US refiners invest sparingly in new capacity

  • Market: Oil products
  • 05/26/22

US refiners are executing a few capital projects that will expand domestic crude processing capacity before the end of 2023, but expensive forays into renewable fuel production will likely limit capacity expansions in future turnarounds.

Three of the largest refiners in the US are currently working on capital projects that could offer another 350,000 b/d of crude processing capacity to the US refining portfolio by the end of next year, partially offsetting the effect of recent closures around the industry.

The largest refinery expansion currently underway in the US is ExxonMobil's BLADE (Beaumont Light Atmospheric Distillation Expansion) project at its 369,000 b/d refinery in Beaumont, Texas. The project will add another 250,000 b/d crude distillation unit to the facility by next year in conjunction with the company's plan to increase oil production from Texas' Permian basin.

Valero is steering its own expansion project in Texas, with plans to start-up a 55,000 b/d delayed coker and sulfur recovery unit from the first half of next year at its 395,000 b/d Port Arthur refinery. The project will increase the facility's heavy-sour crude oil and residual processing capacity.

Marathon Petroleum continues work on the South Texas Asset Repositioning (STAR) project at its 593,000 b/d Galveston Bay refinery in Texas, which is integrating the Texas City refinery it purchased from BP in 2012 with another refinery in the same city the company already owns. The $1.5bn STAR project, first announced in 2015, is intended to add 40,000 b/d of new crude capacity and expand the facility's residual oil processing capabilities when complete next year.

These projects, all announced prior to 2019 and delayed repeatedly by Covid-19-related restrictions, have taken on new importance in view of stressed US refining capacity. US refiners have invested relatively lightly in capacity expansions during turnarounds in recent years, with a dimming long-term outlook for road fuel demand running headlong into the short-term demand shocks provided by the pandemic. Across 2020 and 2021 roughly 1.5mn b/d in US refining capacity was shuttered due to shattered demand, and it seemed likely to many industry watchers that less — and not more — refining capacity was needed in the short-term.

War changes the outlook

Recent events have reframed those assumptions. Impacts from the war in Ukraine have complicated trade in a number of commodities in recent months, and refined product stocks in the US and Europe have dwindled following sanctions on Russian energy. Refining margins have responded by reaching rarefied air — US Gulf coast refining margins in the four-week period ending 20 May averaged more than double year-ago levels, European gasoline margins in April reached a record-high $21.44/bl premium to Ice Brent and Asia-Pacific gasoline margins pushed past $30/bl for the first time earlier this month.

There is not much slack in the US refining system to answer the call offered by these prices. The Energy Information Administration estimates that US crude utilization will average 93pc in the second quarter before increasing to 94pc in the third quarter — a mark that would represent the highest rate in four years.

Recent events may signal that more crude processing is needed in the US and elsewhere, especially with US crude production expected to hit a record-high of close to 13mn b/d next year. But new refinery expansion projects are unlikely in the short-term, with companies already managing cost-intensive projects to set up renewable fuel infrastructure at a few facilities.

US petroleum refiners are currently involved in projects that promise to bring on roughly 208,000 b/d of renewable diesel (RD) processing capacity between this year and 2024. Valero, Marathon, Phillips 66, PBF Energy, and HF Sinclair have recently outlined around $5bn in such investments, with renewable fuel projects absorbing the bulk of a few companies' capex plans.

Phillips 66, which is without a partnerin its $850mn conversion of the San Francisco refinery in California, has earmarked around 45pc of all growth spending this year for its RD project as part of what it has called a "very constrained" capital approach. Marathon Petroleum has similarly earmarked around 50pc of its $1.3bn capital outlay for 2022 for converting the shuttered Martinez refinery near San Francisco into a 48,000 b/d RD plant by 2023.

In a possible sign of this trend's long-term staying power, service companies specializing in refinery turnarounds have heralded this shift toward RD production as a new bread-and-butter business line. Matrix Service, which does major maintenance projects for refiners, utilities and other industries, said late last year that refining sector investments are "moving toward carbon reduction and renewable fuels conversions" that will represent a significant portion of its business moving forward.

Delaying maintenance

Rather than investing in capacity expansions, refiners will walk the razor's edge by pushing back turnarounds to keep feedstocks — and cash — flowing this summer driving season. Phillips 66, which at the start of the year indicated that it would soon undertake turnarounds pushed off during the pandemic, said last month that it will now spend less money on maintenance this year than previously forecast as more turnarounds are delayed until next year.

