude in July but declined to give details on volume. An industry source familiar with Saudi oil policy said production “is likely to be affected.”.

The bigger question is how these logistical hiccups are affecting oil policy at a higher level.

Saudi Oil Minister Ali al-Naimi has made no secret of his desire to curb $100-plus oil prices in order to provide a “stimulus” for ailing world economies, driving production this year to more than 10 million bpd, near a record high.

But now with Brent crude now dropping to less than $95 a barrel, its lowest since early 2011, the disruption at Motiva may provide a useful excuse to tighten the taps without abandoning its commitment to helping restore global growth.

“Just a couple of months ago, you had people going ‘Oh my gosh, look at all this Saudi crude!’” says Jamie Webster of PFC Energy in Washington.

“A lot of it was for Motiva.... Now the question is: Are they going to find 325,000 barrels of customers elsewhere, are they going to have to bring production down, or are they just going to continue to put it in their stocks?”

The massive expansion at Port Arthur was shut down in early June just weeks after it was commissioned, due to what sources have said is extensive corrosion in the brand new crude unit. It was first expected to restart operations within two to five months, but sources now say it may be shut for up to a year.


Saudi Arabia shipped 300,000 bpd more crude to U.S. refiners in the first quarter than a year ago, the biggest such year on year rise in a decade, EIA data showed. Imports reached 1.4 million bpd, rising sharply even as a boom in U.S. domestic production and diminished demand reduced overall crude imports to their second-lowest quarterly level since the 1990s.

In total, Motiva imported 315,000 bpd of Saudi crude in the first quarter, a 112,000 bpd increase from the year before, the calculations show. Of that, about 250,000 bpd went to Port Arthur, the plant’s largest intake since early 2007 and enough to meet nearly all the refinery’s pre-expansion demand.

But shipments to Port Arthur were up only 74,000 bpd from a year ago, a relatively modest rise that is in many ways logical: Operators would have needed only a bit of extra oil in order to build up additional inventories ahead of commissioning the new units, which didn’t begin running until mid-April.

The balance of Motiva’s crude imports from Saudi Arabia in the quarter went to its Convent plant in Baton Rouge, Louisiana, which had bought almost no Saudi crude a year ago.

The data also shows that Saudi Arabia found other customers ready to increase purchases to a degree not previously known.

Valero’s imports in the quarter jumped nearly 130,000 bpd to a total 217,000 bpd, the data show. That’s a more than 50 percent rise over its average for all of last year, and pushed its intake of Saudi crude to the highest since 2008.

Sources familiar with Valero’s purchases said that the increase was due to a drop in traditional heavy crude supplies from Latin America and Mexico. First-quarter U.S. imports from Mexico fell 300,000 bpd from a year ago to just 1 million bpd.

Marathon Petroleum and Paulsboro Refining — a unit of independent refiner PBF Energy — also saw sizeable increases of nearly 40,000 bpd each, the data showed, although that was partly due to a particularly low base. Paulsboro’s imports are up by just over 15,000 bpd versus last year’s average.



U.S. imports of Saudi crude: link.reuters.com/zyj78s

Saudi crude shipments grow: link.reuters.com/syj78s



    It is not clear whether the same customers have continued to buy Saudi crude at the same rate. Most oil supply contracts are agreed on an annual basis, allowing for some flexibility in the timing of deliveries. Detailed oil import statistics for the second quarter won’t be fully available until late August.

    It is also too early to assess the impact on Saudi Arabia’s production. In theory, the kingdom could seek to keep pumping at a near-record rate of around 10 million bpd, hoping to find new customers or pushing the crude into storage.

    But storage is running out.

    “Saudi Arabia has been showing the world that it is capable at pumping at high levels of above 10 million bpd, and of course not all this oil is being sold — a lot is going into storage,” said Kamel Al Harami, an independent Kuwaiti analyst.

    Saudi oil minister Ali al-Naimi said back in March that storage inside Saudi Arabia and in its facilities in Rotterdam, Sidi Kerir and Okinawa were already full with around 10 million barrels in stock, leaving the United States as a key sink for millions of Saudi barrels.

    The extra Saudi shipments amount to a year-on-year rise of around 26.75 million barrels in the first quarter alone. Over the same period, U.S. crude oil stocks rose by 28 million barrels. New weekly EIA data on Wednesday showed U.S. stockpiles unexpectedly rose last week after two declines, pushing stockpiles back toward the 22-year highs they reached in May.

    Overall Saudi-U.S. crude exports continued at unusually high levels throughout April and May, with deliveries averaging 1.54 million bpd in the six weeks to mid-June, according to provisional weekly import figures from the EIA.

    The question is how much of that oil was earmarked for the 600,000 bpd Port Arthur plant, which is now running at half-strength.

    In late May, as the top brass from Shell and Aramco inaugurated the $10 billion expansion, Motiva President and CEO Bob Pease said the new units were expected to run only heavy Saudi crude for about two months before diversifying supplies.

    That plan was foiled within days, however, as the new crude unit experienced a glitch on June 3 that forced it to shut down. A week later, following two failed restarts, it was said to be bracing for an up to year-long shutdown. The company has said it cannot say when the unit will be running again.

    “All of that (crude) is now going to go into storage and if you fill up storage, then it has to go somewhere,” says Chakib Khelil, an oil analyst and former Algerian energy minister.

    Reporting by Daniel Fineran in Dubai and Jonathan Leff in New York; additional reporting by Reem Shamseddine, Amena Bakr and Janet McGurty in New York; Editing by Marguerita Choy

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