Texas consumes far more diesel fuel than any other state and almost as much gasoline as car-crazy California, which also has 10 million more people. The long-distance distribution of refined products within the Lone Star State is handled largely by tanker trucks, but in the past couple of years, midstream companies have been adding a lot of new refined products pipeline capacity, not just to help deliver diesel and gasoline within Texas — including the diesel-hungry Permian Basin — but also to move motor fuels to the Mexican border for export. And more diesel and gasoline pipe capacity is on the way. Today, we discuss the new and expanded refined products pipelines criss-crossing Texas.
It’s been more than three years since the International Maritime Organization (IMO) fully committed to the January 1, 2020, implementation of IMO 2020, a rule that slashes the allowable sulfur content in bunker fuel used in the open seas around most of the world from 3.5% to only 0.5%. There’s been a lot of angst in the interim, most of it regarding the changes in crude slates, refinery operations and fuel blending needed to meet a flip-of-a-switch spike in global demand for low-sulfur bunker. Also, shippers worried that prices for rule-compliant fuel would go through the roof. Well, it turns out that the transition period in the months leading up to the IMO 2020 era has been largely drama-free. Supplies of very low-sulfur fuel oil (VLSFO) and marine gasoil (MGO) — the bunker most ships will now use — have been building in most places, prices are up but moderating, and while there may be a few hiccups as ships shift to new, cleaner fuels, life will go on. Heck, life will likely be even better for most complex U.S. refineries, which can churn out large volumes of low-sulfur refined products and which will have access to price-discounted high-sulfur “resid” as an intermediate feedstock. Today, we take a big-picture look at the global bunker market as IMO 2020’s implementation day approaches.
Production of alternative, non-petroleum-based fuel continues to be a hot topic around the globe as government policies have incentivized or even mandated these products with the aim of reducing greenhouse gas emissions. In the U.S., we’ve seen waves of ethanol and biodiesel enter the fuel supply chain, but the latest commodity that has piqued industry interest is renewable diesel, whose chemical characteristics make it a particularly desirable replacement for conventional distillate. Today, we provide an overview of the renewable diesel market, the legislative programs in North America that are incentivizing its production, and the projects currently on the books to produce it.
In February 2019, the U.S. Treasury Department announced new sanctions on Petróleos de Venezuela SA (PDVSA), the national oil company of Venezuela, which halted imports of Venezuelan crude oil into the U.S. Since then, refineries that relied on Venezuelan crude have had to backfill their import requirement with alternative sources of oil. This adjustment has had ramifications not only on the refiners that processed Venezuelan crude, but also on the entire U.S. Gulf Coast crude oil market. Today, we discuss the quality adjustments made to the U.S. crude oil diet.
Refined product supply in Petroleum Administration for Defense District (PADD) 1, which comprises Atlantic Coast states from New England to Florida, has been in trouble all year. Maintenance issues beset refineries during the first quarter, and then in June, the region's largest refinery, a 355-Mb/d plant owned by Philadelphia Energy Solutions (PES), was shuttered after a fire. The loss of the PES output would've been manageable if imports had taken up the slack. But although gasoline imports increased, distillate shipments have actually been lower than normal since June. As a result, the PADD 1 distillate market has been drawing an average 163 Mb/d from inventory since mid-August, according to weekly Energy Information Administration (EIA) reports, leaving stocks in the region at a 10-year low. That storage deficit versus previous years will increase when the weather turns colder and heating oil demand kicks into high gear. With stocks at historical lows and market prices not attracting new supplies, the shortage may well foreshadow price spikes this winter. A potential strike by unionized workers at the Phillips 66 Bayway refinery in northern New Jersey could make matters worse. Today, we look at what's behind the PADD 1 distillate shortfall.
For a few years now, Buckeye Partners’ plan to revise the current east-to-west refined products flow on its Laurel Pipeline across Pennsylvania has pitted Midwest refiners against their Philadelphia-area brethren — and gasoline and diesel marketers in western Pennsylvania. Each side has good arguments. Midwest refiners note that westbound volumes on Laurel have been declining through the 2010s, and assert that making the western part of the pipeline bidirectional would result in higher utilization of the line and enhance competition in central Pennsylvania, Maryland and eastern West Virginia. Pittsburgh-area marketers counter with the view that allowing refined products to flow east on a portion of Laurel would hurt competition in Pirates/Steelers/Penguins Country, while Philly refiners — their ranks now thinned by the planned closure of the fire-damaged Philadelphia Energy Solutions (PES) facility — say Buckeye’s plan would further threaten their economic viability. Amid all this, might there be a “perfect-world” solution? Today, we provide an update on this still-in-limbo project and discuss a few possible paths forward.
Independent refiner PBF Energy on June 11 announced its plan to acquire Shell Oil’s Martinez, CA, refinery for about $1 billion; the deal is expected to close by the end of 2019. The purchase will give PBF its sixth U.S. refinery and add 157 Mb/d to the company’s existing 865-Mb/d refining portfolio, pushing its total capacity past 1 MMb/d. Post-acquisition, PBF will retain overall fourth place in the U.S.
Philadelphia Energy Solutions (PES) announced last week (on June 26) that it was shutting down its 335-Mb/d refinery in Philadelphia, PA. This announcement came just five days after a major fire destroyed a portion of the refinery, which turned out to be the last straw for the facility that has been struggling financially for many years. Today, we consider the various market impacts that will likely follow the closure of the PES refinery, including its effect on fuel supply, where the closure leaves refinery production capacity in the region and how the refined product supply will need to adjust in response.