This practice is not without its risks, as some refiners have suggested that utilization rates are unsustainable at current levels.

"Historically although we've been able to hit 93pc utilization generally you cannot sustain it for long periods of time," Valero chief executive Joe Gorder said on 26 April. "I think the markets will have to balance more on the demand side."


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News

Rising prices weigh on WAF gasoil imports


02/22/24
News
02/22/24

Rising prices weigh on WAF gasoil imports

London, 22 February (Argus) — Gasoil and diesel imports to west Africa are on track to slide to a 16-month low in February as rising prices weigh on demand. Vortexa data show 728,000t of gasoil and 10ppm diesel arrived in west Africa by sea on 1-21 February, equivalent to 34,700 t/d. This is 15,100 t/d lower than the daily average across the whole of January. Cameroon has not imported any at all so far this month after receiving 2,000 t/d in January. Imports to Ghana, Angola and Senegal are all down on a daily average basis. Market participants say buying interest in Ghana has been constrained by a weaker local currency, which has reduced access to US dollars. Currency depreciation is also affecting purchasing power in Nigeria, although gasoil imports to Nigeria have bucked the regional trend and are running 1,900 t/d higher so far this month than the January daily average. Market participants say traded volumes in the region have been below average this month. Higher prices are a key factor. The price of 10,000-20,000t high-sulphur gasoil cargoes delivered by ship-to-ship transfer at the regional offshore Lome trading hub in Togo were indicated at around $45/t above the front-month Ice gasoil futures contract on 22 February. For comparison, 30,000t cargoes of ultra low-sulphur diesel cif ARA were assessed at a much lower premium of $27.25/t to Ice gasoil on 21 February. Ice gasoil itself has rallied in recent weeks, hitting a more than three-month high of $918.25/t on 9 February as concerns over supply disruption in the Atlantic basin persist in the wake of attacks on commercial shipping by Yemen's Houthi rebels in and around the Red Sea, a key route for getting diesel and gasoil from east of Suez to northwest Europe. Inland shortfalls The drop in seaborne imports to west Africa is squeezing supply to inland countries in the landlocked Sahel region, which increasingly rely on volumes shipped to Togo. Gasoil and diesel imports to Togo have been on a downward trend since September last year and this is likely to continue this month, with only 27,500t arriving on 1-20 February, according to Vortexa. As a result, Togo and landlocked Burkina Faso, which relies entirely on overland deliveries, are currently experiencing a shortage of gasoil, market sources said. Another aggravating factor is landlocked Niger's inability to transport gasoil from its Soraz refinery by land to neighbouring Burkina Faso and Mali because of Islamist security threats along those countries' borders, one market participant said. The refinery has had to readjust run rates as it has built up ample gasoil stocks, the source added. Traders in Niger are exploring opportunities to export gasoil to neighbouring Chad instead. Chad is experiencing a shortage of gasoil after product from the country's 20,000 b/d Ndjamena refinery was sold to the Central African Republic at higher prices than domestic values, with traders taking advantage of the lack of Sudanese exports since the country's sole 100,000 b/d Khartoum refinery was bombed in November . The gasoil undersupply in the Sahel comes as Niger's president Abdourahamane Tiani, who took power in a coup in July last year, met with representatives from Togo, Burkina Faso, Mali and Chad on 17 February to discuss regional energy projects, with a view to reaching greater energy autonomy for the landlocked region. Tiani said in December last year that he wants an increase in domestic refining capacity , after a project to increase jet fuel yields at the Soraz refinery was delayed by July's coup. By George Maher-Bonnett Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Ship speeds on Red Sea rerouting to 'erode' GHG cuts


