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Shell explores sale of two US refineries as downstream cutbacks continue

Highlights

Puget Sound sale would limit refining presence to US Gulf Coast

Shell, BP reducing refining footprint but upping product sales

London — Shell aims to sell two US refineries, in Mobile, Alabama, and Anacortes in Washington state, as a seemingly relentless drive by European majors to reduce their refining footprints continues.

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In a statement Thursday the company said the sales would fit with its plans to "reshape its refining portfolio globally to leverage Shell's natural strengths and integration opportunities."

The process could take months and "may or may not result in a finalized sales transaction. Shell may elect to discontinue the marketing process for one or both assets at any time. If the marketing process does not result in a finalized sales transaction, Shell plans to continue operating the refineries," it said.

Both facilities are modest in size, with the Mobile facility having a crude capacity of around 79,000 b/d and being oriented toward chemicals, and the Puget Sound refinery in Anacortes having a processing capacity of 145,000 b/d. Selling Puget Sound would limit Shell's US refining presence to the Gulf Coast, where its two main facilities are the Convent and Norco refineries, both in Louisiana.

Shell's Puget Sound refinery is the more complex plant, capable of making the low sulfur transportation fuels required by the region.

The plant historically runs about 65,000 b/d of medium and light sour crude from Canada, according to Energy Information Administration data. It also runs South American crudes like Oriente as well as Alaska North Slope. And while US West Coast refining margins are slightly weaker in the first quarter than last year, the region is highly economic for refiners with but both coking and cracking margins holding above $10/b since the beginning of 2017, according to S&P Global Platts margin data.

Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

The US has been part of a wider selloff of downstream assets by Shell. It exited the Motiva Enterprises joint venture at Port Arthur, Texas, in 2017, and last month completd the sale of its 156,400 b/d Martinez, California refinery to PBF Energy.

Shell said Thursday the US Gulf Coast would remain a "key manufacturing hub" along with Rotterdam and Singapore.

SCALING BACK WORLDWIDE

But the potential disposals are part of a broader pattern that has seen Shell and BP shed refining assets, while maintaining and even increasing their sales of oil products, sourcing fuel from third parties.

In 2010 Shell held stakes in more than 30 refineries globally and had a refining throughput of 3.20 million b/d of crude and other feedstock, but by 2018 it had stakes in 21 refineries and throughput of 2.65 million b/d. Over the same interval its oil product sales increased from 6.46 million b/d to 6.78 million b/d.

Similarly, BP reduced the number of refineries it had stakes in from 17 to 10 between 2008 and 2018, though like Shell it increased its oil product sales, and also improved the capacity availability of its refineries.

BP's downstream assets proved their worth financially in the last decade, insulating shareholders against losses in the upstream, especially after the oil price collapse of 2014. But pressure on the segment may only increase as a result of BP's new goal of cutting to "net zero" the carbon emissions arising from the products it manufactures itself, while it only targets a 50% emissions cut from products it sells manufactured by others.

BP announced in late February it was leaving US refiner and petrochemical trade association, the AFPM, due differing positions on climate change as it seeks to be "net zero" company by 2050. BP also owns a refinery in Washington state near Shell's plant. A company representative did not immediately reply to a request for comment asking if selling that plant was part of its strategy.

ExxonMobil CEO Darren Woods, defending the US major's strategy in front of investors Thursday, pointedly questioned the environmental benefit of oil and gas majors passing their more polluting facilities to other companies that would continue to run them without necessarily resulting in an overall reduction in emissions.