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Refiners perform balancing act of idling units, preparing for demand recovery from SNL Daily Gas Report Refiners perform balancing act of idling units, preparing for demand recoveryByline: Everett Wheeler In response to an unprecedented decline in gasoline demand driven by COVID-19, the U.S. refining industry has aggressively cut the amount of crude oil it processes into gasoline and diesel. During first-quarter earnings calls, executives said they are attempting to limit potentially high costs from ramping production at their refineries. "Most refiners try to push their refinery utilization down to somewhere near minimum, which is nominally 60% to 65% for a given unit, because the risk of shutting one down very much puts you at risk of, when you try to start back up, it's not going to start up and you have to go into a full-blown turnaround," Valero Energy Corp. President and COO Lane Riggs said April 29. At its 180,000 barrel-per-day refinery in Norco, La., Riggs said Valero was able to shut down its 100,000 bbl/d fluid catalytic cracking unit despite that risk. "It was because we had just finished a turnaround. So we saw that as being a way to take off some gasoline-producing capacity for our system and not take that risk," the executive said. The market forced Marathon Petroleum Corp. to idle its 26,000 bbl/d Gallup refinery in New Mexico and 161,500 bbl/d Martinez refinery in California. But executives downplayed the risk of taking those facilities offline. "Taking both of those refineries down is not dissimilar from [preparation for] a hurricane," Marathon Executive Vice President Raymond Brooks said May 5. "When we take one of our refineries down, we take them down sequentially. We keep the utility systems going. There are still operators and maintenance personnel looking after the equipment. So we would see a restart being fairly easily done within the time period of about a week." "As we've ramped our refineries down, we actually found ways to get down to lower utilization than we would have ever imagined," Phillips 66 Executive Vice President of Refining Bob Herman said May 1. "We've been pretty careful about how we park the units that we've shut down completely, and we do have some [fluid catalytic cracking units] down and reformers to unmake gasoline in the list, but we've kept our subject matter experts busy, making sure that we're ready to run when the signals are there." U.S. government data show domestic demand for gasoline, jet fuel and diesel started to fall off in the second half of March, and demand for all three has since fallen below the five-year range. Nearly a month before shelter-in-place orders hit the domestic market, gasoline stockpiles sat above their five-year range. They climbed four consecutive weeks through April 17, but aggressive run cuts coupled with improving demand mean gasoline stockpiles may have peaked that week. "I think the industry has done a really good job with respect to gasoline," Valero's Riggs said. "When [shelter-in-place] first started, that was our primary concern." As refineries run near minimum levels, executives are already seeing signs of improving demand. Timothy Griffith, president of Marathon's Speedway retail business, said gasoline demand was down more than 50% at its bottom in late March and early April but has recovered between 5% and 15% since then, depending on the region. "Even though we're seeing demand start to recover, I still think we have a ways to go to get back to some closer-to-normal inventory levels and normal demand levels," Marathon's Hennigan said. "That falls into the category of something we don't control. We'll try to match supply of our products into those demands." Phillips 66 Vice President of Investor Relations Jeff Dietert, who said 90% of the U.S. population is "under some form of lockdown" and that commuting between work and home accounts for just over one-third of gasoline demand, was more optimistic about the petroleum market's recovery. "About 16 states have scheduled to lift stay-at-home policies and public opinion is starting to rally towards restarting the economy," Dietart said. "As people come back to work and start driving, they'll be greeted with lower gasoline prices, down about 40% year on year at retail, and support from a $6 trillion stimulus package." But executives remain cautious about resuming normal refinery operations. "I think we're going to be pretty careful about not bringing capacity back on too quickly because the last thing we or anybody else wants to do is start it up and then shut it down a week later or a couple of weeks later," Phillips 66's Herman said. "We're going to look for a pretty strong and pretty stable demand signal from the market before we start ramping up units that might be idled right now." |
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