Viewpoint: NYH poised to be demand hotspot in 2021

New York Harbor's exacerbated product shortage could provide a much-needed outlet for exporters around the globe next year, aided by relaxed gasoline testing rules in the US.

The Covid-19 pandemic devastated demand for refined products around the world for much of 2020. It also destroyed refining margins across the US and in particular in the northeast, forcing refiners to idle units and cut rates in a region that already has a greater structural shortage than other parts of the country.

This has created a growing demand hotspot in New York Harbor, one that will be fought over by suppliers in northwest Europe, Brazil, Colombia and India, along with domestic refiners in the Gulf coast in the coming year.

The New York Harbor region — which last year lost its largest refinery, Philadelphia Energy Solutions' 330,000 b/d facility, to a fiery explosion — lost more refining capacity this year due to poor margins. PBF reduced its 180,000 b/d Paulsboro, New Jersey, refinery by 85,000 b/d as of December.

In addition, the Come by Chance refinery on the east coast of Canada was idled in April. The refinery, at 115,000 b/d, supplied an average of 56,000 b/d of products to the US Atlantic coast in the March 2019-March 2020 period, according to Vortexa estimates.

Eroding margins forced the area's remaining refineries to operate at reduced rates, even as the region's fuel shortage deepened, first with gasoline in the summer, followed by distillates in the fall and winter. The gasoline shortage spilled over into the winter as expensive naphtha and butane squeezed blending margins for relatively plentiful CBOB and conventional gasoline, limiting pipeline shipment volumes from the Gulf coast.

As a result, international suppliers are poised to gain the most in 2021. The US Environmental Protection Agency changed regulations for blending RBOB, removing testing requirements for aromatics and volatile organic compound (VOC) starting in January. That could potentially channel a wider pool of European gasoline blendstocks into the US market, as well as a wider pool of heavy and full-range naphtha from Colombia and Brazil.

India, which has traditionally sent alkylate from private sector refiner Reliance's 1.36mn b/d Jamnagar refining complex to the New York Harbor market, could be sending additional gasoline components. Alkylate, previously valued for its lack of aromatic content, could become less attractive for blending compared to reformate. The refinery has already begun sending more diesel to the New York market.

Colombian exports to the US are likely to remain focused on diesel rather than naphtha, as increased pipeline movement of sour crude pulls more domestic naphtha into that country's diluent pool. Brazil will continue to compete for gasoline and naphtha demand in New York Harbor as well.

By Chunzi Xu