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Hawaii Fuel Oil and Diesel: Supply and Demand Balance

Introduction

Petroleum fuel supplied to Hawaii's economy is primarily sourced from imported crude oil refined locally 

into petroleum products. Approximately 90 percent of all liquid-bulk cargo imports are crude oil and 10 

percent are refined products. The majority of fuel supplied to Hawaii passes through the Chevron and 

Tesoro refineries, the only two petroleum refineries on Oahu, making them critical links in Hawaii’s 

petroleum product supply system.

Mainland states are interconnected by an extensive network of product pipelines, navigable waterways, 

rail lines, and tank truck routes that contribute greater market stability and flexibility in the supply and 

distribution of petroleum products. Hawaii is different in this respect from most other states and fuel 

markets. In contrast, supply shortfalls in Hawaii require imports over great distances and at greater 

expense than faced by mainland markets. In addition, excess supply of petroleum products must be 

exported and competes in global markets.

Overview of Refinery Operations

Hawaii’s unique pattern of demand for petroleum products determines the operation and the product 

output of the two refineries. Hawaiian petroleum refineries are configured to meet Hawaii’s high 

demand for residual fuel oil and jet fuel and as a result are far less complex than the average U.S. 

refinery. The Hawaiian refineries’ processing configurations are somewhat complementary, with one 

configuration aimed primarily at gasoline (Chevron) and the other primarily at middle distillates jet fuel 

and diesel (Tesoro). As Table 1 below illustrates, the refineries are both equipped with cracking 

facilities and other processing units to assist in upgrading the product slate into more valuable products. 

Table 1 - Hawaii Refining Capacity1

Refining Capacity (bbls/day) Chevron Tesoro

Atmospheric Distillation 54,000 93,500

Vacuum Distillation 31,300 43,000

Catalytic Distillation 21,000 -

Cat Hydrotreating* 3,500 12,000

Cat Hydrocracking - 17,500

C4 Isomerizer 3,200 -

Alkylation 5,000 -

LP Catalytic Reforming - 13,000

Thermal Cracking & Visebreaking - 13,000

Asphalt & Road Oil 1,500 1,000

Sulfur (short ton/day) - 34

Hydrogen (MM scf/day) 3 18

 

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The refinery process is basically divided into two stages, the primary distillation process and the downstream processes. The

primary distillation process yields an output slate that maps the quality and consistency of the crude oil that is processed.

Heavy crude oil yields more residual fuel and less gasoline than light crude. In the downstream (secondary) process, the 

products of the primary distillation are converted to higher value products such as gasoline.
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The Chevron refinery is equipped with catalytic cracking to break the residual fuel oil into gasoline (and 

also create ‘cycle oils,’ which are blended back into the remaining fuel oil to lower the viscosity).

Chevron also has alkylation and isomerization units, which take gases from processing and converts

them into high-octane blend stocks for gasoline. Additionally, some portion of Chevron’s fuel oil is 

diverted to asphalt. 

Tesoro’s central cracking technology is hydro-cracking that converts a portion of the fuel oil to lighter 

products. However, unlike Chevron's catalytic cracking unit– where the focus in on gasoline – hydrocracking is most often used to maximize the output of jet fuel and diesel. The Tesoro refinery also has a 

viscosity breaking unit specifically to cut fuel oil viscosity. 

In general, the Chevron refinery is ‘gasoline-oriented’ and the Tesoro refinery is ‘jet-fuel and dieseloriented.’ (Note, however, the gasoline output of the two refineries is similar in volume, despite the 

fact that Tesoro’s capacity for crude input is about twice that of Chevron.)

What is similar between the two refineries is their lack of capacity to remove sulfur. The two refineries 

are both constrained in the kinds of crudes they can process and low sulfur products they can produce.

Neither refinery is in a position to process a slate crude oil composed entirely of high-sulfur crudes. For 

example, producing LSFO requires certain minimum runs of very sweet (low sulfur) crudes. 

Crude Oil Supply to Hawaii

The supply of crude oil is of prime importance for the petroleum supply of the island. Hawaii’s refineries 

depend on a quality of crude oil that matches their process capabilities in order to maintain their 

product slate to meet current local market needs. The quality of crude purchased by Hawaii refiners is 

constrained by the configuration and design of its refineries. 

