Teapots boiling in Texas as shale spurs refining revival

Light Crudes

When that capacity comes online, it will absorb some of the excess light oil that producers want to ship abroad, said Andy Lipow, president of Houston-based Lipow Oil Associates LLC.

The Nixon refinery was built in 1980, primarily to supply Air Force bases in the San Antonio area with jet fuel, Carroll said. It shut around 1990.

Carroll began looking at the plant in 2006, a year after Hurricanes Katrina and Rita knocked more than 30 percent of U.S. refining capacity offline. The financial crisis delayed funding of the project, and by the time it started operating, the Eagle Ford was producing about 451,000 barrels of crude and condensate a day, according to EIA data.

Eagle Ford

“The Eagle Ford has created its own marketplace,” Carroll said. “It’s changed the course for others, and specifically for us, because we’re right in the middle of it, wells are literally across the street.”

The refinery contracts with Genesis Energy LP to purchase oil that it processes into jet fuel, diesel used by drillers and feedstock sold to nearby refineries.

Blue Dolphin also has an option to purchase an idled 40,000-barrel-a-day refinery in Ingleside, Texas, near Corpus Christi. Small plants like the ones Blue Dolphin is targeting are simpler to reopen because they can get all their crude via tanker truck and have lower emissions than larger plants, making it easier to get environmental permits, Carroll said.

Continental Refining Co. restarted in late 2012 a 5,500- barrel-a-day refinery in Somerset, Kentucky, that was idled in February 2010 when the previous owner couldn’t secure crude supplies. Continental runs mostly locally produced oil, and can also get Bakken crude by rail or barge, Missy Shorey, an outside spokeswoman for Continental based in Wichita Falls, Texas, said when the plant reopened.

New Refineries

In addition to reopening old plants, companies have announced or filed for permits to build at least three new refineries in North Dakota, one in Texas and one in Utah, all near oil fields.

“Because of all the drilling activity, that’s created demand for fuel to support the drilling itself and transportation to and from the fields,” said John Auers, vice president of Turner, Mason, a firm of consulting engineers. “You get the benefit of having both discounted crude and demand for product that’s in short supply.”

MDU Resources Inc. and Calumet Specialty Products Partners LP are about 30 percent complete with building the 20,000- barrel-a-day Dakota Prairie plant near Dickinson, North Dakota, which will be the first new refinery in the U.S. since 2008. There hasn’t been a refinery built with more than 50,000 barrels a day of capacity since Marathon opened its Garyville plant in Louisiana in 1977.

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