02/22/24
News
02/22/24

Ship speeds on Red Sea rerouting to 'erode' GHG cuts

Edinburgh, 22 February (Argus) — Ships increasing speed as they are forced to sail longer routes to avoid Houthi attacks in the Red Sea could "erode" environmental gains in shipping, the United Nations Conference on Trade and Development (UNCTAD) said today. The shipping sector has for over a decade reduced sailing speeds to cut fuel costs and reduce greenhouse gas (GHG) emissions, UNCTAD said. Speed optimisation is one of the solutions shipowners can consider to improve their rating under the International Maritime Organisation's (IMO) carbon intensity indicator (CII) measures which came into force in January 2023. Container ships' speeds for voyages around the Cape of Good Hope at the southern tip of Africa have increased since the Red Sea disruption started late last year. Container trade flows measured in tonnes account for over half of traffic through the Suez Canal, according to the Suez Canal Authority. Higher speeds are likely being used as a way of adhering to delivery schedules but also to manage fleet capacity, as longer routes mean vessels are employed for a longer period of time. UNCTAD said that these trends could erode environmental gains previously achieved by ships reducing speeds, or slow steaming. The organisation calculated that a ship increasing speed to 16 knots from 14 knots would increase bunker fuel consumption per mile by 31pc. "In this context, longer distances travelled due to rerouting away from the Suez [Canal] and through the Cape of Good Hope imply that greenhouse gas emissions for a round trip from Singapore to northern Europe would rise by over 70pc," it said. Ship tonnage entering the Gulf of Aden declined by over 70pc between the first half of December 2023 and the first half of February 2024, while ships passing the Cape of Good Hope increased by 60pc, UNCTAD noted. The security issues in the Red Sea have also affected insurance costs for shipowners, UNCTAD said. "By early February 2024, some reports indicate [risk] premiums rising to around 0.7pc to 1pc of a vessel's value, from under 0.1pc previously," UNCTAD said, citing a report by ratings agency Moody's. Ships avoiding the Suez Canal, particularly container vessels, also pose a risk to "global supply chains, potentially leading to delayed deliveries, heightened costs and inflation", it said. "The war in Ukraine had already shown the impact of longer distances and freight rates on food prices." UNCTAD estimates that about half of the increase in food prices observed in 2022 resulted from increased transport costs caused by longer distances and higher freight rates. By Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Australia’s Qantas flags higher 2023-24 jet fuel costs


02/22/24
News
02/22/24

Australia’s Qantas flags higher 2023-24 jet fuel costs

Sydney, 22 February (Argus) — Australian airline Qantas Airways still expects to incur a record fuel bill in the 2023-24 fiscal year to 30 June, according to its half-year results. Its fuel costs are expected to be A$5.4bn ($3.54bn) at current fuel prices, inclusive of hedging, with 2023-24 jet fuel consumption, including sustainable aviation fuel, predicted to be 81,000 b/d or 19pc higher than the 68,000 b/d recorded in 2022-23. Qantas group's fuel expenditure in 2022-23 was A$4.6bn. New Airbus A321LR aircraft delivered to its budget subsidiary Jetstar are resulting in a 20pc improvement in fuel burn per seat, Qantas said, contributing to a 12pc unit cost improvement compared with the older A320 aircraft they will replace. The airline said this is helping it reach an interim emissions reduction target of 25pc by 2030 . Qantas ordered a further eight A321XLRs for domestic flights for a total order of 28, with the first aircraft arriving in early 2025. Qantas' domestic group capacity guidance for 2023-24 was left unchanged at 103pc of its pre-Covid-19 pandemic figure. But international capacity guidance, excluding Jetstar Asia, was revised down to 94pc from a previous 95pc. Jetstar Asia capacity will reach 42pc of the pre-Covid figure, Qantas said, up from a previous guidance of 40pc. Qantas' July-December profit after tax was A$869mn, down from A$1bn in the previous corresponding period, while revenue of A$11.1bn was up on the 2022-23 first-half figure of A$9.9bn. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Auge de nearshoring en México depende del 2024