The refinery requirements for sweet and higher gravity crude oils limit purchase options for the island's 

refiners. In 2010, Hawaii received about 96 percent of the crude oil from foreign sources. All of the 

domestic supply comes from Alaska. Russia, Indonesia and Saudi Arabia are the largest sources of 

supply, accounting for 70 percent of total imports. No other country was responsible for more than 9 

percent. Pacific Rim countries were the source of 50 percent of total imports. 

Figure 1 - 2010 Imports of Foreign Crude Oil

-

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

40,000 

45,000 

Thousands of Barrels

Argentina

Vietnam

Thailand

China

Indonesia

Malaysia

Saudia Arabia

Algeria

Australia

Russia
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Petroleum Product Supply and Demand

As mentioned above, these refineries have been built and designed to meet the petroleum product 

demands of Hawaii's island economy. Hence they are designed to maximize jet fuel production (due to 

high demand for jet fuel), and residual fuel production to supply required fuel for power generation and 

ship bunkering. Figure 2 below compares the output slate of Hawaii’s refineries to the average output 

slate of a typical refinery in the U.S.

Figure 2 - Product Slate and Yields

The refineries in Hawaii produce a significantly higher portion of jet fuel and residual fuel oil than their 

U.S. mainland counterparts and produce significantly less motor gasoline and diesel fuel. While 

refineries on the mainland U.S. can minimize the production of residual fuel to less than 2 gallons per 

barrel (4%) as a result of coking and FCC capacity, the Hawaii refineries still produce 11.7 gallons of fuel 

oil from each barrel of crude (27%). Production of the most valuable product, gasoline, is 46% of total 

refinery output for the US as a whole, and only 19% in Hawaii. 

Hawaii's consumption of the five major petroleum products is significantly different from the mainland 

U.S. For example, gasoline represents about one-half of all petroleum used in the U.S. but represents 

only about one-quarter of total petroleum product consumption in Hawaii.

Similarly, the amounts of residual fuel and jet fuel consumed on a percentage basis are significantly 

higher in Hawaii than in the rest of the U.S. While fuel needed for ground transport in Hawaii is about 

one-half of total petroleum consumption compared to the entire U.S., petroleum required for air 

transport is more than three times higher than in the U.S. The percent of petroleum products used for 

electric power generation in Hawaii is about 15 times higher than the U.S. average.

The significant drivers behind these differences are Hawaii’s high jet fuel demand, resulting from 

significant military and civilian airline consumption, and Hawaii’s power generation that is based 

primarily on petroleum fuels, unlike the electric generation fleet on the mainland. Figure 3 below 

demonstrates these differences in consumption patterns.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Thousands of Barrels

Hawaii Petroleum Product Slate 

Other

LPG

Naptha

Residual

Jet Fuel

Diesel

Gasoline

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

Hawaii U.S.

Percent Yield per 

Barrel 

Hawaii vs U.S. Refinery Product Yields

Other

LPG

Naptha

Residual

Jet Fuel

Diesel

Gasoline
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Figure 3 - Comparison of 2009 Hawaii and U.S. Petroleum Product Consumption 

Analysis of Residual and Distillate Supply Demand Balance

Two fuel switching options are being evaluated as strategies to lower SOx emissions from nine MECO 

and HELCO power plants that currently burn medium sulfur fuel oil (MSFO). The sulfur concentration of 

the MSFO burned by MECO and HELCO currently is between one and two percent. The first option 

includes replacing the 1.2 million barrels of MSFO burned in these plants with a new residual fuel oil, 

low sulfur industrial fuel oil (LSIFO). LSIFO is low sulfur industrial fuel oil with a pour point similar to 

MSFO and but is not currently produced at either refinery on Oahu nor imported to the islands. 

Accordingly, it is anticipated that LSIFO would be created by refiners blending current production runs or 

stocks of residual fuel oil with other petroleum products and additives or imported blends. 

The second fuel switching option being evaluated is to substitute the MSFO at both utilities with lower 

sulfur distillate (diesel) fuel oil. The fact that MSFO has a 7.5% higher BTU content than diesel fuel 

means an additional 90,000 barrels, or a total of 1.29 million barrels of diesel fuel, will be required to 

generate the same amount of electricity generated from the 1.20 million barrels of MSFO currently 

burned at these facilities. Table 2 below highlights the generation plants under review and provides a

comparison of the MSFO versus Distillate Fuel Oil requirements.

Table 2 - Power Plants Proposed for Fuel Switching 

0 %

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hawaii U.S.

