Phillips 66 has signed a five year take or pay contract with Global Partners for 91 million barrels of oil (50,000 b/d). Global will use its transportation system to deliver crude from North Dakota to Phillips 66 Bayway refinery in New Jersey. Moving crude this distance will likely cost the company somewhere between $10-15 per barrel over the life of the contract.
The transportation differential can be made up easily when you consider physical prices for Williston Sweet were trading below $80/bbl on the day the deal was announced. WTI was trading near $93/bbl and Brent Crude was trading over $110/bbl the same day.
"Global has established a 'virtual pipeline' for the reliable transportation of Bakken crude," said Tim Taylor, Executive Vice President, Commercial, Marketing, Transportation & Business Development of Phillips 66. "Our five-year agreement with Global assures us long-term access to advantaged crude for our Bayway refinery through what we believe is a cost competitive origin-to-destination supply system to the East Coast."
Phillips 66 has expanded facilities in the past few years to accept more crude from truck, rail, and barge across its refinery assets. The expansions will allow the company to deal for and source more crude from price advantaged areas in the US.
I believe this is the first firm commitment of this size to take Bakken crude to the East Coast. As highlighted in the slide above, Phillips 66 expects both the Bakken, Canada, and the Gulf Coast regions to provide sources of price advantaged crude.