March 21, 2022 [The Philadelphia Inquirer] – About 15% of Russian crude oil imports to the U.S. last year went to a Delta Air Lines refinery outside Philadelphia.
If you took a Delta Air Lines flight last year out of Philadelphia or any Northeastern state, your plane likely contained a fair amount of fuel refined from Russian crude oil.
Likewise, for anyone who filled up a car at a local gas station supplied from Monroe Energy LLC, the Delaware County oil refinery owned by Delta.
The airline’s refinery outside Philadelphia was the nation’s largest single importer of Russian crude oil last year, buying 10.7 million barrels, or 15% of the total U.S. crude imports from Russia, according to U.S. Energy Department data analyzed by The Inquirer. PBF Energy, which operates nearby refineries in New Jersey and Delaware, also imported a significant amount of Russian crude and unfinished oils last year.
Under President Joe Biden’s March 8 ban on Russian energy imports, those refiners and dozens of other importers of Russian oil and petroleum across the nation must switch to new suppliers. However, Russian shipments already ordered are allowed to continue. Biden imposed the ban in response to growing calls from Congress to punish Russia for its Feb. 24 invasion of Ukraine.
U.S. industry can adapt
The administration and the oil industry say the ban on Russian imports will be manageable, as were previous market disruptions after the United States imposed sanctions on Iranian and Venezuelan crude. The Russian ban could contribute to rising energy costs that have caused pump prices to soar in the last year.
Russia is the world’s second-largest exporter of crude oil and a major supplier to Europe. But Russia accounted for only 3% of U.S crude imports last year.
It was a bigger exporter of petroleum products to the United States, which includes refined fuels and unfinished oils. Altogether, it accounted for 245 million barrels of crude oil and petroleum imports to the United States, or about 8% of total U.S. petroleum imports.
While American industry can adapt to the loss of Russian imports, the change in flows of crude and petroleum disrupts international shipping, which can affect prices, said Dean Foreman, chief economist of the American Petroleum Institute.
“On a systemwide basis, these volumes are relatively small,” he said. “Shipping markets, however, are tight. And if you need to change the source of crude oil or these intermediate products in a relatively tight shipping market, this change of source could result in higher costs.”
Russia accounted for 29% of Monroe’s imports
The Russian import ban will be felt in some parts of America more than others. Russian products arrive by large ships to a few coastal customers, such as Monroe Energy and PBF, while refiners in the nation’s interior are unaffected. For Monroe, Russian crude amounted to 29% of its total imports last year, second only to crude imported from Nigeria. For PBF, Russia’s 7.5 million barrels amounted to about 12% of its imports last year, ranking behind Saudi Arabia, Canada, and Mexico.
Monroe Energy says it placed its last order for Russian crude in November. “Monroe doesn’t plan to enter into additional agreements for Russian-supplied crude oil for the foreseeable future,” said Adam Gattuso, a company spokesperson, who declined to answer other questions about the refinery’s crude oil sourcing practices.
PBF, whose local refineries are in Delaware City, Del., and Paulsboro, referred questions to the American Fuel and Petrochemical Manufacturers (AFPM), an industry trade group.
“No American refinery is contracting for new orders of Russian oil or petroleum products,” said Ericka Perryman, an AFPM spokesperson.
Why Philly refineries need imports
Industry experts say Russian crude oil can be replaced by similar grades of crude oil from other countries or from U.S. producers, though it costs more to transport domestic crude by rail or American-flagged ships to Northeastern refineries that are not connected to producers by pipelines.
That’s a curse for import-dependent East Coast refineries, whose output has declined by two-thirds in the last 15 years after a raft of plants closed, including the giant Philadelphia Energy Solutions refinery in South Philadelphia in 2019.
But no American refineries were dependent specifically on Russian imports, said John R. Auers, executive vice president of Turner, Mason & Co., an energy consultancy. Refineries bought Russian crude because it made economic sense in the prevailing market. ”Russian crude is more of an opportunistic piece of the crude slate,” he said.
Auers said the economic advantages of buying Russian crude were dissipating at the end of 2021, explaining why Monroe and other refiners were already reducing their orders months before the Ukraine invasion. After the invasion, Russian crude attained instant pariah status. Workers in Britain refused to unload a shipment earlier that arrived in a German-flagged vessel.
