Marathon posts strong Q1 refining results as focus shifts more toward renewables

Marathon Petroleum has earmarked $1.7 billion for 2022 capital expenditures, with 50% of the $1.3 billion growth spending going towards the conversion of its Martinez, California, refinery into a renewable fuel facility, CEO Mike Hennigan said Feb. 2.

Evaluating feedstock supply for the plant is part of the reason Marathon did not disclose capital spending until now, Hennigan said on the Q4 2021 results call.

"But we're at the point as we've negotiated with a lot of different counterparties that we felt comfortable that we can disclose the [capital expenditures] because that's been part of the discussions and all the negotiations that have occurred on that side of the ledger," Hennigan said.

Renewable feedstock supply has tightened as more renewable diesel projects come online. Forecasts are for renewable diesel production to grow by about 80% in the second half of 2022 from the 1 billion gal/year at the end of 2021, according to S&P Global Platts Analytics.

Marathon's decision to put in a pretreatment plant at Martinez allows them to "be able to process all the renewable feedstocks and we want to be able to pretreat them ourselves," said Ray Brooks, Marathon's head of renewables.

Marathon expects to spend $700 million on Martinez in 2022, with expectations that pretreatment plant spending will lower future operating expenses.

Marathon estimates the pretreatment plant put the renewable fuel per gallon capacity cost at around $1.60/gal, compared with other renewable diesel projects which have pretreatment costs of $3.25/gal.

Brooks said Marathon was working with Contra Costa County regulators to "address all the questions and get the permit to the finish line."

"And so we are targeting the end of Q1 to have the CEQA permit done and be ready to put shovels in the ground," he said, referring to the California Environmental Quality Act permit needed for the project to proceed.

The Martinez facility is expected to start up with an initial production capacity of 17,000 b/d, or 260 million gal/year, by end 2022, reaching full capacity of 730 million gal/year, or 47,700 b/d, by end 2023.

Securing Dickinson feedstock

As it looks to get the Martinez plant online, Marathon is parlaying experience gained in starting up its Dickinson, North Dakota, renewable fuels facility.

The Dickinson 184 million gal/year renewable diesel plant was at full rates by end 2021. Marathon has increased feedstock supply for the plant with the start-up in January of its 2,000 b/d Cincinnati, Ohio, pretreatment facility, which was converted from a biodiesel plant.

Dickinson also gets 3,000 b/d of pre-treated feed from Marathon's Beatrice, Nebraska, facility which started up in March 2021.

The facility will get an additional 5,000 b/d of feedstock when the new soybean crush from Marathon's joint-venture deal with ADM located in Spiritwood, North Dakota, comes online in 2023.

Lower Q1 refining throughput on higher turnarounds

Marathon reported $881 million in refining earnings in Q4. They expect refinery throughput to drop from the 2.9 million b/d, or 94% of capacity, seen in Q4 to around 2.685 million b/d in Q1 on planned refinery work.

"The majority of activity will be in the Gulf Coast region. Our 2022 planned turnaround activity is back half-weighted this year," said Maryann Mannen, Marathon's chief financial officer.

"We see this year as a higher turnaround year," she added, noting that average annual turnaround spending ranges from $700 million to $800 million.

Growth refining capital spending centers on completing the STAR project at its 593,000 b/d Galveston Bay, Texas, refinery, which combines Marathon's legacy Texas City refinery with the one purchased from BP in 2013. Smaller projects are planned for the 578,000 b/d Garyville, Louisiana, refinery and the 363,000 b/d Los Angeles-area plant.

Marathon said it was also focused on increasing exports of refined products by delivering more cargoes. The company also "took a position in the Caribbean in the fourth quarter that allows us to optimize supply both internationally and domestically" as well as develop a blending program in the region, said Marathon's head of commercial operations, Brian Partee.