US midcontinent refiners voiced greater optimism in their fourth-quarter earnings calls, given plans to run more discounted heavy sour crude and improve pipeline access to new US markets.
CVR Energy, which operates two midcontinent refineries, plans to increase its exposure to Canadian heavy sour WCS crude, which would allow it to take advantage of wider differentials as more heavy oil comes on the market, including incremental crude from Venezuela, chief executive Mark Pytosh says. CVR is boosting WCS throughputs to about 20,000 b/d at its 132,000 b/d refinery in Coffeyville, Kansas, up from 1,000 b/d of WCS capacity in 2025. More Venezuelan oil arriving at the US Gulf coast could pressure Canadian differentials, benefiting the CVR system, Pytosh says.
Fellow US refiner HF Sinclair is working to increase heavy crude processing at its 162,000 b/d refinery in El Dorado, Kansas. The project, which is expected to be completed in the fourth quarter, will improve plant reliability and increase heavy crude processing capability by about 10,000 b/d, commercial executive vice-president Steven Ledbetter says.
HF Sinclair can run up to 100,000 b/d of heavy crude in its system and is seeking an advantage with more heavy grades available in the market. The increase in heavy sour Venezuelan supply earlier this year was "a shock to the system in terms of the differentials", causing an immediate pop, Ledbetter said.
More Venezuelan crude is hitting the global market after traders Trafigura and Vitol were approved by the US government to market unsanctioned Venezuelan oil following the US capture of former president Nicolas Maduro on 3 January. The US has since lifted sanctions on Venezuelan oil exports.
Other US refiners with midcontinent plants, including Valero, Marathon Petroleum and Phillips 66, also plan to increase their overall intake of heavy sour supply, including Venezuelan oil.
Midstream moves
Midcontinent refiners are optimistic about proposed pipeline projects that could expand their reach to new US markets. Midstream firm Oneok plans to boost products pipeline capacity by 35,000 b/d from western Kansas to the greater Denver area in the third quarter through a new pipeline and pumping station upgrades, the company says.
Oneok has also proposed the 200,000 b/d Sun Belt Connector products pipeline from El Paso, Texas, to Phoenix, Arizona, with targeted start-up in 2029.
A competing project — the Phillips 66-Kinder Morgan joint venture Western Gateway system — includes building a 200,000 b/d pipeline from Borger, Texas, to Phoenix, combined with the reversal of Kinder Morgan's existing SFPP pipeline from Colton, California, to Phoenix. In addition, the Phillips 66-operated Gold pipeline, which flows from Borger to St Louis, Missouri, would be reversed to allow products from midcontinent refineries to move south to Borger and supply the Western Gateway system.
Phillips 66 and Kinder Morgan on 16 January launched a second open season on the project after receiving "significant shipper interest" in an initial offering. The companies also expanded the project to add access to Los Angeles markets.
The pipeline proposals come as two refinery closures in California have raised fuel supply concerns in the western US. Phillips 66 shut its 139,000 b/d Los Angeles complex last year and Valero is in the process of idling its 145,000 b/d Benecia refinery. Valero plans to decide the fate of its other California refinery — 85,000 b/d Wilmington — around the end of the decade.
