Natural gas crunch a plus for US refiners: PBF

US independent refiner PBF Energy expects tightness in global natural gas markets to serve as a net positive for US refiners, due to disproportionate impacts on competitors in other markets.

The refiner paid $4.32/mmBtu in the third quarter, compared to $2.12/mmBtu in the same period last year and $2.33/mmBtu in the third quarter of 2019. But prices for deliveries into some parts of Europe reached record highs in the third quarter, providing refiners there with a choice to either cut production or pay record operational expenses. Asia-Pacific refiners were also pressured with higher prices.
"Our belief is that domestic refiners, especially in the Atlantic basin, are at a competitive advantage because higher costs associated with natural gas increases the advantage on a relative basis versus our international competitors," chief executive Tom Nimbley said today on an earnings call. 
The company acknowledged that current gas prices will lead to further cost pressures in the fourth quarter, especially at its west coast refineries in California, the 155,000 b/d Torrance refinery and 157,000 b/d b/d Martinez refinery. Gas accounts for 15-20pc of the company's operating expenses in terms of direct use and energy consumption.

Two years ago, the company estimated that a $1/mmBtu change in gas prices would lead to $75mn-$95mn change in costs. But industrial gas-to-distillate switching could boost demand for PBF's products, offsetting some of that pain.

"We do expect to see elevated costs relative to natural gas," Nimbley said. "But we also expect these costs to be somewhat offset through clean product margin support for liquid fuels, primarily distillate, as power providers and other end users elect to switch from gas to liquid fuels."

US peer Valero also recorded much higher prices for natural gas in the third quarter, and similarly positioned the natural gas crunch as a boon to US operators in its earnings call on 21 October. Lower production in Europe due to higher operational costs gave US peers easier routes into Latin America and other destinations in the third quarter, after European exports flooded markets in the first half.

PBF reported net income of $59.1mn in the third quarter, compared to a $456mn loss in the same quarter last year and a $69.6mn profit in the same period in 2019.

By Dylan Chase