More US, global refinery shutdowns to come - Purvin & Gertz

14 January 2010 21:55  [Source: ICIS news]

HOUSTON (ICIS news)--Another 2.4m bbl/day of global refining capacity needs to be shut down before supply and demand of refined products finds balance, a Purvin & Gertz consultant said on Thursday.

The crush on margins "has been an amazing rug-pull from under the feet of the refiners", said Stephen Jones, of the firm's Houston office.

The shutdowns to come would be on top of the 1.4m bbl/day of capacity that has already been mothballed since the sharp downturn in commodity markets in the fourth quarter of 2008, he said.

As the US economy recovers, chemical producers that rely on neighbouring refiners for some feedstocks should keep watch "across the fence line" as yield strategies are tilted toward distillate and other heavier products and away from gasoline, Jones said.

The economic downturn has had a greater impact on demand for diesel than on gasoline, because of its sensitivity to commercial activity such as truck and rail transportation compared with the focus of gasoline on private transportation.

Speaking after a presentation to the Southwest Chemical Association, Jones said US refineries would likely be among the candidates for closure.

He declined to disclose the firm's proprietary list of likely shutdowns, but said that factors over and above individual refinery economics need to be considered when looking at which plants might close.

A particular plant may not be the smallest or least efficient in the US, but may be the least valuable in its owner's portfolio, he said.

For example, integrated oil company Marathon's investment in its Garyville refinery in Louisiana could bring into question whether it needs to continue operating its Texas City refinery in Texas, Jones said.

Marathon has spent $3.35bn (€2.31bn) to upgrade the 256,000 bbl/day Garyville plant and lift its capacity by another 180,000 bbl/day. In contrast, the Texas City unit is relatively small by US Gulf standards at 76,000 bbl/day.

Jones said the pace of decision-making by refiners would likely pick up after an extended period in which boardrooms have been "paralysed" by the difficult business conditions of the last year.

Looming fourth-quarter and full-year financial reports from refiners would have much bad news due to weak margins, he said, and it would be possible that some refinery closure announcements accompany the results.

On Tuesday, oil major Chevron warned investors that its 29 January financial report would reflect lower earnings in its refining business and in its chemicals joint venture Chevron Phillips due to depressed margins.

Chevron's partner in the chemical business is oil company ConocoPhillips.

($1 = €0.69)

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