Marathon Petroleum sells Speedway, looks to repurpose idled refinery

New York — Marathon Petroleum sold its Speedway retail operations and is keeping offline two refineries shut earlier during the coronavirus pandemic, while increasing runs at its other refineries in the third quarter to meet rising demand following the easing of coronavirus-induced lockdowns, CEO Mike Hennigan said on August 3.

Marathon Petroleum on August 2 agreed to sell its Speedway retail assets to 7-Eleven for $21 billion in cash. The agreement includes a 15-year fuel supply agreement which calls for Marathon to supply 7-Eleven approximately 7.7 billion gallons/year or just over 500,000 b/d of transportation fuel.

Marathon also said it is indefinitely idling the two refineries it had shut down earlier when demand first crashed due to the pandemic--the 26,000 b/d El Paso, Texas, plant and the 161,000 b/d Martinez, California plant.

California was the first state to shut down, with Governor Gavin Newsome ordering all residents – except essential workers -- to stay at home on March 19, causing gasoline demand to fall by about half and prices to plummet, reducing refinery cracks.

Rationalizing refinery capacity for tough times ahead

As a result, Los Angeles 88.5 CARBOB prices fell to an average of $1.08/gal in the second quarter from $1.68/gal in the first quarter, Platts price assessments show. So far, third quarter prices are averaging $1.45/gal.

"By shutting Martinez, MPC [Marathon Petroleum Corporation] will not only be able to cut fixed costs but will also operate Los Angeles [363,000 b/d] refinery in a more profitable environment", said Credit-Suisse analyst Manav Gupta in a research note.

"Gallup is a small refinery with high fixed cost and was profitable when Midland diffs were wide. Shutting it lowers costs and MPC will see product markets tightening in El Paso where it already has refining capacity [131,000 b/d]," he added.

Marathon said it was unsuccessful in its attempt to sell the El Paso plant, but will keep logistics operating there despite the plant closure.

Marathon is evaluating re-purposing Martinez into a 48,000 b/d renewable diesel plant.

"We have the unique opportunity to take advantage of a strong set of logistics for the area and three significant processing units that are an ideal fit for making renewable diesel," said Hennigan.

Martinez has three high pressure, hydroprocessing units which, if retrofitted, could produce renewable diesel about equal to about one-third of the refinery's nameplate crude capacity, said Raymond Brooks, Marathon's head of refining.

"There are also existing hydrogen plants, power generation and extensive inbound and outbound logistics that are all needed to produce renewable diesel," he added.

"So our intention is to pivot to the production of higher value, low-carbon intensity diesel for California,' he said.

The plant currently produces about 54,000 b/d of ULSD. If Marathon decides to go ahead with the project, it is expected to be online in 2022 with initial production of 48,000 b/d of renewable diesel and "ramping up from there," he added.

Higher third quarter run rates as demand creeps back

Marathon Petroleum expects its total system third quarter refinery throughput to average 2.345 million b/d, up from the 2.276 million b/d in the second quarter as runs increase at its Midwest and US West Coast plants. Second quarter utilization was 71% across its 16-refinery system which has over 3 million b/d of refining capacity.

Marathon expects third quarter Midwestern throughput of 1.045 million b/d compared with the 957,000 b/d processed in the second quarter. US West Coast refinery runs are expected to average 435,000 b/d topping the second quarter's 419,000 b/d, despite a total turnaround planned for its 68,000 b/d Kenai, Alaska, refinery and hydrocracker work underway at its 363,000 b/d Los Angeles complex during the quarter.

On the US Gulf Coast, third quarter throughput is expected to be lower, averaging 920,000 b/d, compared with the 970,000 b/d in the second quarter, as third quarter catalyst changes are planned for Marathon's two largest refineries – the 585,000 b/d Galveston Bay, Texas, plant and the 578,000 b/d Garyville, Louisiana plant.