We still import refined products. It can be cheaper to import gasoline and diesel, than to import crude oil and submit to US regulation and taxes.
Posted on 01/24/2010 5:13:42 PM PST by thackney
U.S. crude processing plants cut activity last week to the lowest utilization rate since the 1980s, excluding hurricanes, the latest sign of crisis in the world’s top oil consumer.
U.S. refinery utilization dropped to 78.4 per cent of total capacity 17.6 million barrels per day, down 2.9 percentage points from the previous week, Energy Information Administration data released Thursday showed.
The last time utilization of U.S. refining capacity fell to these levels was in the 1980s, excluding 2005 and 2008 when activity cratered due to hurricane-related refinery outages.
The slump in refinery utilization comes on the heels of falling oil demand in the United States, triggered by the financial crisis. U.S. demand has dropped by around two million bpd since it surged to 21 million bpd in 2007. Cleaner fuel standards and more use of biofuels have also cut into refining profits.
“There’s lots of spare oil capacity from OPEC, lots of spare refining capacity, and lower demand for crude,” said Tim Evans, energy analyst at Citi Futures Perspective in New York. “The conditions today look a lot like they did in the 1980s, which was a lost decade for oil refiners.”
Dismal refinery margins have persisted since 2007 in the United States, the site of nearly a fourth of world refining capacity, eating into refiner profits.
Oil majors Chevron and ConocoPhillips each warned in the past weeks of poor conditions for their refining operations. Last year, several refiners including Valero Energy Corp., Sunoco Inc. and Flying J shut U.S. refineries for economic reasons, while many more idled units to stem losses.
When Valero shuttered its Delaware plant, the facility was losing $1 million a day, according to the company.
And experts say more closures are inevitable.
“There have to be more closures. Either that or we better fairly quickly have a five to six per cent global demand growth . . . (but) the likelihood of such is remote,” said Mark Gilman, an oil analyst at Benchmark Co., adding the U.S. refining industry may face a raft of plant closures similar to what it saw in the 1980s.
“That period was a period of rationalization in the industry in a very Darwinian kind of way. Well, we’re probably looking at another one, but the bar is higher. We are not talking about closing teapots,” he said.
In addition to financial pressures, U.S. refiners are also facing competition against more imports of gasoline and other fuels from new refineries in Asia and the Middle East, such as India’s Reliance Industries.
The last time refinery utilization remained consistently below 80 per cent was in 1985, when EIA figures show they averaged 77.6 per cent.
That was the same year the world’s top crude exporter, Saudi Arabia, quickly increased its crude output by 150 per cent, a move that helped to collapse world oil prices and later led U.S. motorists to boost purchases of less fuel-efficient vehicles.
“It would help U.S. refiners to bring back the Hummer,” said Evans. “But that’s not likely, so they are taking some permanent action.”
I wonder how long it would take Valero to turn on their Delaware plant?
Long time as in months or years? There are nonunion models where everybody seems happy. Exxon and Nucor come to mind. I have no clue if this is even conceivable in Delaware. I guess that is why Toyota and Honda build cars far away from Detroit.
I think someone else will be turning it on.
Valero in talks to sell Delaware refinery
http://www.chron.com/disp/story.mpl/ap/business/6831215.html
Jan. 22, 2010, 6:53PM
Is this saying that the existing refineries are under-utilized?
I had been thinking we did not have enough refining capacity.
Valero Energy Corporation announced Friday it is negotiating the sale of its Delaware City assets to PBF Investments, LLC., a company formed by Europe's largest independent refiner Petroplus
Petroplus is acquiring failed US refineries - not sure what the reason is.
About Petroplus
Petroplus International B. V. (Petroplus) was established in 1993 and has since developed into a leading player in the European refining market. Petroplus owns refineries in Antwerp, Belgium; Cressier, Switzerland and Teesside, United Kingdom. In addition, Petroplus recently announced the acquisition of the Belgian Refining Corporation, whose principle asset is a 120,000 barrel per day refinery in Antwerp, Belgium. This acquisition will result in an increase in Petroplus’s refining capacity to 355,000 barrels per day.
Petroplus is currently a wholly owned subsidiary of RIVR Acquistions B.V. RIVR will continue to develop its fast-growing 4Gas LNG terminalling and LNG marketing business which will be formally separated from and managed independently of Petroplus going forward. RIVR Acquisitions B.V., the parent company of Petroplus International B.V., is owned by funds and entities affiliated with Riverstone Holdings, The Carlyle Group, and Company management.
To: thackney
Is this saying that the existing refineries are under-utilized?
I had been thinking we did not have enough refining capacity
We were being told we did not have enough refining capacity......
We didn't. But, come the recession, demand fell like a stone.
Refineries are high capital operations that need to run at a high percentage of capacity to be profitable. But pushing them into the 97-98% range, as we were, was dangerous, too.
They cut a huge expansion project at their refinery in Port Arthur, TX too.
How long before the slump moves its way upstream?
We still import refined products. It can be cheaper to import gasoline and diesel, than to import crude oil and submit to US regulation and taxes.
Vallero spent too much too fast betting the high oil price wouldn’t slump so quick.
They invested heavily to take advantage of the cheaper, heavier oils. Then when the price of crude dropped, the delta between light and heavy really dropped and their investment gave them little return.
Thanks for the reply ...
the equation is more complex than most people think.
Cheers!
Last time price of oil was this high, gasoline cost a little more than it does today.
We are seeing the effects of permanent demand destruction.
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