Lower Gas Prices? Not Before This Happens
Oil giant Hess made news at the beginning of this year when it announced it was exiting the refining business. The company stated it would sell its Port Reading refinery, or close it down if it couldn't find a buyer by the end of the month. Now the union representing its employees at its the refinery has launched a campaign to find a buyer and save jobs. There is one other thing that would be avoided if the sale is made: higher gas prices.
East Coast gas
Many refineries on the East Coast were forced to shut down during Hurricane Sandy, which prevented them from building up stockpiles of gasoline for the summer driving season. On top of that, refinery closures in Europe and the Caribbean are affecting volumes as well. Some estimates show stocks of gas are 10% lower than they were last year. If the Hess refinery closes, the pain will be exacerbated; the plant primarily manufactures gasoline and heating oil.
Refineries on the Gulf Coast have gasoline surpluses, but there are logistical problems getting that gas to the East Coast. The Jones Act stipulates that business between American ports must be done by American ships with American crews. There is a shortage of tankers fitting the bill, so that option is out. There is also a pipeline that brings gasoline to the East Coast, but it's already full. An expansion coming on line this summer could help the situation, but if the Hess refinery closes it won't make near the impact people need it to.
There is hope
Before, owning an oil refinery on the East Coast was a surefire way to lose money. While refineries in the middle of America and on the Gulf Coast could link up to pipelines carrying cheap domestic crude, East Coast refineries were out of luck. Instead, they were forced to buy oil at world prices, which were much more expensive than domestic crude.
But this story is starting to turn around. It turns out, oil producers can make more money if they put their oil on a train to the East Coast. The market for crude there isn't as saturated as it is at oil hubs in Cushing, Okla., and Midland, Texas, where much oil used to end up.
Refiners like PBF Energy have built up the rail facilities at their refineries, and now receive that cheaper crude, which means its refineries won't be shutting down any time soon.
PBF has proven that it is possible to win with East Coast refining, and I would be surprised if Hess is unable to find a buyer for its Port Reading facility. Last year, Delta Airlines bought a refinery from Phillips 66 for $150 million, so stranger things have happened.
It's easy to forget the necessity of midstream operators that seamlessly transport oil and gas throughout the United States. Kinder Morgan is one of these operators, and one that investors should commit to memory due to its sheer size - it's the third-largest energy company in the U.S. - not to mention its enormous potential for profits. In The Motley Fool's premium research report on Kinder Morgan, we break down the company's growing opportunity - as well as the risks to watch out for - in order to uncover whether it's a buy or a sell. To determine whether this dividend giant is right for your portfolio, simply click here now to claim your copy of this invaluable investor's resource.
The article Lower Gas Prices? Not Before This Happens originally appeared on Fool.com.Fool contributor Aimee Duffy has no position in any stocks mentioned. Click here to see her holdings and a short bio. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.