Shell Considers Retiring California Coker Amid Shale Boom

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, is considering retiring one of two coking units at its only refinery in California as the company seeks to run lighter crude at the plant.

The company has applied to county regulators for a permit to shut the flexicoker at the 156,400-barrel-a-day Martinez refinery northeast of San Francisco, a move that would shrink the plant’s reliance on heavy oils and cut its greenhouse-gas emissions by 15 percent, Destin Singleton, a Shell spokeswoman, said May 16. The unit helps convert the denser crude into more valuable products such as diesel and gasoline.

Shell is considering the shutdown as hydraulic fracturing and horizontal drilling unleash record volumes of light oil from shale formations across the middle of the U.S. California’s refiners, lacking pipeline access to the growing crude supplies, are bringing in the most ever by rail as they work to counter shrinking production within the state and from Alaska.

“The reality is that we are looking at each individual refinery and making economic decisions as to what is the most optimal feedstock,” John Abbott, downstream director for The Hague-based Shell, said in an interview at Bloomberg’s headquarters in New York May 16. “This is one of the most competitive assets on the West Coast of the U.S. and in California.”

Industry refining margins on the U.S. West Coast, a rough indicator of profitability, averaged $7.62 a barrel in the first quarter, almost twice the $4.07-a-barrel coking margin on the Gulf Coast, Shell said in a statement April 30.

Train Deliveries

The Martinez refinery doesn’t have the equipment to unload oil from rail cars and has never received crude from other terminals that take train deliveries, Singleton, based in Houston, said by e-mail. The refinery will continue to receive oil by pipeline and vessel using existing infrastructure once the coker is shut, she said.

Heavy crude pumped from California’s San Joaquin Valley dropped 35 cents to $95.20 a barrel, data compiled by Bloomberg at 2:01 p.m. New York time show. Light crude from North Dakota’s Bakken formation gained 82 cents to $98.59 a barrel.

Crude Mix

“Overall, heavy crudes are a big part of our current mix,” Singleton said. “We’ll be processing the same crudes we refine today, but the mix will be lighter — meaning significant reductions in greenhouse gas emissions, less electricity use, and more efficient operations.”

A delayed coker, which was installed at the refinery in the 1990s, based on air regulatory filings, will remain in service, she said.

Refiners from Tesoro Corp. (TSO) to Valero Energy Corp. (VLO) are working to bring more shale oil to their plants on the U.S. West Coast by rail. Trains delivered 395,053 barrels of oil to California in March, a record volume for that month, the most recent data available from the state Energy Commission show.

Shell is seeking permits to build a rail complex at its Anacortes refinery in Washington state that would allow the plant to unload oil from as many as six trains a week, regulatory filings show. The company has also said that it’s carrying upgraded crude to the West Coast from its Scotford oil-sands upgrader in Canada.

Crude Imports

Martinez imported 903,000 barrels of medium-to-heavy crude in February from Canada, the most recent data available from the Energy Information Administration show. The complex already processes some lighter crudes, like Bakken oil, along with heavier feedstock from California’s Central Valley, Singleton said.

Contra Costa County regulators are expected to prepare a report on the environmental impacts of the coker retirement, and the public will have a chance to comment on the plan during that process, she said.

Chevron Corp. (CVX)’s Richmond refinery, west of Martinez, is also applying to local regulators for a project that would change its crude slate. The plan would replace a hydrogen plant and increase capacity at the fluid catalytic cracker’s hydrotreater and sulfur-recovery system to run higher-sulfur oils.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Margot Habiby, Charlotte Porter

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