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Marathon Petroleum balancing traditional refinery operations with new renewable ventures

Highlights

Sees Q1 2021 gasoline demand 90% of Q1 2020

STAR project continues at Galveston Bay, TX, refinery

Dickinson, ND RD plant to reach full rates end-Q1

New York — US refiner Marathon Petroleum is embracing the renewable energy space as it looks to cut its carbon footprint, while positioning its traditional cyclic refining business for resiliency, CEO Mike Hennigan said Feb. 2.

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"We have made a commitment in sustainable energy. And partly, that comes from lowering the carbon intensity of our assets and increasing our exposure to renewable fuels production," he said on the company's fourth-quarter results call.

In the renewable fuels space, the nation's largest refiner has two major renewable projects underway. Furthest along is the 12,000 b/d renewable diesel (RD) plant in Dickinson, North Dakota, which began production in the first quarter and expects to hit full rates by the quarter's end. Marathon plans to rail the RD to the California market to get the benefit of that state's Low Carbon Fuel Standard.

Marathon's impending sale of its Speedway retail operations to 7-Eleven will have no impact on its how it meets its Refinery Volume Obligations (RVO) mandated by the Environmental Production Agency's Renewable Fuel Standard (RFS), Brian Partee, Marathon's head of marketing said on the call, because RINs generated selling fuel had never been included in Marathon's results.

RINs, or Renewable Identification Numbers, are credits that refiners and other obligated parties selling transportation fuels in the US need to buy if they are not able to blend enough renewables to meet their RVO under the RFS.

Since last year, RINs prices have been steadily rising on uncertainly surrounding the RFS policy under the new Biden Administration, and exacerbated feedstock supply issues. S&P Global Platts assessments show the price of ethanol and biodiesel RINs are averaging 90 cents/RIN and $1.08/RIN, respectively, so far in the first quarter, up from 23 cents/RIN and 47 cents/RIN in the first quarter of 2020.

Partee said Speedway is a small part of Marathon's extensive terminal network and robust marketing platform. Over the past few years, Marathon has met between 70% and 75% of its RFS obligation through blending at its terminals. The additional RINs and LCSF credits generated when the Dickinson RD reaches full rates will increase that by another 10%, Partee said.

"And you can keep doing the math with Martinez. So we are quickly approaching 100% [of meeting our RFS obligation without buying RINs]," he added.

In April 2020, Marathon shut its Martinez, California, refinery because of low refined product demand stemming from coronavirus pandemic lockdowns. Marathon then decided to evaluate repurposing the 161,000 b/d refinery into a 48,000 b/d renewable diesel plant.

The project, which is in the final engineering stage and awaiting permits, is expected to start producing 17,000 b/d of RD by the second half of 2022 upon completion the project's first phase, which comprises the conversion of a hydrotreater to make RD, said Ray Brooks, who heads Marathon's refining division.

"Then we would follow that up with the [conversion of the] remaining two hydrotreaters in 2023 along with the pretreatment system," said Brooks.

Marathon expects the plant to produce 48,000 b/d of RD by the end of 2023.

Refining demand shows green shoots

Weak demand for gasoline, diesel and jet had Marathon running their 3.1 million b/d US refinery system at 82% capacity in the fourth quarter of 2020, at 2.53 million b/d of crude throughput. Rates are expected to increase slightly in the first quarter to 2.56 million b/d as demand shows some strength.

Tim Griffith, who heads up the Speedway unit, said that so far in the first quarter gasoline demand at the retail level was 90% of what it was in the first quarter of 2020.

"We hope to see improvement continued over the rest of 2021," he said.

Marathon's $1.4 billion 2021 capital spending plan for 2021 includes $1 billion for its refining and marketing segment, with about 25% of that going to maintenance and regulatory spending. And about $150 million of that will go to turnaround costs in the first quarter which includes work at Marathon's 585,000 b/d Galveston Bay, Texas, refinery, said Maryann Mannen, Marathon's new chief financial officer.

About $800 million in 2021 is earmarked for growth spending. Some of that will go toward the Martinez RD project, and some to refinery enhancement projects, including the South Texas Asset Reposition (STAR) project, which is integrating Marathon's legacy Galveston Bay, Texas, refinery with the Texas City refinery it bought from BP in 2013.