Other

LPG

Residual Fuel Oil

Jet Fuel

Distillate Fuel Oil

Motor Gasoline
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A critical question under consideration is whether Hawaii's existing petroleum product network has 

sufficient capacity, supplies, and blending stocks to produce 1.2 million barrels of new product in the 

form of LISFO, or if delivery of a net additional 1.29 million barrels of diesel fuel to utilities to displace 

the MSFO can be accommodated by the island’s fuel supply infrastructure.

Table 3 below, Hawaii Residual Fuel Oil Supply and Demand Balance, provides a summary of the 

interaction between the supply and demand for residual fuel oils in the Hawaii economy. The table 

demonstrates how closely balanced local refinery production and imports (primarily LSFO) are with 

consumption in the Hawaii market. The data also indicates that in most years demand exceeds supply, 

though the percentage is typically so small that supply and demand are judged to be in balance. For 

example, for the years 2008-2010, the average percentage difference between supply and demand is 

less than four tenths of one percent. 

Table 3 - Residual Fuel Oil Supply Demand Balance

Table 4 below illustrates the balance between supply and demand for diesel fuel in the Islands. Diesel 

fuel (distillate) demand is met primarily from local refinery production but also requires imports of very 

low sulfur diesel to meet fuel specifications of the transportation and utility sector. Historically, diesel 

Med Sulfur 

Fuel Oil 

(MSFO)

Low Sulfur 

Indusrial Fuel 

Oil (LSIFO)

Distillate Fuel 

Oil (Diesel)

MECO

48,406 48,406 52,036

55,252 55,252 59,396

176,656 176,656 189,906

193,045 193,045 207,523

243,073 243,073 261,304

26,596 26,596 28,591

26,829 26,829 28,842

159,970 159,970 171,968

270,820 270,820 291,131

1,200,648 1,200,648 1,290,697

Power Plants

Kahului ST 1

Kahului ST 2

Kahului ST 3

Kahului ST 4

Puna ST 1

Shipman ST 3

Shipman ST 4

W H Hill ST 5

W H Hill ST 6

Total

HELCO

Demand

Production Imports Exports Net Stocks Consumption

2005 13,607,394 296,000 - (155,734) 13,210,000 537,660 0.039

2006 13,885,532 584,000 (200,000) (43,651) 14,687,000 (461,119) (0.032)

2007 13,732,591 567,000 - 100,000 16,318,000 (1,918,409) (0.133)

2008 13,213,000 196,000 - 44,908 12,465,000 988,908 0.074

2009 12,118,000 78,000 - 23,788 12,444,000 (224,212) (0.018)

2010 11,972,000 297,000 - (676,638) 12,196,000 (603,638) (0.052)

2005-10 13,088,086 336,333 (33,333) (117,888) 13,553,333 (280,135) (0.021)

2008-10 12,434,333 190,333 - (202,647) 12,368,333 53,686 0.004

Hawaii Residual Fuel Oil Supply Demand Balance

Year Net Supply and Demand 

Supply
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fuel production from Hawaii's refineries falls short of meeting the islands full demand, even when 

imports are included. 

Between 2005 and 2010, 5 of 6 years showed diesel supply was net short. The average percent short fall 

was nearly 10 percent over that six year period. However, when considered for the years 2008-2010, 

the average percentage net difference between supply and demand was only 3.6%. Again, 2007 proved 

to be a year of abnormally high demand in which 9.3 million barrels of diesel fuel were reported 

consumed by EIA. 

 

Table 4 - Distillate Fuel Oil Supply Demand Balance

These findings on Hawaii's petroleum supply system are consistent with conclusions reported in other 

public documents and data researched and compiled for this assessment. The island's supply and 

demand for all petroleum products is closely balanced and Hawaii’s petroleum market requires both 

refinery production and ongoing imports and exports of petroleum products to sustain and balance 

market demand.

Summary Comments

Does Hawaii's existing petroleum product network has sufficient capacity, supplies, and blending 

stocks to produce 1.2 million barrels of new product in the form of LISFO?

