PBF bounces back as demand returns; Chalmette RD project moves forward

PBF Energy's fourth-quarter earnings flipped into the black as refined product demand returned and inventories remained below 2019 levels, and as the company moves forward with its inaugural renewable diesel project, PBF said Feb. 10

"Through the fourth quarter, we continued building on the positive momentum generated by strong demand for our products," said CEO Tom Nimbley on PBF's Q4 results call, citing low inventories, strong demand and lower refinery capacity as constructive to a positive refining environment.

"Demand remains the key driver," Nimbley said. "We expect demand in 2022 will continue its strong recovery and exceed 2021."

PBF reported Q4 net income of $189.1 million, compared with the Q4 2020 net loss of $286 million, as demand for gasoline, diesel and jet move toward more normalized levels.

West Coast demand remains particularly strong, as repurposing to renewables at Marathon's Martinez refinery and Phillips 66's Rodeo refinery, both in California, are underway, cutting hydrocarbon processing and reducing the state's long refinery position, Nimbley said.

PBF expects to perform about 30% of 2022 planned turnaround work in the first quarter, with ongoing maintenance primarily on the West Coast and the Atlantic Coast, where work on the reformer at its Delaware City, Delaware,refineryis underway.

PBF recently completed a turnaround at Martinez and is planning a turnaround at its Torrance refinery, also in California, in Q2.

On the Gulf Coast, the Chalmette, Louisiana refinery is in the process of wrapping a turnaround on its aromatics and reforming unit.

However, PBF President Matt Lucey was adamant that its Paulsboro, New Jersey, refinerywould not return to full pre-coronavirus rates and PBF had no current plans to restart the half of the plant shut in early 2021 due to reduced demand.

"We are not starting up the cat cracker, the crude unit, the coker," he said, adding "the press reports weren't entirely accurate" when they reported the plant would return to full rates this summer.

Rather, PBF is looking to restart some secondary units to improve clean product margins and logistics betweenPaulsboro and Delaware City, where utilization was rising in step with demand. By starting up secondary Paulsboro units, PBF will be able to turn the intermediates once shipped to Delaware into finished products, thus reducing transfer costs and barge traffic between the two plants.

Paulsboro's secondary unit startup "will reduce those transfers significantly," Nimbley said. "Not a significant increase in clean product production but some high-value products production and a better capture rate."

Chalmette plans go forward

While PBF was a late entrant in the renewable diesel production arena, the company has been working on converting an idled hydrocracker at its Chalmette refinery to make renewable diesel and has the permits needed to start work.

"We fully expect to be full production first half of next year," Lucey said. "The project is designed for 20,000 b/d of renewable fuels capacity with full pretreatment capability. We expect our total project cost to come in under $2/gal and we believe this compares favorably with projects of similar size and scope."

Chalmette's location at the mouth of the Mississippi River and on the Gulf of Mexico gives it easy access to grain and other feedstocks from the Midwest and the optionality to deliver renewable diesel to the best market, be it Europe, Canada or California, where PBF has the Martinez and Torrance refineries, as well as its own distribution system.

"We are a very large operator in California...We control our own distribution system as well....we have the product distribution side of things from where the market is today, California," said Erik Young, PBF's chief financial officer.

Once online, Chalmette's RD production will help a merchant refinery like PBF mitigate the costs of complying with the US Renewable Fuel Standard, which is "still one of the industry's strongest headwinds that is also driving costs higher at the pump for every consumer in the country," Lucey said.

The Environmental Protection Agency's mandated Renewable Volume Obligations for 2020, 2021 and 2022, released in late 2021, were just recommendations, Lucey said, noting that if the 2022 RVO of 15 billion gallons were put into law "RIN scarcity will persist," referring to the Renewable Identification Number credits under the RFS used by refiners and other obligated parties to meet their RVOs.

"If the EPA fails to lower the '22 RVO by 1.5 billion gallons to be more in line with [Energy Information Administration] demand projections, the scenario in which the market runs out of RINs ... could easily materialize in '22," Lucey said. "That would create significant problems for the market at large.".

Lucey said the Biden Administration has heard from a lot of stakeholders about the "problems with the '22 conventional biofuel requirement, so we are hopeful there will be a pathway to a more sensible and workable program with the final rule."

There is no timeline for when the EPA will issue the final RVO rule for the three years, but PBF thinks maybe the 2020 final rule making could be released by December 2022.