EIA has updated its calculations of supply requirements for the Northeast markets that appeared in the February report. The previously estimated regional "supply gap" of approximately 420,000 bbl/d for gasoline and ultra-low sulfur diesel (ULSD) combined that would have resulted from the idling of the three Philadelphia-area refineries is now expected to be just 50,000 bbl/d (Figure 1) of ULSD, with the gasoline gap disappearing almost entirely. The remaining potential ULSD supply gap is largely the result of an expected increase in demand for ULSD because of New York State's requirement that beginning in July 2012, all distillate fuel used for heating purposes be ULSD.
Moving about 50,000 bbl/d of additional ULSD to the Northeast should be well within the capacity of existing infrastructure. While global ULSD markets remain tight, the U.S. Gulf Coast is a major center of ULSD production, exporting an average of almost 580,000 bbl/d of ULSD in 2012 through April. Given the recent 55,000-bbl/d expansion of the distillate segment of the southern portion of the Colonial Pipeline, the ability to ship ULSD from the Gulf Coast has increased by more than the updated estimate of additional supply required from outside the region. While the expanded capacity is only on the southern portion of the pipeline, where gasoline and distillate fuels have separate lines, it should help to deliver additional volumes of ULSD on the northern portion of the line (Greensboro, NC to Linden, NJ). However, on the northern portion of the pipeline, gasoline and distillate do not have separate lines. Thus, additional volumes of ULSD moving on the northern portion of the Colonial pipeline could crowd out shipments of other fuels such as gasoline until 2013, when Colonial is expected to complete an expansion on the Greensboro-to-Linden portion of the pipeline. As gasoline is available in greater volumes globally, importing additional barrels should not pose a challenge. It is also possible the Northeast refineries could increase ULSD production, reducing the need for additional supplies from outside the region. For example, The Carlyle Group and Sunoco joint venture announced planned upgrades to the Philadelphia refinery, including the installation of a hydrocracker, that will support higher ULSD yields.
While the petroleum product supply picture in the Northeast has definitely brightened, EIA's current analysis is based on projected consumption from EIA's monthly forecasts. If consumption were to deviate significantly from projected levels for any reason, supply requirements would change accordingly. Global ULSD markets remain tight, and attracting supplies to the Northeast means competing with other demand centers, particularly Europe.