When the National Petrochemical & Refiners Association issued its annual US Refining and Storage Capacity Report on July 26, it provided a reminder that the US refining industry is walking a tightrope.
Refiners must contend with high costs for crude oil and natural gas to run their plants, on one hand, and with being suspected of “gouging” consumers, on the other.
The day after his group published the report, NPRA Pres. Bob Slaughter told me strains during the past several years have been particularly high during summer, “when facilities run at high utilization rates you don’t see in any other industry to meet strong gasoline and diesel demand.”
The report came out 2 days after Valero Energy Corp. said the distillate hydrotreater at its Memphis refinery had been shut down for repairs, lowering production by 10,000 b/d of gasoline and 15,000 b/d of distillate for about 9 days.
NPRA’s report said US refining capacity as of Jan. 1 had increased by 214,000 b/d, or 1.25%, from a year earlier. Capacity utilization was down substantially year-to-year because of lingering effects of last year’s Hurricanes Katrina and Rita.
Refiners also have contended with rapidly increased use of ethanol as a gasoline additive and new requirements for ultralow-sulfur diesel (ULSD).
‘Generally smooth’
Of the move to ethanol, Slaughter said, “There were some bumps. But it was generally smooth, which is remarkable given the other moving parts in the oil market at that time.” As for ULSD, he said, “Things, at the moment, are going pretty well. We’ll see what happens in October when marketers will be required to have 15 ppm diesel at the stations.”
The NPRA report listed 149 operable refineries in the US (excluding Puerto Rico and the US Virgin Islands) when 2006 began, one more than a year earlier.
“The study shows continued progress in adding US capacity. The announced plans for 2 million b/d more of capacity are extremely encouraging,” Slaughter said.
Imports needed
Overall, US capacity additions haven’t kept pace with demand. “That’s why the need for imported products has grown,” Slaughter said. “As an association, we think imports have their place in US supply, particularly from the Caribbean, Canada, and Europe. At the same time, we think the United States should keep up its ability to produce the overwhelming share of its needed products here at home.”
Companies’ strategies vary. “Some believe increased US capacity is necessary and the market will support it. Other refiners are concerned we may visit the 1990s in terms of returns and are conservative in their plans. The result of all these unconnected decisions is that US capacity is due to increase 12%,” Slaughter said.
“Higher profits have given refiners more money to invest. It’s also made people more optimistic about refining as a business so they’ll put their money in it instead of other businesses.”
