Summary
There are two issues that I believe are melded into one in this article. The first is do we have enough refining capacity in the USA and the second is do we have alternative oil sources in the USA that could displace crude oil purchases from abroad.
Analysis
The USA refining capacity is approximately 17.5 million barrels per calendar day according to the latest EIA statistics. We import approximately 10 million barrels per day of crude oil while producing just over 5 million barrels per day. Other inputs to the crude units are NGL's or condensates. We also import approximately 1 million barrels per day of gasoline and gasoline blendstocks, and while we import 200-300 thousand barrels per day of distillate into the east coast, we export a like amount, perhaps a bit more, of distillate off the gulf coast and west coast.
Suppose we invested $600 billion dollars in new refining capacity. Assuming that a 400,000 barrel per day full conversion refinery to handle heavy, high sulfur crudes costs $15 billion, thats 40 new refineries each of 400,000 barrel capacity or a total of 16 million barrels per day new capacity. I do not think the USA currently needs in excess of 33 million barrels of total refining capacity.
But suppose it was built? The future projections for new oil production in the USA are far from 16 million barrels per day, the new capacity will be filled with imports. The crude oil bill would actually go up. I would guess the excess product would shrink our product imports to near zero while turning the USA into a net exporter of product. This would offset part of the crude oil bill and if margins are sufficinet around the world would be advantageous.
However, lets suppose the 400,000 barrel per day refinery is built in South Dakota and takes advantage of increases production of Canadian sour crude. (Perhaps it eventually processes crude from new fields in Montana and North Dakota). The location would be more competitive for that crude versus shipments to either the US Gulf Coast refining system or out the proposed Gateway pipeline system to West Coast Canada.
Assuming a 50% gasoline yield is 200,000 barrels per day. That no doubt displaces product from the Magellan and Nustar systems originating in Texas or Oklahoma and Group 3.
The following gasoline demand numbers are from the EIA website under prime supplier sales volumes. The North Dakota demand of 22 thousand barrels per day (MBD) is partly met by the Tesoro Mandan refinery which produces about 34 MBD. A refinery in South Dakota would pressure prices in Grand Forks as well as in parts of Minnesota where the competition is Flint Hills and Marathon Ashland.
The gasoline demand in South Dakota is 28 MBD, Montana 43 MBD, Iowa 91 MBD and Nebraska 51 MBD. This refinery would have to move product south and east competing with Group 3 refiners as well as gulf coast origin refiners. Good for the consumer, but ultimately will also impact the South Dakota refinery margin as well.
The article rightly points out that gasoline is shipped form the Tulsa Area to South Dakota. The Magellan Pipeline tariff FERC 83 from OK to Sioux Falls is 170 cents per barrel or roughly 4 cents per gallon. To Watertown SD its about 5.7 cpg. To Grand Forks the tariff is about 6.6 cpg. The location differentials from OK/Group 3 will come under pressure and one would expect the consumer to save some money.
One would expect the consumer to reap some savings, but a brand new grass roots refinery will require decent margins to pay off the investors.
