Shaking Up the US West Coast Oil Market

The recently suspended legal battle between BP Amoco and the US antitrust Federal Trade Commission (FTC) over the takeover of Arco has marked a significant turning point for the US West Coast oil market. To address FTC concerns about competition in the region, BP Amoco agreed to sell all of Arco's Alaska assets to Phillips, while acquiring the rest of the Los Angeles-based company. This deal will have far-reaching implications for the Alaskan North Slope (ANS) crude oil market, as BP will be left supplying its newly acquired Arco refineries and Phillips will assume BP's role as chief spot trader.

Key Takeaways:

• The sale of Arco's Alaska assets to Phillips will significantly alter the ANS crude oil market, with BP being left to supply its newly acquired Arco refineries and Phillips taking over as the chief spot trader.
• The FTC has overseen the sale of the merged Exxon Mobil's Benicia refinery in California to independent Valero, with a 10-year contract for 100,000 barrels per day of ANS.
• Declining production at Alaska and California oil fields has dramatically increased West Coast refiners' dependence on foreign crudes, with imports roughly doubling in the past three years.
• Refiners in the Padd V district imported about 640,000 b/d in the second half of last year, compared to 325,000 b/d in early 1997, and imports now make up more than 20% of the area's 3 million b/d refining capacity.
• The decline in Alaska production has sent refiners scrambling for long-term supply deals with California producers, such as Tosco's 15-year deal to buy all of independent Nuevo's local output.
• California oil output is also on the wane, falling from 930,000 b/d in 1997 to 840,000 b/d in 1999, due to the failure of big developments at the Elk Hills and Midway-Sunset fields to meet expectations.
• The full impact of antitrust-related divestitures has yet to shake out, with Valero hoping to replace some of its ANS supplies with 40,000 b/d of California crude.

Statistics:

• 640,000 b/d: The amount of West Coast refiners' imports in the second half of last year.
• 325,000 b/d: The amount of West Coast refiners' imports in early 1997.
• 20%: The percentage of Padd V district refining capacity made up by imports.
• 3 million b/d: The total refining capacity in the Padd V district.
• 100,000 b/d: The amount of ANS oil being supplied under a 10-year contract between Valero and the FTC.
• 930,000 b/d: The amount of California oil output in 1997.
• 840,000 b/d: The amount of California oil output in 1999.
• 50,000 b/d: The amount of oil produced at the Midway-Sunset field in 1999.
• 54,500 b/d: The amount of oil produced at the Elk Hills field in 1997.
• 50,400 b/d: The amount of oil produced at the Elk Hills field in 1999.

Sources:

• "BP Amoco Settles FTC Complaint Over Arco Deal", Oil Daily, March 17, 2000, page 4.
• "Alaska Oil Output Seen Dropping 15% by Year's End", Oil Daily, October 3, 2000.
• "US West Coast Refiners Face Big Shortfall in 2002", Oil Daily, August 15, 2001.