tuw5P

imports has been of the heavy variety, and so most US refineries are designed to process heavycrude specifically. The US refineries designed to handle heavy crude can process light crude, butthey will be underutilizing their facilities and will find it less profitable to do so.The United States has relatively few remaining refineries that were designed to handle light crudeexclusively. Indeed, one of the few major light crude refineries—in Philadelphia—was about to bedecommissioned before the tight oil revolution got under way. Valero is in the process of refittinga large refinery in Texas to process Eagle Ford light crude. To accommodate lighter crudes, such asthat produced from the Eagle Ford or Bakken shale, US refineries need to invest in specializeddistillation units that can yield a variety of light products, such as propane, in addition to gasoline,jet fuel, and diesel.Combined, the increased production of light crude, a lack of pipeline capacity, and the inability oflocal refineries to efficiently handle light crude have bottlenecked supplies in the Midwest. Oneconsequence is that railroad use to transport crude oil has spiked dramatically, causing its ownproblems. (One recent rail accident and oil spill was associated with transport of Bakken crude toan Eastern Canadian refinery.) The transport bottlenecks also have led to sharply reduced crudeoil prices in the Midwest, where light crude is in the most excess supply (Chart 2). 2 Contrary topopular belief, however, low crude oil prices in the Midwest do not seem to have resulted inlower prices for refined products in the Midwest (Chart 3).Chart 2. Refiners’ Acquisition Cost (Composite)………………………………….2 The crude oil refined in PADD 2 has a lower API gravity and higher sulfur content than that refined in PADD 1.It also has a higher API gravity and a lower sulfur content than that refined in PADD 3. Therefore, the datashown in Chart 2 overstate the price differential between PADD 1 and PADD 2 and understate the pricedifferential between PADD 2 and PADD 3.4 B R O W N E T A L . | R E S O U R C E S F O R T H E F U T U R E