For U.S. refineries, the severe demand destruction that occurred this spring led to the worst financial performance in recent history. Not only did refiners produce less diesel, motor gasoline, and jet fuel in the second quarter than any quarter in recent memory, their refining margins were sharply lower than the historical range — a one-two punch that hit their bottom lines hard. The situation has improved somewhat this summer, but it’s still tough out there. So tough, in fact, that it’s reasonable to ask, does the coronavirus and its impacts to the energy sector signal the end of an era for refiners across the U.S.? Today, we review the decline in fuel demand and profitability in the second quarter and discuss the uncertainties refiners face in the second half of 2020 and beyond.
Posts from Amy Kalt
Earlier this month, Shell announced that it was exploring the sale of yet another refinery — this time, it is the company’s Convent facility in Louisiana, which is one of the two refineries in the state that remain with Shell from the unwinding of its former joint venture with Saudi Aramco. Convent, with a capacity of 240 Mb/d, is near the middle of the pack in terms of refinery size and possesses some unique characteristics that could make it an attractive option for the right buyer and market conditions. But Shell’s announcement also raises a question, namely, how does the prospective sale compare with the company’s stated intent to focus on a smaller set of refineries integrated with Shell’s key trading hubs and petrochemicals operations? Today, we review the refinery’s characteristics and how it stacks up against its nearby rivals.
They’re generally small in size, but renewable diesel refineries are popping up in many parts of the U.S., incentivized by government programs aimed at reducing carbon emissions and very gradually weaning Americans — and Canadians — from crude oil-based diesel fuel. Recently, HollyFrontier Corp. announced that it will be converting its decades-old Cheyenne, WY, refinery into a renewable diesel facility. While the news of another entrant into the renewable diesel market is not surprising, the complete shutdown and transformation of an existing refinery for this purpose marks only the second time this has occurred in the U.S. Today, we discuss HollyFrontier’s plans and provide an update on renewable diesel supply and demand dynamics.
The collapse in crude oil prices and COVID-19’s very negative effects on global gasoline, jet fuel and diesel demand are putting an unprecedented squeeze on U.S. refiners. Even before the initial coronavirus outbreak in Wuhan, China, started to grab headlines around New Year’s Day, refineries had already been incentivized to shift their refined products output toward diesel, which can be used to help make IMO 2020-compliant low-sulfur bunker. Now, with the COVID-19 pandemic spreading to Europe and North America and stifling consumer transportation fuel demand, the price signals are even stronger, pushing refineries to do everything they can to minimize their gasoline and jet fuel production and enter what you might call “max diesel mode.” Today, we discuss how there are challenges and limits to what they can do, and a number of refineries may need to shut down due to lower demand, at least temporarily.
Over the weekend, PBF Energy closed on its acquisition of Shell’s Martinez, CA, refinery, marking the first completed U.S. refinery transaction of 2020. The closure of that deal may seem unremarkable, but it’s rare for more than two to three transactions involving individual refineries to take place in the U.S. in a given year, and there are as many as eight other refineries on the market. These include two each in the Philadelphia area, the Midcontinent and the Rockies, and one each in Washington state and Alaska. Why are so many refineries on the block? Today, we continue our series with a look at the facilities said to be on the market in PADDs 4 and 5.
It was reported earlier this month that Shell is seeking a buyer for its Washington state refinery, which is located just outside Seattle in Anacortes. That brings to eight the number of U.S. refineries said to be up for sale by a variety of sellers, from integrated major oil companies to independent merchant refiners — plus another refinery that is already under contract. That’s an unusually high number — refineries rarely change hands in the U.S. and when they do, it’s typically for large sums of money to sophisticated and vertically integrated buyers. Today, we discuss the facilities on the block in the East Coast and Mid-Continent regions and the market drivers that could be impacting the decisions of potential buyers and sellers.
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.
The battle over the future of Enbridge’s Line 5 light crude oil pipeline through Michigan is heating up. In recent weeks, Michigan’s new attorney general filed suit to throw out the 1953 easement the state granted to allow the pipeline to be laid under the Straits of Mackinac — the narrow waterway between Michigan’s upper and lower peninsulas — and to block implementation of an agreement Enbridge and the state’s then-governor reached last fall to replace the section of Line 5 under the straits by the mid-2020s. Enbridge is pressing ahead, maintaining that the existing pipeline is safe and the 2018 agreement is legal and fully enforceable. All that raises two questions: just how important is Line 5 to the Michigan and Eastern Canadian refineries, and what would those refineries do if the pipeline were to cease operations? Today, we discuss recent developments and examine the issues at hand.
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.
Increasing U.S. shale oil production has benefitted many U.S. refineries, but along the Gulf Coast, the primary beneficiaries have been in Texas. As production increased in the Permian and Eagle Ford plays, new pipelines were built to supply refinery centers in Corpus Christi, Houston, and Beaumont/Port Arthur. In contrast, the availability of shale crude by pipeline to refineries in Southeast Louisiana has lagged. However, new pipeline capacity to the crude hub in St. James, LA, is about to change the dynamic in a major way. Today, we continue our series on St. James by discussing the Bayou State’s refinery infrastructure and how new pipelines could impact refinery crude slates.
The U.S. Treasury Department last week announced new sanctions on Petróleos de Venezuela, S.A. (PDVSA), the national oil company of Venezuela, that effectively halts imports of Venezuelan crude oil into the U.S. Given that the Venezuelan crude imported to the U.S. is of the heavy sour variety, which is not produced in large amounts in the U.S. (except for California), certain refineries along the Gulf Coast are left scrambling to find alternative sources of feedstock for their facilities. Today, we evaluate historical crude oil imports from Venezuela, the refineries that are most heavily impacted, and the potential effects of the sanctions on U.S. refiners.
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.
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.