There is strong current demand for residual fuel in Hawaii for both power generation and ship bunkering 

and the refiners that service the Islands are configured to meet those demands. A switch to LSIFO may

not necessarily change the total volume of fuel oil required on the Islands in general and by the electric 

generation sector in particular. The question remains what refining and supply scenarios are possible

with respect to a future demand for LSIFO for power generation roughly equal to the current demand 

Demand

Production Imports Exports Net Stocks Consumption

2005 6,841,874 32,000 - - 7,307,000 (433,126) (0.063)

2006 7,050,626 238,000 (647,000) 23,083 6,691,000 (26,291) (0.004)

2007 7,120,603 181,000 (555,000) (10,000) 9,294,000 (2,557,397) (0.380)

2008 6,263,886 76,000 (385,000) (19,605) 5,637,000 298,281 0.050

2009 6,226,900 - (315,000) (32,180) 6,120,000 (240,280) (0.041)

2010 6,347,350 - - (103,321) 6,969,000 (724,971) (0.116)

2005-10 6,641,873 87,833 (317,000) (23,671) 7,003,000 (613,964) (0.096)

2008-10 6,279,379 25,333 (157,500) (51,702) 6,242,000 (222,323) (0.036)

Year

Hawaii Distillate Fuel Supply Demand Balance

Net Supply and Demand 

Supply
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for MSFO. The options by which the LSIFO supply could reach required levels includes investment in 

additional refinery capacity to produce lower sulfur fuel oil, importation of lower sulfur fuel oil, 

adjustment to the crude oil slate, or a combination of these options.

Investment by the refineries in additional processing units could provide one avenue for expansion of 

low sulfur fuel oil (as well as diesel) production. Recent reports that Tesoro has put its Oahu refinery up 

for sale, as well as a 2009 Bloomberg report stating that Chevron was studying the possibility of shutting 

down its Kapolei refinery and supplying Hawaii from other sources, however, suggests both refiners may 

be seeking means to reduce their investment and that interest in large new capital investments in their 

plants may be limited. Moreover, the volumes of LSIFO involved may not be sufficient to economically 

justify upgrades of refinery units or additions of new refining processes. 

Within certain ranges, Hawaii's refiners can adjust the crude and product slates to match market 

conditions – accepting some degree of additional lower sulfur crude and blends to produce LSIFO. 

Thus, as it pertains to LSIFO as a replacement for MSFO, it’s reasonable to expect that the some portion 

of the increase in low sulfur fuel oil production required to provide sufficient LSIFO for the MECO and 

HELCO power plants in question could come from a combination of increasing the refinery run slate of 

lighter, sweeter crude oils to a point economically justified by each refinery, along with increases in 

lower sulfur blends. Given the current levels of production of MSFO at each refinery today, this 

assessment would conclude that meeting an increase in the demand for LSIFO could likely be 

accommodated by Hawaii's current petroleum supply network, including importation of needed crudes 

and blends to meet the standard. 

Can Hawaii refiners deliver an additional 1.29 million barrels of diesel fuel to utilities to displace the 

MSFO they are currently burning to generate electricity?

In contrast to the production and supply of residual fuel oils, supplies of distillate fuel oil have been 

shown to be consistently short relative to demand during the period 2005-2010. Fuel switching from 

MSFO to diesel fuel at the nine power plants will result in a net increase in the demand for diesel fuel in 

the Hawaii market. Using average consumption data from Table 4 for the period 2005-2010, a net 

demand increase of 1.29 million barrels represents an 18 percent increase in the average volumes of 

diesel fuel required to serve the Hawaii market.2 

There is very little excess capacity for Chevron to increase and sustain operating capacity above current 

levels. In 2010 it operated at 91 percent capacity and in the last 6 years has operated as high as 94 

percent. Even in 2006, when both Chevron and Tesoro where running their refineries at 90 percent and 

above, the volume of all qualities of diesel fuels produced was estimated to be only 7 million barrels. 

The Tesoro refinery has been operating at capacity factors of less than 76 percent in each of the last four 

years. In order to achieve a balance in diesel supply required to replace MSFO at the MECO and HELCO 

plants, the refinery would have to substantially increase its level of crude runs thus increasing its 

operating capacity back in the 90 percent range. Even then, with the incremental increase arising from 

the fuel switch at the nine power plants, the supply of diesel fuel would be approximately 1.3 million 

barrels short of the estimated 8.3 million barrels needed to meet Hawaii's total demand for this fuel. 

 

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Other than 2007, when consumption of diesel fuel was reported to be 9.3 million barrels, EIA's SEDS for Hawaii reports 

consumption has only exceeded 8 million barrels 3 year out of the last 40 years.
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The volumes of low sulfur diesel fuel required to enable a switch from MSFO for the nine power plants 

represents a significant increase in demand and appears incapable of being met by Hawaii's refineries 

given limited sulfur processing capacity and current market conditions. Practically then, even if the 

refineries operate at high levels, it will be necessary to import volumes of low sulfur diesel fuel in excess 

of 1 million barrels per year.