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PBF cuts USAC refinery capacity as demand drop eats into margins

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PBF cuts USAC refinery capacity as demand drop eats into margins


Paulsboro shut down will cut 85,000 b/d

Neighboring Delaware refinery will run at higher rates

Says more industry refinery rationalization needed

New York — PBF Energy will shut some units at its 160,000 b/d Paulsboro, New Jersey, refinery by the end of the year, while increasing utilization at its 182,200 b/d Delaware City, Delaware, refinery in response to low demand and weak margins brought about by the coronavirus pandemic, the company said Oct. 29.

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PBF will shut the smaller of two crude units at the Paulsboro plant as well as the gasoline-making fluid catalytic cracking unit, the reformer, the alkylation unit and the coker, while keeping the lubricants and asphalt manufacturing facilities operational.

"PBF recognizes the need for rationalization across the industry. The net result of the East Coast reconfiguration is effectively removing 85,000 b/d of refining capacity," said PBF president Matt Lucey on a third-quarter results call.

PBF's Delaware City, Delaware, refinery, located 30 miles to the south, will benefit from a scaled-down Paulsboro facility. It will continue to process intermediates from Paulsboro into finished products like gasoline, ULSD and jet. And the higher refinery utilization there will lower USAC operating expenses per barrel while precluding need for PBF to purchase intermediates as feedstocks on the open market, the company said.

"We will be increasing the interdependencies of the two refineries and promoting higher utilization and efficiency from the remaining units," Lucey said.

USAC refinery throughput at the two plants averaged 251,400 b/d in the third quarter, down from 357,200 b/d in the third quarter of 2019. Operating expenses rose to $4.99/b from $4.20/b in the same time frame while gross refining margins fell to minus $4.11/b from minus 25 cents/b.

Overall, refining margins on the US Atlantic Coast have lagged those of other regions. Third quarter cracking margins for Dated Brent averaged $3.47/b, lagging the $5.08/b for US Gulf Coast refiners running WTI MEH crude, according to data from S&P Global Platts Analytics.

However, USAC margins still trumped margins seen by Northwest European refiners. Third quarter NWE refining margins for Dated Brent averaged 8 cents/b, Platts Analytics data showed.

Rationalization is underway

PBF CEO Tom Nimbley said he expects "less product being produced in Europe" given the mindset of European majors to transfer away from traditional fossil fuels, which is likely to cut exports of gasoline to the USAC.

"There is no economics really for them to run barrels and then have to pay the freight to move them here," he said on the call.

Nimbley said PBF is "looking at about 5 million b/d of global refinery rationalization with about 2 million b/d to 2.5 million b/d in North America," which is "about another million or a million and a half from what has already been announced."

Calling shutting excess refinery capacity a "global challenge," Nimbley said that even US Gulf Coast refiners will not be exempt despite being on the "lower end of the cost curve."

"I think we'll see rationalization on the Gulf Coast. Obviously, you're not going to see it in the gorilla refineries," he said, using ExxonMobil's Beaumont and Baton Rouge plants as examples of large, complex plants which are more immune to shutdown.

"But there's a lot of smaller WTI-basic refineries. And European majors who have said they want to get out of the business," he said. Total SA and Shell both have refineries located on the USGC.

However, PBF may still have to rationalize capacity at some of its other plants including its USGC Chalmette, Louisiana, refinery and possibly its Torrance, California, plant, some analysts think.

"Chalmette, Torrance and Paulsboro are three assets where PBF has historically struggled to generate FCF [free cash flow], Chalmette being the weakest," said Credit-Suisse analyst Manav Gupta in a research note.

"While PBF is idling some units at Paulsboro the fate of other two still hangs in the balance. PBF's decision to idle some units of Paulsboro is a step in right direction, but more might be needed," he added.

Path to normalization

PBF's Nimbley noted that even though gasoline, diesel and jet inventories are falling, demand remains weak as refiners continue to meet commercial commitments "out of inventory," which will keep refinery utilization low.

PBF's third-quarter throughput averaged 706,000 b/d and the company expects fourth-quarter throughput at roughly 700,000 b/d to 800,000 b/d.

"We are seeing very few signals which necessitate increasing utilization rates. The market is rebalancing and will continue to do so until there is a widely-available medical solution that allows greater freedom of movement across business and personal travel resulting in a return in demand," he said.

Announced North American Refinery Rationalization



Capacity impacted (b/d)

Date Shut


North Atlantic Refining

Come by Chance, NL


Q2 2020


Paulsboro, NJ


Q4 2020

Philadelphia Energy Solutions

Philadelphia, NJ


Q2 2019




Calcasieu Refining

Lake Charles, LA


Q3 2020


Gallup, NM


Q2 2020





Cheyenne, WY


Q3 2020



Martinez, CA


Q2 2020

Phillips 66

Rodeo, CA



Phillips 66

Santa Maria, CA