Oil refining capacity may not fully recover from pandemic: executives

[BENGALURU] Millions of barrels of oil refinery capacity might permanently close across the global energy complex after being lost when demand crashed during the coronavirus pandemic, US refiners said on Friday.

Executives at Phillips 66 and PBF Energy, told investors some refining capacity currently offline could remain that way depending on the future course of the pandemic, while new capacity additions are likely to be delayed.

"Even in a good environment, these projects tend to get delayed, but in the environment we're in today they're likely to get delayed even more significantly," said Jeffrey Dietert, vice-president of investor relations at Phillips 66.

Depressed demand for jet fuel could also cap refinery utilization rates across the industry, according to executives at PBF Energy, the fourth-largest U.S. oil refiner by capacity.

Demand for petrol and distillates has recovered by 80 per cent to 90 per cent since the worst of the pandemic, but jet fuel demand has only rebounded 30 per cent, according to the Energy Information Administration. Because refineries cannot make products like diesel without producing jet fuel as well, they will restrain output, PBF chief executive Thomas Nimbley said on Friday.

"I'm not convinced that we could get to full utilisation in this industry if jet demand is where it is today," chief executive Thomas Nimbley said on an earnings call.

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Running refineries at full tilt would reduce the ability for refiners to contain the production of jet fuel.

Other independent US refiners are running near 80 per cent utilisation, but PBF is still operating below that and will continue to do so until it sees demand return in key markets, Mr Nimbley said.

Executives defended the company's acquisition of Shell's refinery in Martinez, California, despite reporting gross margins of only US$1 million in the second quarter in the West Coast.

"We had negative cracks in April, which severely impacted our earnings on the West Coast," Mr Nimbley said. Petrol demand rebounded in recent weeks in California, he said, and physical crack spreads were approximately US$13 in San Francisco and Los Angeles earlier this week.

Mr Nimbley disagreed with the idea that California has too much refinery capacity. "I think we're going to be fine in California over the long haul," he said.

However, he noted that the pandemic will result in a permanent reduction in US refining capacity.

PBF reported adjusted loss per share of approximately US$3.19, missing analysts expectations.

REUTERS