US refinery capacity tops 20 million b/d in 2020 as refiners slow, defer further expansion plans

New York — The US Energy Information Administration's annual report on American refineries showed capacity topped 20 million b/d in 2020, as refiners increased their ability to run more price-advantaged domestic crude to make greater volumes of cleaner distillate and higher octane gasoline.

But it also signals a lot of the expansion will count for nought in 2020. Refiners expect falling demand from coronavirus pandemic-induced lockdowns to weaken product demand and utilization in 2020, cutting into their earnings, slicing capital spending budgets and forcing them to defer projects.

According to the EIA's yearly deep dive into refinery operations, based on reporting from the refiners themselves, the number of operable barrels per stream day (b/sd) reached 20.092 million b/sd in 2020, about 132,000 b/sd higher than in 2019.

Operable barrels per stream day represents the refinery ideal – it is the amount of crude any given refinery can process in a 24-hour period, running full out with no downtime and operating under optimal conditions for both crude and refined products.

But the EIA uses two different metrics to measure refinery crude distillation capacity. And the divergence between those two help quantify exactly how weak gasoline and diesel demand is expected to be due to the impact pandemic.

Operable barrels per calendar day (b/cd) measures the amount of crude a refinery can process under usual operating conditions and is the typical metric used in measuring refinery capacity.

But within that category, the most important indicator is the actual number barrels of operating barrels per calendar day (b/cd). This is the number which gives a more realistic expectation of what kind of rates refiners are expecting for their plants this year. And it is the one that is used when determining refinery utilization.

In 2020, while US refiners' operable capacity on a calendar day basis reached 18.976 million b/d, up 174,000 b/d from 2019, expectations of exactly how much of that capacity would be operating fell.

Operating capacity on a calendar day basis for US facilities in 2020 — the rate at which refiners expect to operate — fell to 18.559 million b/d, the lowest value since 2017, and 143,350 b/d below 2019's level as refiners look to dig their way out of the demand trough.

Demand evaporates due to pandemic

US refiners were hit hard and fast by the pandemic. Demand evaporated overnight as state after state acted swiftly to shut down businesses, schools and other activities and enforce stay-at-home lockdowns, keeping drivers off the road and airline passengers on ground.

Refiners reacted quickly by reducing run rates, dragging nationwide utilization down to 67.6% of capacity in April, according to EIA weekly data.

Marathon Petroleum even shuttered temporarily two of its refineries for an undetermined period of time to help balance supply and demand in gasoline and diesel markets – the 27,000 b/d Gallup, New Mexico, and 161,000 b/d Martinez, California facilities.

Other refiner self-help actions included cutting capital spending by deferring some refinery enhancement projects and pushing back turnarounds. Some suspended dividends, accessed capital markets and sold off assets to increase cash flow.

ExxonMobil cut 2020 capital spending by 30% to $23 billion from $33 billion, which slowed its "Growing the Gulf" initiative, including scaling back production from its Permian Basin operations.

The decrease in crude output led ExxonMobil to slow construction of a third 250,000 b/d crude unit at its Beaumont, Texas, refinery, pushing out completion to 2023 from 2022 to match the decrease in Permian production meant to feed the new unit.

However, ExxonMobil completed an expansion at its Baton Rouge, Louisiana, that increased its crude throughput capacity by almost 16,000 b/d, bringing the facility's total crude operating capacity to 517,700 b/d in 2020.

Valero also said it is delaying building a 55,000 b/d coking unit at its Port Arthur, Texas, refinery, completion of which would give the 335,000 b/d refinery two separate processing trains. This would add to efficiency and enhance margins, allowing the company to shut half the plant for turnaround while operating the other half.

Turnaround activity, projects deferred

Many refiners have deferred plant turnarounds scheduled for 2020 to 2021 or even 2022 in some cases, with the geographical spread across the country. Some of these deferrals are reflected in the EIA refinery capacity numbers.

On the US Atlantic Coast, PBF said it was deferring planned work at its 182,200 b/d Delaware City, Delaware, plant to 2021 from 2020.

Midwest refiner CVR has deferred projects to enhance refining margins at its two plants and pushed back from spring 2021 to fall 2021 a planned turnaround at its Wynnewood, Oklahoma, refinery.

"Capital projects that are not critical to safe, reliable operations or are required for future work will be canceled or deferred to a later date. This includes deferral of the Wynnewood [isomerization] project and the Coffeyville crude optionality project," CEO Dave Lamp said during CVR's May 7 fourth-quarter 2019 earnings call.

While the impact of the pandemic keeps refined product demand relatively weak, inventories high and margins soft, some refiners are still going ahead with planned work, particularly refiners that feel comfortable with enhanced turnaround protocols they have devised for preventing the spread of the virus.

S&P Platts Global Analytics pegs normal levels of US turnarounds and regional outages at 2.61 million b/d for the week that ended June 19, and 2.52 million b/d in the week ended June 26, 2020, slightly higher than the 2019 outages of 2.2 million b/d and 1.98 million b/d for the weeks ending June 24 and June 31 a year ago.