Now orphaned Russian crude is cheap on world markets, while activists track vessel shipments online and are poised to publicly shame any buyers.
“Currently, Russian crude is at a high discount because their markets are limited,” said Auers. “But it doesn’t matter because you can’t buy it.”
The Monroe Energy refinery is configured to use light crude that is “sweet,” meaning it contains low levels of sulfur, an impurity that needs to be removed during the refining process. In addition to Russian and Nigerian crude, Monroe also imported shipments last year from Canada, Kazakhstan, Angola, and a small amount from North Sea producers in Britain and Norway.
Monroe can receive domestic crude by rail and ship, though individual movements of U.S. crude are not reported publicly by the U.S. Energy Information Administration (EIA). According to maritime sources, the Trainer refinery received several visits by crude oil tankers from the U.S. Gulf Coast last year. Cargo that moves between U.S. ports must be transported on U.S. flagged vessels, which increases transportation costs.
Delta Air Lines bought the Trainer refinery in 2012 from Conoco-Phillips and optimized production for jet fuel. It transports jet fuel to Northeastern airports, including major Delta hubs at LaGuardia Airport and JFK International Airport in New York. According to its financial reports, Delta swaps the gasoline, diesel, and other fuels it manufactures at Monroe Energy for jet fuel delivered to other airports across the nation where it operates.
Where does the Russian oil go?
The end-users for much of the Russian products to the United States are not always easy to track beyond the companies that import the material.
Besides Monroe Energy and PBF, Russian crude was delivered to refineries on the Gulf Coast, the West Coast, and Hawaii, according to EIA company-level reports.
The two largest corporate buyers were Marathon Petroleum Corp., which imported 13.9 million barrels to refineries in Alaska, California, Washington, and Texas, and Valero Energy, which bought 13.1 million barrels of Russian crude for plants in Louisiana, Texas, and two locations in California.
Russia also exported 129 million barrels of partly refined unfinished oils to the United States last year, 78% greater than its crude oil exports to the U.S. Most of these heavy intermediate oils were delivered to Gulf Coast refineries, which have the equipment to refine the material into valuable fuels like diesel and gasoline. The PBF refinery in Delaware City, which is configured to refine heavy sour crude oil, also received 4.1 million barrels of intermediate product from Russia last year.
The United States also imported some Russian finished fuel and “motor fuel blending components,” which includes materials like alkylate, benzene, toluene, and xylene that are mixed into fuel to make finished motor gasoline (it doesn’t include ethanol).
Most of the 18.4 million barrels of blending components were imported into the Northeast by companies like ExxonMobil and BP Products North America Inc., which added it to fuel supplies.
The U.S. imported about 24 million barrels of refined Russian products mostly into East Coast markets, including diesel, gasoline, jet fuel, and residual fuel, a heavy oil used to power some marine vessels and industrial boilers. The fuels were primarily imported by large international commodity trading companies like Trafigura AG and Gunvor USA LLC, which sold them to distributors or large industrial customers. Most of the gasoline was destined for Southeastern ports: Norfolk, Va., Savannah, Ga., Jacksonville, Fla., and San Juan, Puerto Rico.
Lukoil, the Russian oil company that has become the target of a consumer boycott after the Ukraine invasion, imported about 1.1 million barrels of Russian diesel and heating oil into Northeast markets.
A silver lining?
Monroe Energy, which has struggled in recent years amid efforts by Delta to sell the facility or to find a strategic partner, reduced production during the pandemic when airline traffic cratered, and changed its output last year to produce more motor fuel and less jet fuel, according to Delta’s financial reports.
But Auers, the refinery consultant, believes that the current crisis in Eastern Europe, and the uncertainty of Russian energy flows, may be favorable to Monroe Energy and other beleaguered East Coast refiners that in recent years have been at the short end of a competition with European refiners that can export surplus production to the United States.
European refiners now face uncertain crude oil supplies from Russia, as well as soaring prices for Russian natural gas, which is a major cost for refiners, he said. And with elevated crude oil prices, the profit margins for U.S. refiners have gone up.
“I think Delta/Monroe actually has pretty good prospects for the foreseeable future given the negative environment for European refiners,” said Auers. “The short-term and even medium-term prospects of East Coast refineries have really improved at the expense of the European refiners.”
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