Troubles in Refining

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abarrelfull wrote on 01 Jan 2012 11:21
Tags: conoco europe petroplus refinery refining sunoco usa

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In the last week, we recieved this startling news from Petroplus:

The Company will start temporary economic shutdowns of the Petit Couronne Refinery, BRC Antwerp Refinery and Cressier Refinery in January 2012 given limited credit availability and the economic climate in Europe.

It was however, the logical conclusion of a problem we learnt about earlier in the week:

Petroplus announced that approximately $1 billion in uncommitted lines under its Revolving Credit Facility have been frozen by the lenders

The company was left without money to buy crude. This led to an immediate improvement in margins for its competitors. If Petroplus is able to solve its problems, then the respite will only be temporary.

Meanwhile on the other side of the Atlantic, The EIA has released a study on the impact of the closure of the Marcus Hook Refinery, Philadelphia Refinery and the Trainer Refinery on the market in the North East.

Reduction in refining activity in the Northeast, as reflected in recently announced plans to idle over 50% of the regional refining capacity, is likely to impact supplies of petroleum products.

Yet the regions refineries are only part of the supply of the region.

Northeast refiners, in general, supply a diminishing market share of products in their own region. The balance of product supplies are either imported or moved into the region via pipeline from the Gulf Coast. Refineries on the East Coast mainly serve the Northeast, supplying approximately 40% of Northeast gasoline sales and 60% of distillate sales in 2010. About half of this supply came from the three refineries expected to be offline.

As in the Petroplus case, there are others who will gain from the loss of refineries in the North East, albeit in this case some of the biggest winners will be refineries far away from the region. A more local winner however will be Delaware City Refinery, which just announced a major upgrade. Delaware was an early victim of the refining downturn, but ended up having the last laugh.

It is fashionable to treat all refiners as if they are the same, yet there are major differences between them. Those that have low costs, are complex and have access to attractive local markets can make a good return. Unfortunately as recent news has shown, this is often at the expense of others who are less fortunate.