Refineries too full to accept North Slope production. Pipline slowdown possable.
At midnight on April 11, a 940-foot tanker maneuvered into the dock at the oil terminal in Valdez, Alaska, carrying an unusual cargo for a returning ship. Sloshing in its tanks were more than 12 million gallons of Alaskan crude, at least a quarter of the cargo the ship had carried away from Valdez two weeks earlier.
The Alaskan Explorer had sailed to a Washington refinery but was forced to return to Alaska with 300,000 barrels because the onshore storage tanks were too full to accept it, confirmed Anil Mathur, CEO of the Alaska Tanker Co., which owns the ship.
"Not the normal course of business," said John Kotula, one of the few outsiders privy to the incident because of his position as manager of the state of Alaska's environmental office in Valdez. The tanker's inability to offload its oil underlines a startling reality: Stocks of crude oil in the U.S. have been for the last two years at historic highs, while Americans are using decreasing amounts of its most important product - gasoline.
But federal statistics show another recent development: West Coast refineries are decreasing their production as the domestic demand for gasoline shrinks."If there is so much crude oil around, why is the price of gasoline so high? Why is the price of heating oil so high?" asked Dan Lawn, an environmental consultant who was in the same job as Kotula for decades before he retired in 2005.
The BP refinery in northern Washington had been shut down due to a February fire when the Alaskan Explorer arrived there on April 6. But that doesn't explain the tanker's return to Valdez with a big load of oil. Refinery spokesman Bill Kidd acknowledged that in normal times, the ship would have offloaded the remainder of its cargo at one of three nearby refineries.
An unusual position: Hauling oil to Valdez - a remote town that still supplies a big portion of the West Coast's oil - is carrying the proverbial coal to Newcastle. It is a sign that the American oil industry is in a very un-accustomed place. Government statistics show gasoline isn't selling the way it used to, and on any given day crude oil could be backed up in storage tanks ranging from Valdez to the San Francisco Bay to Long Beach. "Valdez inventories are pretty high. Our inventories are high. Nobody is taking much crude on the West Coast," Kidd said.
So why aren't gasoline prices pushed downward by the forces of supply and demand? "You've keyed into an interesting puzzle, a paradox," said Richard Newell, professor of energy and environmental economics at Duke University and until last year the head of the federal Energy Information Administration, an arm of the Energy Department that tracks industry statistics.
The answer is the power of the world market. "We are tied to the global market, the global price for oil," said Rayola Dougher, senior economic adviser at the American Petroleum Institute. "We cannot secede."
The profitable oil production industry benefits from the fact that it operates within a global market. Fuel conservation in the United States cannot overcome the rising hydrocarbon demand in emerging markets like China and India, Newell said. The price stays up even where more local market pressures might force it down.
The profitable oil production industry benefits from the fact that it operates within a global market. Fuel conservation in the United States cannot overcome the rising hydrocarbon demand in emerging markets like China and India, Newell said. The price stays up even where more local market pressures might force it down.
Nationally, the average retail price for all grades of gasoline as of last Monday was $3.93 a gallon, according to the Energy Information Administration - about the same as this time last year but up more than a dollar since April 2010. The highest prices are mostly on the West Coast.
Limited gesture: The Obama administration has proposed better oversight of the commodities market that trades in oil futures, but it is a limited gesture. The markets that set crude prices are different for Scandinavian, West Texas and Arabian oil. "The dynamics in the United States are the opposite of what is occurring at a global level," Newell said. When prices at American gasoline stations go down - or up - it will be for reasons other than U.S. intervention or our improved driving habits, he said.
Lower consumption hasn't brought U.S. prices down or eliminated our dependence on foreign oil. Even though exports are up, the United States still imports around 11 million barrels of crude oil and petroleum products per day, according to the Energy Information Administration.
Consumer demand for gasoline in the U.S. started faltering in 2005 and has been falling "very sharply" since 2007, said Houston-based oil industry analyst Pavel Molchanov of Raymond James & Associates.
"We think (demand) is going to go down in perpetuity," Molchanov said.
"We think (demand) is going to go down in perpetuity," Molchanov said.
People are driving less, because of the economy and the aging of baby boomers, said James Beck, a lead petroleum supply analyst for the Energy Information Administration. Newer cars get better mileage and are replacing the gas-guzzling older ones.
From Ray Metcalfe 907-344-4514 RayinAK@aol.com
So how is it that Parnell's plan will work? Alaskan's need to know.
U.S. awash in oil, but global demand drives prices
By Eric Nalder
Toward natural gas: Meanwhile, natural gas is cheap. Buses and commercial vehicles are turning away from oil and toward compressed or liquid natural gas, and the petrochemical industry is replacing oil with natural gas for feedstock, Molchanov said.
Gulf Coast and West Coast refineries consequently are making more product than they can sell locally. They are exporting it, notably to Central and South America, in volumes not seen in half a century, according to the Energy Information Administration.
Some East Coast refineries face possible shutdowns because of falling demand and gasoline imports from Europe, Beck said.
"The surging growth in U.S. oil supply has turned North American crude dynamics upside down," industry analysts Cory Garcia and Stacey Hudson said in a March briefing paper distributed by Raymond James & Associates.
Advanced drilling technologies are sucking new crude oil supplies out of landlocked North Dakota, while a pipeline bottleneck at the key hub in Cushing, Okla., has slowed the path to refineries in Texas and Louisiana. The results are a glut of crude oil in the middle of the country, as well as environmental concerns about the drilling techniques. "Clearly, it will take some time (and pipeline capacity) in order to fully clear this supply glut," Garcia and Hudson wrote.
Nearly full tanks: The storage tanks in Valdez were more than 90 percent full the day the Alaskan Explorer arrived with its odd load, said Michelle Egan, spokeswoman for terminal operator Alyeska. She downplayed the significance of those full tanks, noting that they were not so full a few weeks earlier.
But Egan also acknowledged that Alyeska officials begin worrying when the storage tanks at the terminal are over 90 percent full. Such a glut could force a slowdown of oil production on the North Slope. That would reduce flow in the Trans-Alaska Pipeline, she said, which can result in increased maintenance problems.
The price of gasoline, meanwhile, is still near four bucks a gallon.
But Egan also acknowledged that Alyeska officials begin worrying when the storage tanks at the terminal are over 90 percent full. Such a glut could force a slowdown of oil production on the North Slope. That would reduce flow in the Trans-Alaska Pipeline, she said, which can result in increased maintenance problems.
The price of gasoline, meanwhile, is still near four bucks a gallon.
"Both the supply side and demand side in the U.S. are moving in a direction that you would think would underpin falling prices," Newell said. "But the global market rules."
