EIA: Refinery outages usually don't affect prices

Nick Snow
Washington Correspondent

WASHINGTON, DC, Apr. 3 -- A shutdown of any major refinery unit can reduce production of finished products. Integration of refinery units means that the outage of one can shut down or reduce operations at others. But refinery unit outages generally don't have a significant product price impact, said the US Energy Information Administration in a late March report.

"Prices are affected not by production changes alone, but mainly by the balance in supply and demand, as represented by inventory levels. If supplies are abundant relative to demand (e.g., high inventories and off-peak time of year), a refinery outage, even an unplanned outage, is likely to have little impact," the federal energy forecasting and analysis service said. It based this conclusion on its own monthly and weekly statistics, which it said can be analyzed for normal market variations and responses.

EIA quickly added, however, that while outages normally have little impact on prices, they can add to price pressure when markets are tight and alternative supply sources are not available.

"Clearly, the outages that occurred during Hurricanes Katrina and Rita were large enough to impact price. Another case was highlighted in an earlier report on California gasoline where several large unexpected outages in conjunction with tight gasoline markets seemed to drive up prices," it said. "However, outages with measurable impacts on monthly prices are relatively rare," EIA maintained.

Requested by Bingaman
EIA prepared the 53-page report, "Refinery Outages: Description and Potential Impact on Petroleum Product Prices," at the request of US Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) when he was the chief minority member last July as the committee held a hearing on HR 5254, which aimed to increase domestic refinery construction.

"We have heard from several experts that the reason we are facing high prices at the pump stems from underlying supply issues. The amount of global excess capacity to produce oil and refine gasoline has been declining. Experts claim it has entered 'the red zone' and coupled with other threats to energy output (Nigeria, Venezuela, Iraq, and Iran), [a] perfect storm has been created," Bingaman said in his July 3, 2006 letter to US Energy Secretary Samuel W. Bodman.

Bingaman suggested that EIA's study include an examination of the preparations and execution of a refinery turnaround. He asked how refiners plan such maintenance, "including coordination of outside contractors," and if other refineries' known plans affected scheduling. He also asked how much flexibility refiners have in changing their planned activities, and inquired about the extent to which reliability and safety prohibit deferring maintenance.

In its report, EIA noted that turnarounds are the biggest planned outages at refineries because they involve major maintenance and overhauls. Safety is a major concern while they are in effect because refineries run with materials at high temperatures and high pressures, and some of the materials are caustic or toxic and must be handled appropriately, it said.

"The frequency of major turnarounds varies by type of unit, but may only need to be done every 3-5 years on any given unit. Planned turnarounds often require 1-2 years of planning and preparation to organize, line up the skilled labor, and arrange for the materials and equipment." The actual turnaround may then last 20-60 days, the report said.

A refinery turnaround's size and complexity leaves little flexibility for changing plans, even when market conditions favor leaving the refinery running, EIA continued. A major fluid catalytic cracking turnaround might require increasing outside labor by more than three times the labor force usually present in the refinery, and long lead times are needed for some materials and equipment, it indicated.

Labor shortage
Another important factor is that skilled labor for turnarounds is in short supply, preventing refiners from conducting simultaneous turnarounds, EIA's report said.

Citing a recent survey of operating experiences for 28 FCC units by the newsletter Octane Week, it said that while 22 of the units targeted 4-5 years between turnarounds, only 16 stayed on that schedule. "Turnaround times also tended to be longer than planned, with the average slippage being 5 days. Some companies indicated that in recent years, the slippages were the result of a lack of skilled labor, creating the need for longer outages," EIA's report said.

Such planned maintenance normally occurs during the first and fourth quarters of each year since this normally is the time when product demand is seasonably low and weather conditions are favorable, it said.

"Unplanned outages can be very disruptive since they allow for little, if any, lead time to plan for the shutdown. Some unplanned outages can be postponed for several weeks while material, equipment, and labor are ordered. Others may require immediate shutdowns," the report continued.

Volumes lost from an unplanned outage are usually less than from planned turnarounds, but unplanned outages can occur during high demand periods when markets are more sensitive to lost barrels of product, it said.

In the California situation, which it reviewed in an earlier report, EIA said that one or more large outages occurred during a peak demand period in an area where alternative supplies were not available, which significantly affected prices.

Spring, when refiners are switching from winter to summer gasoline grades, can be another vulnerable period, it continued. Prices can be initially depressed as suppliers draw down their winter-grade gasoline, which cannot be used during summer months, while they produce and store their summer-grade motor fuel. Prices then increase seasonally as the summer-grade gasoline season begins and demand rises toward its summer peak.

If refineries are slow to ramp up summer-grade gasoline production because they are having difficulty coming back from turnarounds, extra price pressure can occur, EIA said in its latest report. "This was the case in the spring of 2006, when a number of refineries were still trying to recover from the hurricanes in fall 2005. While gasoline imports increased to offset some of the refinery supply loss, the volumes of affected capacity were unusual," it said.

Contact Nick Snow at nsnow@cox.net.

Related Articles

Chinese regulators approve Sinopec’s plan for grassroots refinery

02/06/2015 China’s National Development and Reform Commission (NDRC) has approved Sinopec Beijing Yanshan Petrochemical Co. Ltd., a subsidiary of China Nation...

BOEM schedules public meetings about draft proposed 5-year OCS plan

02/06/2015 The US Bureau of Ocean Energy Management will hold the first of 20 public meetings in Washington on Feb. 9 to receive public comments on potential ...

Congressional Republicans renew bid to halt sue-and-settle maneuvers

02/05/2015 Calling it an affront to regulatory accountability that results in unchecked compliance burdens, US Sen. Charles E. Grassley (R-Iowa) and US Rep. D...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

Goodlatte reintroduces bills to repeal, reform RFS

02/05/2015 Calling it “a true ‘kitchen table’ issue,” US Rep. Bob Goodlatte (R-Va.) reintroduced a pair of bills to address problems in the federal Renewable ...

Alberta’s premier seeks more North American energy integration

02/05/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance’s po...

Oil, gas infrastructure investments essential, House panel told

02/04/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

EPA suggests DOS reconsider Keystone XL climate impact conclusions

02/03/2015 The US Department of State might want to reconsider its conclusions regarding potential climate impacts from the proposed Keystone XL crude oil pip...

Obama’s proposed fiscal 2016 budget recycles oil tax increases

02/02/2015 US President Barack Obama has proposed his federal budget for fiscal 2016 that he said was designed to help a beleaguered middle class take advanta...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts

On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST


Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected