heavy crude solution a win-win in pascagoula

February 8, 2012 – A recent deal with local crude oil producers in Mississippi ships 2,500 barrels per day of heavy crude to Chevron's Pascagoula Refinery via barge. Although this represents only a small fraction of the facility's daily volume, it's an example of our manufacturing business's ingenuity and commitment to the community.

Our innovative solution trucks crude oil to an existing Chevron facility in Mobile, Alabama, and delivers it by barge to Pascagoula.

Prior to the agreement, the Mississippi heavy crude producers could only bring their landlocked oil to a single inland refinery. There are no gathering pipelines for their crude, so it is all transported by tanker truck. In early 2008, the producers approached Mississippi Governor Haley Barbour, who in turn asked the Pascagoula Refinery if it could process the heavy crude. The refinery team analyzed the crude quality, determined it was a good fit for the refinery and came up with a mutually agreeable pricing formula.

The refinery, however, is not equipped to offload crude from tanker trucks. And even if it were, adding 12 trucks per day, each carrying 200 barrels of crude, to the the already congested main route to the refinery is not a safe option.

The refinery and producers needed a way to construct and finance an alternate supply route. After several meetings over the course of a year, an agreement in principle was made: The producers would build a truck unloading facility a few miles north of the refinery and install a pipeline to carry the crude the rest of the way. It looked like it would be years before the first drop of crude could trickle into the tanks in Pascagoula.

So the Crude Supply & Trading and Value Chain Optimization teams came up with an innovative new plan. The crude would be trucked to an existing Chevron unloading facility in Mobile, Alabama, and delivered by barge to Pascagoula. No new road, no more red tape and no need to wait years before meeting the governor's request. Instead, the first shipments arrived at Pascagoula in November, launching a three-year exclusive supply agreement.

For the local producers, this solution solved their long-term challenges and enabled them to secure a better price for their crude. It also opened up the possibility of expanding their relationship with the company over the course of the agreement and beyond.

"This was a business decision and is a win-win for both the local producers and the refinery," said Tom Kovar, general manager of the Pascagoula Refinery. "Although small in volume, it does diversify our supply of crude and reinforce our commitment to the state of Mississippi and the local community."

For the Pascagoula Refinery, the deal represents a secure supply of domestic heavy crude at a favorable price.

"The locally produced supply reduces our reliance on foreign crude without any major capital expenditures," said Tom Musial, team leader for refinery integration and raw material optimization. "That we were able to support local producers and help them overcome a roadblock to growing their business truly makes this a success."

Updated: February 2012