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KBC: 'Armageddon' mood at NPRA

Sam Fletcher
OGJ Senior Writer

No big surprises were reported at the recent National Petrochemical & Refiners Association meeting in Phoenix, Ariz., although analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, said the session that “captured the general mood” was titled, “Climate Change Armageddon.”

KBC analysts said, “Job losses in the refining sector were a recurrent theme. Valero [Energy Corp.] Chief and NPRA Chairman Bill Klesse articulated the refiners’ position against policies being plotted in Washington in tones worthy of [World War II British Prime Minister Winston] Churchill: ‘We must stand up and be counted. If we do not, we will lose, our country will lose, and jobs will be lost.’”

The analysts said, “From our readings of the mood at the various gatherings, there appears in particular to be strong industry pushback against plans under [renewable fuels] standards to boost ethanol in gasoline to 15% and also against Environmental Protection Agency plans for a potential lowering of the ozone standard form the 77 ppb envisaged by the Bush administration to 60 ppb.”

At the Phoenix conference, Kleese confirmed Valero is still interested in buying a UK refinery. Chevron Corp. earlier said it would sell its 210,000-b/d Pembroke refinery in Wales, noted KBC analysts, and Total SA is expected to sell its 200,000-b/d Lindsay refinery, Britain’s third largest, to meet targeted cuts in the group’s refinery capacity.

KBC reported a fund led by oil industry veteran Tom O’Malley is interested in bidding for Valero’s 195,000-b/d Paulsboro, NJ, refinery. “O'Malley, who heads PBF Investments LLC, has also bid on Valero's closed 210,000-b/d Delaware City refinery in a deal that may be finalized shortly,” the analysts reported. “The $2 billion PBF fund was formed in 2008 and comprises Swiss-based Petroplus [Holdings AG], which is headed by O’Malley, and private equity groups Blackstone Group and First Reserve Corp. O’Malley said he is interested in potentially buying other US refineries.”

They quoted O’Malley as saying, “Everything has a price, and there are terms associated with everything. And I believe that crude oil refineries on the East Coast can be a viable business.” With its Aruba, Delaware City, and Paulsboro refineries on the block, Valero is not expected to sell any more refineries, KBC reported.

Weak oil fundamentals
Near-term US oil market fundamentals do not look great, said KBC analysts. “Diesel demand has been very slow to recover in the US, but gasoline has been stabilizing, Klesse said, arguing for a 1% year-on-year rise in gasoline demand during the driving season,” they said. They quoted Klesse saying employment would have to increase if diesel demand is to pick up. He is looking at 2011 for growth.

Meanwhile, Fitch Ratings placed all the North American refiners it follows on a negative rating outlook. “Refinery utilization in the US remains around 81% in the latest Department of Energy numbers, slightly higher than the lows reached in February,” KBC reported Mar. 29. However, those figures don’t yet show the shutdowns at Valero’s Delaware and Sunoco Inc.’s 145,000-b/d Eagle Point refineries. “Because the percentage utilization figure is an average, based on gross inputs divided by total capacity, the reality for individual refiners is probably a little less bleak than the raw percentage figures imply,” they said. “Don’t be fooled when utilization improves when the shutdowns are included as a change in operable capacity.”

Meanwhile, last-ditch negotiations in late March to solve Greece’s debt crisis “still do not provide a clear path out of the debt miasma threatening the European Union,” said KBC analysts. The euro and oil prices both rose after a deal brokered by Germany and France under which Greece will receive coordinated bilateral loans from other countries that use the euro and will have recourse to the UN’s International Monetary Fund if needed.

“Although the deal averts the risk of a default by Greece, the deficit problems faced by Greece are shared by other countries such as Portugal, Ireland, and Spain. With governments rapidly tightening their belts, any significant recovery in European oil demand therefore seems a long way off,” analysts said.

EU refinery utilization in February dropped to 81% of capacity, from just under 82% in January. “These extremely poor utilization numbers have started to eat into hitherto-bloated oil product stocks, however, and some physical markets including that for diesel cargoes in northwest Europe have switched recently into backwardation, where prompt cargoes are valued higher than futures,” said KBC analysts.

(Online Mar. 29, 2010; author’s e-mail: samf@ogjonline.com)


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