U.S. Refinery Runs Hit Record Lows as $4 Billion in Projects Face COVID-19 Hurdles

Researched by Industrial Info Resources (Sugar Land, Texas)

Collapsing demand for transportation fuel has forced U.S. refineries to reduce the amount of crude oil and other inputs they process, also known as "refinery runs," according to the U.S. Energy Information Administration (EIA). For the five-week period ending April 24, U.S. refinery runs of 13.2 million barrels per day (BBL/d) were nearly 21% lower than the five-year average at the same point in 2019. Industrial Info is tracking nearly $4 billion worth of projects at U.S. refineries that are facing scheduling complications--or worse--due to COVID-19.

Click here for a list of projects at U.S. refineries to be delayed or otherwise affected by COVID-19 precautions.

U.S. refiner production of motor gasoline fell from 7.9 million BBL/d for the week ending March 13, when the U.S. declared a national emergency due to COVID-19, to 5.4 million BBL/d for the week ending April 24. Production of jet fuel fell from 1.6 million to 601,000 BBL/d during the same period, but production of distillate fuel oil increased from 4.7 million to 4.9 million BBL/d. Specifically, finished motor gasoline consumption (measured as product supplied) for the week ending April 3 fell to 5.1 million BBL/d, the least product supplied to be recorded since the EIA began tracking this corner of the market in 1991. Accordingly, U.S. refiners have cut their production of motor gasoline and jet fuel and increased their production of distillate.

EIA graph detailing U.S. refinery yields for motor gasoline and distillate fuel oil, as a percentage of output.

Sinclair Oil Corporation (Salt Lake City, Utah) was considering offers to buy the company as of mid-March, when the national emergency was declared, according to Reuters. Even then, crashing equity and energy prices already were making it difficult for U.S. refineries to find buyers. Problems had been compounded earlier in January, when a panel of judges in the 10th U.S. Circuit Court of Appeals determined the federal government was overextending "hardship relief" from renewable energy standards to small oil refineries, according to Wyoming's Casper Star Tribune.

If upheld, the ruling would effectively invalidate exemptions from renewable energy standards for small refineries going forward. Last month, five governors from major oil-producing states, including Wyoming and Texas, asked the U.S. Environmental Protection Agency (EPA) to waive refineries' obligations to comply with the nation's biofuels policy. The governors said the EPA must determine whether current circumstances "present a clear threat to the industry," according to Reuters.

Sinclair's flagship 85,000-BBL/d refinery in Sinclair, Wyoming, has postponed all construction activities until next year to comply with COVID-19 precautions. These include:

• a $30 million fluid catalytic cracking unit (FCCU) upgrade, see project report
• a $22 million tank farm expansion, see project report
• a $5 million pipeline tie-in, see project report

Another Wyoming refiner, HollyFrontier Corporation (NYSE:HFC) (Dallas, Texas), pushed back $6 million in additions at its refinery in Cheyenne from April to June. The company plans to replace a pair existing, out-of-service tanks with a 30,000-barrel, ultra-low-sulfur diesel tank and a 65,400-barrel asphalt tank. HollyFrontier announced last month that its refining segment would operate at about 70% capacity for the foreseeable future, in response to weak demand. For more information, see Industrial Info's project report.

In addition to big-ticket capital investments, leading U.S. refiners have been delaying maintenance-related projects, sometimes for more than six months. Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) has suspended indefinitely a turnaround on a crude unit pipe-still at the Galveston Bay Refinery in Texas City, Texas, while Phillips 66 (NYSE:PSX) (Houston, Texas) has reduced the scope of its annual tank farm maintenance program at its Alliance Refinery in Belle Chasse, Louisiana. CITGO Petroleum Corporation (Houston) has reduced the scope for its sulfuric alkylation unit turnaround at its Lake Charles Refinery in Westlake, Louisiana, after several capital projects associated with it were cancelled due to the market outlook.

In the past month, Marathon has idled production at its 166,000-BBL/d refinery in Martinez, California, and its 26,000-BBL/d refinery in Gallup, New Mexico. It is unclear when each will restart, although the company says it will do so when demand allows it. For more information, see Industrial Info's reports on the Marathon, Phillips 66 and CITGO projects.