November 23, 2020 – DeSmog Blog
Oil Companies Can’t Find Any Buyers For Refineries Struggling Amid Pandemic Crisis
By Justin Mikulka
…Expectations are for the economy and fuel consumption to return to 2019 levels at some point in the future, with one caveat: The demand for very profitable jet fuel (which accounted for 9 percent of total U.S. refinery output last year) may never return. This change poses a major threat to the basic business model of many refineries.
Although plenty of businesses face similar challenges, it may be especially hard for refineries to weather rapid drops in demand. This is because there is a well-established hard limit on how much they can dial back production before it makes more sense to simply shut down the refinery. That limit — reported as percent utilization and known as the “turndown” value — is usually estimated at 70 percent of the maximum possible amount a refinery could produce if it were running at full capacity. Once things drop below 70 percent, refineries face shutdowns, because running the refinery at lower utilization rates no longer makes financial sense.
An analysis by consulting firm RBN Energy notes that if refineries operate below the turndown level, “operations can become erratic,” resulting in the refinery no longer being able to function properly, which leads to decisions to close the refineries instead of attempting to operate below turndown levels.
Since June 2019, there have been seven refinery closures in the U.S., according to RBN Energy. This represents approximately 6 percent of total U.S. refinery capacity…
Read the full article here: https://www.desmogblog.com/2020/11/23/oil-refinery-industry-stranded-assets-pandemic