In this list
Agriculture | Oil

US refiners reach for renewables lifeline as pandemic lays bare excess capacity

Energy | Energy Transition | Emissions | Oil | Refined Products | Jet Fuel

Asian jet fuel market takes off after a long hiatus; airlines eye sustainable fuels

Energy | Oil | Crude Oil

Platts Crude Oil Marketwire

Natural Gas | Energy | Electric Power | Renewables | Oil | Coal | Emissions | Energy Transition


Energy | Natural Gas

Russian Gazprom's non-CIS gas sales at new 2021 low in November at 12.7 Bcm

Energy | Oil

Fuel for Thought: OPEC+ to set tone for 2022 with response to US oil release, COVID-19 variant

US refiners reach for renewables lifeline as pandemic lays bare excess capacity


Excess refining capacity keeps refinery utilization low

Renewable fuel credits offer incentives for conversions

New York — US refiners boosted refinery utilization in the third quarter of 2020, but runs remain well below optimum levels as coronavirus pandemic shutdowns still weigh on demand for transportation fuels.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Refinery run rates averaged 77.8% of capacity nationally for Q3 2020, according to Energy Information Administration data, up from 71.5% in Q2 -- the lowest quarterly run rate recorded by the EIA since it began keeping records starting with the first quarter of 1985.

While lower run rates show refiner discipline in keeping a lid on inventory levels to support refining margins, it can also eat into profit margins.

"Refineries work best when operating between 90-95% and when running at 70-75%, they often struggle to capture benchmark margins.," according to Credit-Suisse analyst Manav Gupta.

"Run cuts are one of the most effective tools in the hand of independent refiners which helps them control the inventory situation, but there is a reason refiners use it as a last resort," Gupta said. "Run cuts over [around]15%, often drive earnings in the negative territory."

Refining margins rose quarter on quarter on the run cuts. WTI MEH cracking margins averaged $5.12/b for US Gulf Coast refiners in the third quarter 2020, up from the $4.17/b in the second, according to S&P Global Platts Analytics.

But lower volumes are cutting revenues while many refinery operating costs stay fixed, eating into the bottom line.

Coronavirus hastening changes

Already in 2020 the largest US refiner, Marathon Petroleum, shuttered two plants indefinitely– the 26,000 b/d Gallup, New Mexico, plant and its 161,000 b/d Martinez, California, plant.

CVR CEO Dave Lamp floated the idea of the necessity of another 1 million b/d of refinery closures on Sept. 10 while speaking at the Barclays CEO Energy-Power Conference, noting that refinery utilization hasn't been so low since the 1980's without a hurricane or other natural disaster shutting down plants.

"And what it took to get utilization up is was an increase in demand as well as a lot of regulations that took weaker players out," he said.

CVR Energy is feeling the brunt of some of those regulations. The company, already appealing in court the denial of its small refinery exemption, sees unpleasant ramifications for smaller refiners to the EPA's presidential directive not to issue further biofuel waivers to refineries ahead of the Nov. 3 election.

The sharp pandemic-driven drop in US demand for gasoline, diesel and jet due to lack of human mobility, combined with the shift towards renewable fuels and carbon neutral fuels and the incentives that come with them, have refiners shifting their focus towards supplying that market by retooling their existing refineries.

California leads the charge

Once considered an industry scourge, renewable fuels are now becoming a lifeline for some refineries.

CVR is planning to convert the hydrocracker at its 74,500 b/d Wynnewood, Oklahoma, refinery to process soybean oil into renewable diesel to be railed to the California market.

This plan is economically viable because of economic incentives from the $1/gal federal Blenders Tax Credit and California's Low Carbon Fuel Standard (LCFS) credits as well mitigation of RINs expenses denied by tighter EPA regulations.

Phillips 66 has already said it plans to create the world's largest renewables fuel facility by reconfiguring and repurposing its 120,200 b/d Rodeo, California, plant from running crude to running used cooking oil, fats, greases, and soybean oil by 2024.

The refiner's announcement preceded that of California Governor Gavin Newsom, which stated that all cars sold in the state after 2035 be emissions-free, another nail in the coffin to gasoline producers in a state that currently accounts for about 11% of national demand.

This has put renewable diesel and sustainable aviation fuel on the forefront of renewable fuels production that refiners are aiming to produce when they convert their plants.

Renewable diesel (RD) production averaged 577 million gallons/yr in 2019 and is expected to average 785 million gallons/yr in 2020, according to Platts Analytics forecasts.

Platts Analytics has California liquid diesel demand under the LCFS averaging 4,300 million gallons/yr 2022-2030. In 2020, RD was about 25% of the state's diesel market. However, going forward Electric Vehicles (EVs) will factor in future demand calculations.

Sustainable jet fuel (SAF) is another renewable fuel gaining traction, as many of the new RD projects include SAF output.

Platts' recently-launched US West Coast SAF assessment provides some clarity for the economic incentive for this inclusion. Since the Sept. 21 price assessment launch, California refiners like Valero, Phillips 66 and PBF Energy making SAF have realized on average $3.76/gal including environmental credits compared with the 9 cents/gal without any credits.