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Jet fuel imports expected to rise as Tesoro closes

By Yee Kai Pin and Lynn Doan

Bloomberg News


Craig T. Kojima / ckojima@staradvertiser.comTesoro will close its Kapolei refinery in April, with the facility instead operating as an import, storage and distribution terminal.

Asian jet fuel shipments to Hawaii are poised to triple as Tesoro Corp. shuts the state's biggest crude processing plant, helping lift refining margins from the weakest level in close to five years.

As many as three jet-kerosene cargoes, or about 600,000 barrels, may be shipped monthly to Hawaii from Asia in the second quarter, compared with an average of one a month last year, according to a Bloomberg News survey of six traders and refiners. Jet fuel was at its most expensive level relative to diesel in two months on Tuesday in Singapore, encouraging refiners to produce more.

Tesoro has announced that it plans to shut its 94,000 barrel-a-day Kapolei refinery in April and convert it into a storage terminal. That will leave Chevron Corp.'s neighboring 54,000 barrel-a-day plant as the only refinery in the state. That offers an opportunity for Asian processors from GS Caltex Corp. to Formosa Petrochemical Corp. to boost exports, while threatening to push up costs for carriers just as international air travel is showing signs of picking up.

Asia is the most likely source of any additional imports because of legislation that restricts shipments from the U.S. mainland, according to Al Chee, Chevron spokes­man for the Hawaii refinery. The Merchant Marine Act of 1920, known as the Jones Act, requires products transported from one U.S. port to another to be carried by vessels flagged and built in the country.

The law "adds a lot of costs" to fuel brought from the U.S. West Coast, Chee said. "It's a fair amount of cents per barrel, so it's probably not a surprise that imports are generally coming from foreign sources, and generally from Asia."

Hawaii is already supplied by Asian jet fuel because the market, even with both refineries running, is short, according to Dave Hackett, president of Stillwater Associates, an independent oil consultant in Irvine, Calif. "That lost Tesoro volume will also be imported mostly from Asia," he said. "This is going to boost prices."

Jet fuel cost 90 cents a barrel more than diesel Tuesday, the biggest premium since Nov. 26. The difference, known as the regrade, is used by refiners to determine whether to maximize jet fuel production in place of diesel. It fell to a $1.05 discount Dec. 4, matching the largest gap since June 2008. The premium was at 75 cents last week.

Jet-kerosene cargoes in Singapore, Asia's oil-trading hub, have risen 1.5 percent to $128.75 a barrel since Jan. 7, the day before Tesoro said it would shut its refinery, according to data from PVM Oil Associates Ltd., a London-based broker. The premium of the airline fuel to diesel has jumped fivefold from 15 cents, the data show.

Asia provided all of Hawaii's 2.54 million barrels of jet fuel imports in the first 10 months of last year, according to the U.S. Energy Department. About 75 percent came from South Korea, with the rest shipped by Malaysia and Taiwan. Hawaii's total jet fuel consumption was 10.9 million barrels in 2011.

Chevron's plant doesn't have the capacity to make up for the volumes lost when Tesoro's units close, Chee said. The facility produces about 30 percent gasoline, 25 percent low-sulfur fuel oil, 20 percent jet fuel and 12 percent diesel.

"The market will be short jet fuel, and someone will have to import," Chee said. "Exactly how much in additional imports is needed for this market is what we're trying to understand."

Hawaiian Airlines already gets most of its supply from Asia, spokes­man Keoni Wagner said. Alaska Air, which does about one-fifth of its flying to Hawaii, isn't seeing an immediate price increase because of the planned shutdown, said Bobbie Egan, a spokes­woman for the Seattle-based company.

Tesoro's Kapolei plant may be too small to change the price outlook significantly, according to SK Innovation Co., which runs South Korea's biggest refinery.

"It's too early to tell whether there's any impact on fuel prices," said Megan McCarthy, a spokes­woman for United Continental Holdings Inc., the carrier with the most flights to Hawaii.

