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Import Crude Sulfur determines US Ref Risk Closure

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  • #2106

    basil parmesan
    Participant

    US Refineries Most at Risk Closure
    30 September 2011: Reuters
    ConocoPhillip’s decision to put its Trainer refinery up for sale, or close it within six months if no buyer is found, came as no surprise but has triggered speculation about which refinery will be next on the block. Following Sunoco’s decision to sell or close its Marcus Hook and Philadelphia refineries, announced this month.
    Conoco’s Trainer and Bayway refineries were always going to be next on the hit list for closure, based on the sulphur content of the crude oil they import for processing Like Marcus Hook and Philadelphia, Trainer’s lack of desulphurisation and upgrading capability forced the refinery to continue importing light sweet oils even as these crudes became increasingly expensive following the disruption of Libyan exports and North Sea production problems.
    The linked chart below ranks all 124 U.S. refineries for which data is available by the weighted-average sulphur content of crude they imported between January and June. It is based on company-level data painstakingly compiled by the Energy Information Administration, the independent statistical and analysis arm of the U.S. Department of Energy.
    Refineries At Risk GRAPHIC HERE ( PDFLink: http://graphics.thomsonreuters.com/ce/REFINERIES-AT-RISK.pdf)
    Unable to remove much sulphur, Sunoco’s Marcus Hook and Philadelphia refineries were forced to import crudes with an average sulphur content of just 0.16 and 0.17 percent respectively, compared with an average ten times that (1.70 percent) for all 124 refineries in the sample.
    Sunoco had to source ultra-expensive sweet oils from Norway, Nigeria, Gabon, Cameroon and as far away as Azerbaijan. After Sunoco, the next big refineries with no choice but to import premium crudes were Conoco’s Trainer and Bayway facilities, which brought in foreign oils with an average sulphur content of 0.20 and 0.29 percent.
    REBALANCING
    Sunoco’s decision to sell or close Marcus Hook and Philadelphia probably condemns both to closure, or conversion to tank farms. Even buyers from China, India and other emerging markets may hesitate to purchase the two least-attractive assets in the U.S. portfolio except to convert them into oil trading and storage terminals.
    Sunoco’s threatened closures would remove over 500,000 barrels per day (bpd) of surplus capacity from the North Atlantic refining market. Conoco’s decision to sell or close Trainer would trim another 185,000 bpd. The company has made no formal announcement about Bayway, but most analysts expect the refinery will also be sold or closed.
    On the other side of the Atlantic, LyondellBasell this week announced it would shutter its small 105,000 bpd Berre l’Etang refinery, after failing to find a buyer. If all these facilities close, it would remove over 1 million bpd of refinery demand for light sweet crude from the North Atlantic market — helping rebalance this segment, and cutting the extreme premium being paid for highquality crude.
    Combined with restoration of Libyan exports and resolution of North Sea problems, prospective refinery closures explain substantial discounts for forward Brent, as market participants price in significant easing of the supplydemand balance for this segment of the market in the second half of 2012.
    WHO’S NEXT?
    The closure announcements have triggered intense interest in which U.S. refinery might be next. But as the table shows, it is not straightforward to identify which refinery is below the marginal, least-attractive asset. In a ranking based on sulphur content, the next refineries in terms of vulnerability are the giant Hovensa facility in the U.S. Virgin Islands and ExxonMobil’s Beaumont refinery in Texas.
    But Hovensa and Beaumont both processed foreign crudes with five times the sulphur content of the three U.S. refineries already slated for sale or closure (0.98 and 1.04 percent respectively).
    It would be hazardous to extrapolate from them to Hovensa, Beaumont or others able to process a slate with five times or more sulphur. Marcus Hook, Philadelphia, Trainer and Bayway are very much in a class of their own. Moreover, Hovensa and Beaumont have been buying crudes in very different markets to Sunoco and Conoco.
    Marcus Hook, Philadelphia and Trainer have been active in the market for West African and North Sea crudes. In contrast, Hovensa (part-owned by Venezuela’s state-owned oil company PDVSA) has mixed West African crude with low-sulphur Venezuelan oil. Beaumont has been an opportunistic purchaser of sweet crudes from Mexico, Colombia and Trinidad, and as far afield as Qatar, United Arab Emirates and Russia.
    Beaumont illustrates the gulf separating other U.S. refineries from the four troubled east coast facilities owned by Sunoco and Conoco and now facing likely closure. Because it can handle a higher sulphur content on average, Beaumont has more flexibility to blend crude streams, allowing it to be an opportunistic purchaser of whatever crudes offer the best price-quality mix at any given moment.
    The refinery imported 41 million barrels between January and June, according to EIA. Imports ranged from ultrasweet Bolivian crude (0.02 percent) and Nigerian oil (0.17 percent) to very sour Russian (2.39 percent) and Mexican (3.32 percent) oils.
    Beaumont imported 28 million barrels with a sulphur content below 0.75 percent, but also brought in nearly 9 million barrels with a high sulphur content of 1.75 percent or above, averaging down its acquisition cost. One way to illustrate Beaumont’s flexibility is to analyse imported cargoes in terms of the standard deviation of their sulphur content. Beaumont’s imports had a standard deviation of almost 0.9 percentage points of sulphur, while Trainer’s was less than 0.3 percentage points.
    Flexibility insulates Beaumont (and other U.S. refineries) from the imminent threat of closure. If more refineries need to close in the United States, the decision is unlikely to be driven by sulphur content alone. Once the future of Marcus Hook, Philadelphia, Trainer and perhaps Bayway is resolved, the next refinery vulnerable to closure is less obvious. It will be driven by strategic considerations rather than simply engineering ones.
    The power exchanges Nord Pool Spot and EPEX SPOT recently signed a Letter of intent in order to create a Joint Venture, to build a joint system platform and later operate this platform together.
    “We are evaluating a strategic alliance in order to increase value for our customers. Working together with more resources, we can create the best IT applications and solutions, while keeping close to our customers in our respective regional markets”, says Mikael Lundin, CEO of Nord Pool Spot, at a joint press conference in London.
    The first step aims at unifying the intraday and day-ahead systems. “Harmonizing our systems and simplifying the interfaces are a prerequisite for further successfully integrating European power markets”, says Jean-Franois Conil-Lacoste, CEO of EPEX SPOT, at the joint press briefing.
    The next step envisaged is to harmonize the operations of the markets. The Joint Venture will be created during 2012 and be based in London. Employees will however be located in their present offices. The parties will contribute equally to the entity.
    The Joint Venture will reinforce the ongoing European integration projects. It is expected to accelerate and simplify the creation of a single price calculation in the European day-ahead markets. This leads to more efficient use of power in Europe, benefitting both consumers and customers of the exchanges.
    Nord Pool Spot and EPEX SPOT will continue as separate power exchanges, i.e. keep their rulebooks and be in charge of their respective customers.
    Ends —

  • #4900

    Charles Randall
    Participant

    Here is Reuters article looking at US Refinery Closure Risk based on ranking of Import Crude Sulfur Processing Ability (Table shows 124 sites & Import Crude Bbl & Sulfur level – so its not complete list US Refineries). Points out why COP Trainer & other PA refineries were high on list for closure even though they were coastal & had access to good demand markets.
     

    This of course is too simplistic approach – while it is significant factor that somewhat encompasses the refinery complexity level (Simple/Cracking/Coking-Complex), it doesn’t address size (-100MBD more at risk than +150MBD) or regional location (inland vs coastal) and several other factors. (Note Attached is PDF table in case issues with Reuters link.)
     
    Regards

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