Valero sees 'call' on capacity, suspects slowdowns

Strong refining margins are presenting US refiners with a call to run facilities at maximum capacity, but slowdowns linked to deferred maintenance are likely tamping utilization, according to US independent refiner Valero.

US combined average refining utilization has stagnated at 88pc throughout January and has not exceeded 90pc since late August 2021, according to data from the US Energy Information Administration. While facilities often run at lower rates during winter months due to lower road fuel demand, a recent rise in refining margins would seem to offer incentive for refiners to ramp up production.

"We see an issue in terms of where utilization is versus closures," said Valero senior vice president of refining Lane Riggs today. "There are probably some slowdowns that are occurring, maybe because of maintenance deferrals or turnaround deferrals in the industry."

Valero recorded a $10.73/bl refining margin in the fourth quarter, well above the $4.64/bl margins recorded in the same period of 2020 and nearly matching $10.90/bl margins recorded in the fourth quarter of 2019.

Looking forward, some sources expect industry-wide margins to hit multi-year highs in the first quarter. Argus Consulting forecasts US Gulf coast fluid catalytic cracker (FCC) refining margins vs Louisiana Light Sweet (LLS) crude to average $7/bl in the first quarter of 2022, $7.60/bl in the second quarter and $9.20/bl in the third - all of which would represent the highest marks recorded by Argus dating back to 2010.

"Where margins are now, the call on capacities is pretty much max," Riggs said. "Other than the turnarounds and the outages, the refinery utilization ought to be in this 90-95pc range."

Turnaround impact

Riggs said Valero's theory is that facilities are operating at slower rates because of an industry-wide trend wherein refiners have pushed back planned turnarounds and maintenance in a bid to preserve cash flow after a painful 2020.

CVR Energy recently deferred turnarounds at its 73,000 b/d Wynnewood, Oklahoma, refinery and 132,000 b/d Coffeyville, Kansas, refinery into spring of this year and 2023, respectively. Likewise for refiner Delek, which recently pushed a planned fourth quarter 2022 turnaround at its 73,000 b/d Tyler, Texas, refinery into 2023.

Citgo last year moved work at its 157,000 b/d Corpus Christi, Texas, refinery from the fourth quarter of 2021 into the first quarter of this year. And Valero was not immune to the trend, pushing back a planned project to build a 55,000 b/d coker and a sulfur recovery unit at its 325,000 b/d Port Arthur, Texas refinery.

With facilities pushing the envelope on maintenance and upgrades, Phillips 66 is also keeping a close watch on utilization rates that have not yet reflected the idling or conversion of older, less efficient refineries in 2020 and 2021.

"All of us [in the industry] have pushed turnarounds from 2020 to 2021, and from 2021 to 2022," Phillips 66 chief executive Greg Garland told an investor conference on 5 January. "I think the wildcard is going to be turnarounds for 2022 and what the ultimate impact of that really is on effective capacity utilization."

More than 1mn b/d of US and Canadian refining capacity shut in 2020, while facilities like Phillips 66's 250,000 b/d Alliance refinery in Belle Chasse, Louisiana, and Shell's 211,000 b/d Convent refinery in Norco, Louisiana, were shut down last year.

By Dylan Chase