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tiki886 wrote:
This comment has been deleted.
on January 28,2013 | 02:39AM
Manoa2 wrote:
No one kicked Tesoro out-- they wanted Tesoro to stay at least for the jobs. Tesoro has wanted out of the refinery business in Hawaii since the 90's. they could not make money off the refinery-- as no one can anywhere in the USA-- look at all the refineries closed or for sale. It is cheaper to import refined fuels from foreign sources than to import or buy domestic crude andrefine iit-- simple economics to "outsource" the refining to Asia.
on January 28,2013 | 05:25AM
HD36 wrote:
Wrong as usual. Tesoro, Valero, Sunaco, and other refineries are booming with exports. That's why gas is still high in a recession. There hasn't been a new refinery built in the US for over 30 years because of the NIMBY mentality. The onerous governmental regulations and taxes in Hawaii made it a waste of time and money to operate here. They will ship the refined gasoline to Asia and Asia will turn around and export it to us.
on January 28,2013 | 06:01AM
soundofreason wrote:
It's not cheaper when we're ALSO paying for "protecting our interests" via the military and the lives of soldiers. Jack it up to whatever the price needs to be and bring everybody home.
on January 28,2013 | 06:14AM
iansuen wrote:
Let's be specific. Show us some examples and sources. Otherwise its nothing but hot-air, sensationalist talk.
on January 28,2013 | 08:23AM
oxtail01 wrote:
you're such a d.....b piece of s.....t! Just check the history of Tesoro and the ups and downs of their refinery business! They're not the only ones not putting any money into refining or getting out altogether. Just today Hess (symbol HES) announced they're getting out of refining business because of low margins. So you think Hess is getting out because of the Commies? so commies are telling them how to run their business? Your pathetic right-wing rants are tiresome!
on January 28,2013 | 09:07AM
aomohoa wrote:
WOW, I get sent of review for almost nothing. Why does this get posted!
on January 28,2013 | 06:40PM
serious wrote:
Where are our politicians on this Jones Act???? Linda was going to work to get it removed but the others????
on January 28,2013 | 05:39AM
soundofreason wrote:
Hiding and shaking like wet dogs.
on January 28,2013 | 06:22AM
Lightfoot9 wrote:
Serious, you are incorrect regarding former Governor Linda Lingle’s position on the Jones Act. During the 2012 campaign, when Gov Lingle was running for the open U.S. Senate seat against then US Rep Maize Hirono, both candidates supported the Jones Act in its current form including the U.S.-build requirement. Gov Lingle did not support any reform of the Jones Act.
on January 28,2013 | 07:22AM
allie wrote:
on January 28,2013 | 07:26AM
serious wrote:
You are correct. Sorry, I misread Linda's campaign. It's sad that not one politician will stand up against the shipping industries. Profiles in Courage--NOT!!!
on January 28,2013 | 10:33AM
allie wrote:
Linda was always a fraud hon..she never intended to do anything about the Jones Act.
on January 28,2013 | 07:26AM
ichiban wrote:
So what about Gov Abby? Let's see what he does. And don't call Lingle a fraud. I told you I'd nickpick on you when you yourself is a fraud. Linda Lingle had an overwhelming MAJORITY of DEMOCRATS in the STATE LEGISLATURE and Linda was a Republican. Her hands were tied. Not Gov. Abby, let's see what he flushes down on us.
on January 28,2013 | 10:30AM
oxtail01 wrote:
Why would politicians get rid of something that lines their pockets?
on January 28,2013 | 09:10AM
mustangguru wrote:
So, when are the solar airplanes coming?
on January 28,2013 | 06:10AM
Maneki_Neko wrote:
Soon but the night flights have a bad on time record.
on January 28,2013 | 07:15AM
soundofreason wrote:
"The law "adds a lot of costs" to fuel brought from the U.S. West Coast, Chee said. "It's a fair amount of cents per barrel, so it's probably not a surprise that imports are generally coming from foreign sources, and generally from Asia."---"Asia is the most likely source of any additional imports because of legislation that restricts shipments from the U.S. mainland, ">>> So, rephrae all of that. This "US ......ONLY......Policy" has cost us HOW many jobs and gives a leg up to international competion because we only skrew ORSELVES with this arbitrary policy?
on January 28,2013 | 06:21AM
allie wrote:
Just send Hawaii refined oil from wherever the safest, most reliable source is. Losing our refinery does not make us any more or less self sufficient.
on January 28,2013 | 07:27AM
aomohoa wrote:
You are not "us". hon.
on January 28,2013 | 06:42PM
Lightfoot9 wrote:
Soundof reason, it has been know for many years that the Jones Act skews domestic energy markets including by Chevron’s Al Chee. For example, in August 1998, Chevron Shipping proposed that the so called “blue water trades” – i.e., for large oceangoing ships including tankers -- be exempted from U.S. build requirement of the Jones Act. Allowing domestic shipowners to acquire foreign built ships would considerably lower shipping costs particularly in the noncontiguous domestic trades – i.e., Alaska, Guam, Hawaii and Puerto Rico. However, Chevron Shipping’s proposal was opposed by most of the rest of the Jones Act shipping industry because they prefer to have far more expensive U.S. built ships because it creates a barrier to entry and protects their business.
on January 28,2013 | 07:37AM
soundofreason wrote:
Sounds about right.
on January 28,2013 | 06:53PM
Anonymous wrote:
"it wont create an "Immediate" price increase as quoted by Keone Wagner,what he meant to say Its going to happen sooner then we think and it wont be cheap...
on January 28,2013 | 06:51AM
Wahiawamauka wrote:
Exactly. LOL. Right out of the gate our government was saying we won't see much of an impact. LOL. They can get away with saying that because the majority of the the public are gullible and ignorant.
on January 28,2013 | 01:38PM
Hendo wrote:
IMHO, Tesoro's closing is not so much a political problem; but rather an economic one. Tesoro claims they are closing their refining operations in Hawaii because it is not in their "strategic interests." Usually in corporate-speak, this euphemistically means they aren't making enough money. And if so, why not? It's not like Hawaii has low energy prices. It's important to have competition in the fuel refining business in Hawaii because, usually the lack of competition ultimately leads to increases in prices. We should ask our government and business leaders, because of the impact of energy prices on all facets on the State's economy, what can they do to facilitate and promoted more competition and business investments in this critically important area.
on January 28,2013 | 06:50PM
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