For some time, U.S. motor fuel exports to Mexico had been increasing at a healthy pace, reliably filling the void created by a series of production setbacks at Pemex’s refineries south of the border. From 2014 to 2018, U.S. gasoline exports to Mexico soared by more than 160%, from an average of 197 Mb/d five years ago to 517 Mb/d last year. Diesel exports rose by nearly 130%, to 279 Mb/d, over the same period. But that export-growth momentum has since sagged — in fact, export volumes for both gasoline and diesel actually declined in the first few months of 2019, primarily due to logistical challenges within Mexico. Also, Mexico’s new president has proposed ambitious plans to boost state-owned Pemex’s refining capacity, possibly posing a longer-term threat to U.S. exporters. So, is the boom in refined-product exports to Mexico over? Today, we examine what’s behind the downshift, and what the Mexican government’s effort to reinvigorate Pemex’s existing refineries — and build an entirely new one — may mean for U.S. gasoline and diesel exports in the 2020s.
With Petróleos Mexicanos’ (Pemex) refineries struggling to operate at more than 30% of total capacity, gasoline pumps across Mexico are more likely to be filling up tanks with fuel imported from the U.S. than with domestic supply. This arrangement works well for U.S. refiners, who are running close to flat-out and depending on export volumes to clear the market. But now, the Mexican government has shut a number of refined products pipelines to prevent illegal tapping, and that’s had two consequences: widespread fuel shortages among Mexican consumers and a logjam of American supplies waiting to come into Mexico’s ports. Today, we explain the opportunities and risks posed to U.S. refiners that have ramped up their involvement with — and dependence on — the Mexican market.
The implementation date for IMO 2020, the international rule mandating a shift to low-sulfur marine fuel, is less than 12 months away. It’s anyone’s guess what the actual prices of Brent, West Texas Intermediate (WTI) and other benchmark crudes will be on January 1, 2020, or how much it will cost to buy IMO 2020-compliant bunker a year from now. What is predictable, though, is that the rapid ramp-up in demand for 0.5%-sulfur marine fuel is likely to affect the price relationships among various grades of crude oil, and among the wide range of refined products and refinery residues — everything from high-sulfur residual fuel oil (HSFO, or resid) to jet fuel. The refinery sector is in for an extended period of wrenching change, and today we conclude our blog series on the new bunker rule with a look at the structural pricing shifts needed to support the availability of low-sulfur marine fuel.
While U.S. refineries are again running hot and heavy after the end of this year’s seasonal fall maintenance period, Mexico’s refineries have continued to struggle to operate at more than 30% of their capacity, a decline that is exacerbated by that country’s tumbling oil production. In recent years, Mexico’s dismal refinery utilization rate has been a boon for U.S. refiners on the Gulf Coast who can ship, pipe or truck gasoline to America’s southern neighbor in short order. Now, Mexico’s new president, Andrés Manuel López Obrador (AMLO), is pushing to solve Mexico’s refinery problems by building a new one. Today, we discuss Mexico’s growing dependence on U.S. gasoline, and whether building a new refinery south of the border will change things.
The IMO 2020 rule, which calls for a global shift to low-sulfur marine fuel on January 1, 2020, is likely to require a ramp-up in global refinery runs — that is, refineries not already running flat out will have to step up their game. Why? Because, according to a new analysis, the shipping sector’s need for an incremental 2 MMb/d of 0.5%-sulfur bunker less than 13 months from now cannot be met solely by a combination of fuel-oil blending, crude-slate changes and refinery upgrades. The catch is, most U.S. refineries are already operating at or near 100% of their capacity, so the bulk of the refinery-run increases will need to happen elsewhere. Today, we continue our look into how sharply rising demand for IMO 2020-compliant marine fuel may affect refinery utilization.
The planned shift from 3.5%-sulfur marine fuel to fuel with sulfur content of 0.5% or less mandated by IMO 2020 on January 1, 2020, will require a combination of fuel-oil blending, crude-slate changes, refinery upgrades and, potentially, increased refinery runs, not to mention ship-mounted “scrubbers” for those who want to continue burning higher-sulfur bunker. That’s a lot of stars to align, and even then, there’s likely to be at least some degree of non-compliance, at least for a while. So, what’s ahead for global crude oil and bunker-fuel markets — and for refiners in the U.S. and elsewhere — in the coming months? Today, we continue our analysis of how sharply rising demand for low-sulfur marine fuel might affect crude flows, crude slates and a whole lot more.
The planned implementation date for IMO 2020 is still more than a year away, but this much already seems clear: even assuming some degree of non-compliance, a combination of fuel-oil blending, crude-slate shifts, refinery upgrades and ship-mounted “scrubbers” won’t be enough to achieve full, Day 1 compliance with the international mandate to slash the shipping sector’s sulfur emissions. Increased global refinery runs would help, but there are limits to what that could do. So, what’s ahead for global crude oil and bunker-fuel markets — and for refiners in the U.S. and elsewhere — in the coming months? Today, we discuss Baker & O’Brien’s analysis of how sharply rising demand for low-sulfur marine fuel might affect crude flows, crude slates and a whole lot more.