Marathon streamlines portfolio towards renewables as refined product demand rebounds

Marathon Petroleum, the largest refining company in the United States, is evaluating refining and midstream assets in its portfolio as it shifts focus and capital spending away from refining and towards renewable projects.

Marathon announced in the Nov. 2 Q3 earnings release the company was looking for strategic options for the 68,000 b/d Kenai, Alaska, refinery, which includes a sale.

The company is in "advanced discussions with several parties," CEO Mike Hennigan said on the Nov. 2 Q3 results call, declining to elaborate on potential uses considered by prospective buyers.

Going forward, expanding its refining footprint is not a big priority for Marathon, Hennigan said, despite the fact that several US refineries are on the sales block, including Phillips 66's Alliance refinery in Belle Chasse, Louisiana, and LyondellBasell's Houston refinery.

"I think the higher priority for us is to increase our opportunities in the energy evolution," Hennigan said.

"You see us doing some things in renewables. We've gotten a few other ideas that we're percolating on that, hopefully, in time, we'll advance the portfolio.... we're looking to balance the portfolio and head a little bit more leaning in towards where things are going to be growing over the next couple of decades, if we get the right opportunity," he added.

Marathon is in a good financial position to invest in renewables, and is open to accelerating their own renewable fuel development program.

And while it is currently looking for outside opportunities, they have yet to find an asset which would be a good fit.

"In the short term, we have not found anything that we think is worthy of deployment, but we'll continue to look at it," Hennigan said.

"We have a whole team of people, both on the [Marathon Petroleum] and the MPLX side, looking for opportunities in renewables and as well as all the other alternative energy options," he added.

Marathon's Dickinson, North Dakota, renewable diesel came online in 2020, while its conversion of Martinez, California, refinery is underway, awaiting a key construction permit from the state, with expectations that half of the Phase 1 of the project will be online in 2022.

Strong refining outlook

Marathon reported strong Q3 refining results of $694 million, compared with a loss of $886 million in Q3 2020, as refined product demand recovery from the coronavirus pandemic continues.

"In the U.S., gasoline and diesel inventories have steadily improved and are both at the low end of their 5-year averages. Jet fuel inventories have moved into the 5-year range, although demand is still well below pre-pandemic levels, and we expect that to be a headwind for some time. Our system is seeing gasoline demand currently 2% to 3% below 2019 levels with the West Coast still lagging at about 8% below," said Hennigan.

Going forward, Marathon expects to increase refinery runs on the US Gulf Coast to 1.225 million b/d in Q4, slightly reduce Q4 Midwestern runs to 1.1 million b/d and keep US West Coast runs steady at about 545,000 b/d.

Marathon expects to increase feedstock processing at its refineries, as the price of heavy sour crudes rose. On the USGC, Marathon expects to run 150,000 b/d of feedstock in Q4, up from the 110,000 in Q3. Midwestern feedstock rates are expected to rise to 75,000 b/d in Q3 from the 61,000 b/d in Q2. On the US West Coast, Q4 feedstock rates are forecast at 60,000 b/d, up from the 42,000 b/d in Q3.