Close the Door - Slumping Refined-Product Demand, Economics, and Fire Force Refinery Closures

It has been nearly a year since the novel coronavirus was first detected in China — that’s right, a year. In that time, we have seen significant parts of the world come to a near standstill, become all too familiar with video conferencing, and canceled family vacations and business travel. The fact that many of us have been stuck at home has wreaked havoc on the U.S. refining industry, with plummeting utilizations and some facilities shutting down, either temporarily or permanently. And, depending on how the U.S. transportation sector rebounds from the pandemic in 2021 and beyond, more refinery closures may be on the horizon. Today, we look at the U.S. facilities that are shutting down and tally up the capacity lost so far.

It’s been an extraordinarily challenging period for refineries, refinery owners, and yes — the folks that operate and maintain these complex and important facilities. We’ve been blogging about it all, including in Strange Brew in late March, where we explained that even before the initial coronavirus outbreak in Wuhan Province started to grab headlines around New Year’s Day, refineries in the fourth quarter of 2019 and first two months of 2020 had been incentivized to shift their refined products output toward diesel, which can be used to help make IMO 2020-compliant low-sulfur bunker. Then, in our three-part Baby Break It Down series in April and May, we detailed what refiners were doing to reduce their overall output and minimize their gasoline and jet fuel production to help return refined-product demand and supply into closer balance.

More recently, in Where Are You Going, we noted that refiners produced less diesel, motor gasoline, and jet fuel in the second quarter than any quarter in recent memory, and their refining margins were sharply lower than the historical range — a one-two punch that hit their bottom lines hard. The situation improved somewhat this summer and early fall, but it’s still tough out there. Last week, Shell announced that it will be shutting down the company’s 240-Mb/d Convent, LA, refinery after failing to find a buyer for the facility, which first came online (under Texaco’s ownership) in 1967. The planned closure of Convent marks the seventh refinery shutdown to be announced since June 2019.

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