02/20/24
News
02/20/24

Auge de nearshoring en México depende del 2024

Mexico City, 20 February (Argus) — Las políticas energéticas de México durante este año de elecciones presidenciales ayudarán a determinar si el país está preparado para alcanzar el tan ansiado auge del nearshoring, ya que se espera que el desarrollo de parques industriales se expanda en 2024. México podría exportar cerca de $168 mil millones adicionales entre 2023 y 2028 como resultado de la tendencia de trasladar cadenas de producción más cerca de EE.UU. para evitar retrasos logísticos como los observados durante la pandemia, dijo Alejandro Cervantes Llamas, jefe de investigación cuantitativa del banco mexicano Banorte. Pero la mayor parte de estas exportaciones fluirán durante los últimos tres años de dicho período, una vez que las instalaciones y la infraestructura industrial planificadas sean operativas. Alrededor de $10 mil millones adicionales del total de $168 mil millones en exportaciones llegaron en 2023, añadió Banorte. Mientras tanto, la Cámara de Comercio Internacional (CCI) estima que México verá $38.6 millones de inversión extranjera directa relacionada con el nearshoring en 2024. Hasta el momento solo se ha anunciado 40pc del desarrollo esperado, pero es probable que surjan más proyectos en 2024, dijo Ramsé Gutiérrez, vicepresidente de asesoramiento financiero de inversiones Franklin Templeton México. Sin embargo, el éxito del nearshoring depende de la capacidad que tenga México para proporcionar a la industria en auge la infraestructura necesaria, especialmente electricidad y gas natural, lo que a su vez impulsaría a la demanda de combustibles para motores. La demanda de importaciones de gas por parte de México aumentará de 7.8 Bcf/d en 2023 a 9.3 Bcf/d en 2026, según un estudio realizado por el operador estatal de gasoductos Cenagas el año pasado. Energía para el nearshoring México también necesita invertir $116.8 mil millones — $7.78 mil millones/año en promedio durante los próximos 15 años — en generación y distribución de energía para satisfacer la creciente demanda, de acuerdo con un informe reciente de CCI Mexico. El informe sostiene que, con un crecimiento anual del PIB de 2.4pc, México necesita construir 58,900km de líneas de transmisión y añadir 34.5 GW en capacidad de generación nueva, así como 14.1 GW en capacidad de generación de sustitución hasta 2037. Las estimaciones se basan en factores de carga de 87pc ciclo combinado de gas, de 25pc para plantas solares y 38pc para generación eólica. Además, México necesita otros 800km de líneas/año por punto de crecimiento adicional del PIB. También debe desarrollar una industria alrededor del Corredor Interoceánico del Istmo de Tehuantepec con enlaces ferroviarios, carreteros y gasoductos desde el océano Pacífico hasta el Golfo de México, así como en la península de Yucatán, dijo Osmar Zavaleta, decano asociado de investigación en la Escuela de Negocios Tec de Monterrey. Pero esto será un reto continuo, dado que las empresas extranjeras tienen profundos compromisos con las energías renovables, en tanto que las iniciativas gubernamentales de los últimos años han dificultado el desarrollo de proyectos solares y eólicos privados. Los proyectos de generación solar han experimentado un auge en los últimos años, a medida que la regulación presiona a los proyectos más grandes del sector privado. Este segmento menos regulado está limitado a una capacidad de generación de 500 kW. Sergio Arguelles, presidente de la Asociación Mexicana de Parques Industriales, lleva más de un año y medio ejerciendo presión sobre las autoridades mexicanas para aumentar la energía renovable autogenerada permitida a más de 500 kW. Con las elecciones presidenciales de México previstas para junio, tanto la candidata Claudia Sheinbaum como su principal competidora Xóchitl Gálvez han indicado su apoyo al crecimiento acelerado de las energías renovables para el próximo periodo presidencial de seis años que finaliza en 2030. Con Sheinbaum, quien encabeza las recientes encuestas con una ventaja de dos dígitos, es más probable ver el crecimiento de la capacidad verde impulsado por la empresa estatal de electricidad CFE, mientras que Gálvez apoya una mayor participación del sector privado. Otro reto al que se enfrenta México sigue siendo la inseguridad, especialmente en los estados fronterizos del norte, donde la inversión extranjera directa más fluida dependerá de la capacidad del gobierno para controlar a las organizaciones criminales de la región. Por James Young Inversiones clave de nearshoring en México $ miles de millones Compañía Tipo de proyecto Inversión Ubicación Fecha de anuncio Tesla Autos eléctricos 15.0* Nuevo León 28 Feb 23 Pacific Limited Gas natural 14.0 Sonora 4 Mayo 23 Copenhagen Infrastructure Energía eólica / H2 verde 10.0 Oaxaca 24 Nov 23 Lingong Machinery Gr Manufactura pesada 5.0 Nuevo León 16 Oct 23 TC Energy Gaseoductos 4.5 Veracruz, Tabasco 27 Sep 22 Ternium Acero y metales 3.2 Nuevo León 10 Jun 23 HDF Energy H2 verde 2.5 Baja California Sur 5 Dic 23 Transition Industries Ultra-bajo carbón 2.0 Sinaloa 11 Dic 23 Engie Mexico Gas natural 1.6 Multiples estados 18 Ago 23 Tarafert Fertilizantes 1.5 Durango 17 Feb 23 Artículos de Argus, Análisis Económico Banorte *Incluye inversiones estimadas de proveedores de la planta de Tesla. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.