Authors: Brian Mason & Robert Auers
This week, we will review the earnings calls for the Integrated Majors operating in the U.S. as a follow-up to last week’s blog which covered independent refiners. While the Integrated Majors reported strong results from the upstream divisions due primarily to high Q3 crude prices, we will focus on the downstream sector and highlight key points from each of the Q3 2018 reports.
Similar to what was covered last week, widening crude differentials, high refinery utilization, and preparedness for IMO’s more strict specs were all popular topics from each of the calls.
Total spent very little time talking about U.S. refining as they only have one refinery in Port Arthur. There was no discussion of IMO. Port Arthur is, however, a coking refinery and is well positioned to benefit from the new IMO rules.
BP reported having 96% refining availability for the third quarter, their highest in 15 years. Their Whiting, Indiana refinery is currently going through a turnaround which involves the coker unit. (As an aside, this turnaround has been reported to be a major cause of the currently widening Bakken-LLS differential. While this is likely a piece of the puzzle, we suspect that there are many other factors that will cause this differential to remain relatively large, at least until Dakota Access is expanded.) They believe, after the turnaround, they will be in a good position to benefit from the 2020 IMO changes. All three of BPs refineries have coking units as well.
Shell announced the startup of a new solvent deasphalter at their Pernis refinery in the Netherlands. Along with this, Shell converted an existing hydro-processing unit into a hydrocracker for DAO conversion. The new unit better positions Shell for the IMO changes coming in 2020 by allowing them to make cleaner transport fuels, including marine gas oil.
In October, Shell completed the sale of its downstream business in Argentina to Raizen which included the Buenos Aires refinery.
With 3 million barrels a day of production throughout the 3rd quarter, Chevron reported having the highest rate ever recorded for a quarter. This increased throughput was due to increased refinery utilization and minimal downtime.
Chevron spent quite a bit of time discussing its position for IMO 2020 changes. They reported to be well prepared for a number of reasons, stating their refining network has the highest complexity and percentage of conversion capacity among peer refiners. They are focused on making small modification in each of their refineries to minimize fuel oil production, which is said to be already low. They currently produce 40% middle distillates and only 5% fuel oil. Alongside this, they are also exploring other markets for high sulfur fuel oil that are nonmarine, like power generation, asphalt and other refineries with excess upgrading capability.
As with several other refiners, Exxon reported strong margins supported by widening crude differentials in North America. They were able to leverage their midstream logistics capacity to support their refineries with advantaged crudes from the Permian and western Canada. Because of this (and higher crude prices), they were able to report their highest earnings since 2014.
In October, Exxon started up their Antwerp coker, expanding their capacity to meet anticipated demand for IMO 2020 spec fuel oils and cleaner transportation fuels. The coker has a current capacity of 50 MBPD but is likely to be expanded in the future. They refer to the coker as a regional coker because it is designed to process resid from the entire European circuit as well as third-party material.
Exxon also commissioned FCC Naphtha hydrotreater to increase low sulfur gasoline production and limit octane losses. This is just ahead of the Rotterdam advanced hydrocracker that is expected to startup before the end of the year.
Lastly, Exxon spoke briefly about their proposed 250 MBPD Beaumont expansion. While this project has not yet received an FID, it appears likely that the project will go forward. The project would consist primarily of distillation capacity designed for LTO feedstock. The crude is to be primarily sourced by the proposed Exxon/Plains JV pipe from the Permian to Houston and Beaumont. Further, it appears that the project would not require significant investment in downstream units, barring some low-cost debottlenecks and new hydrotreating capacity. Instead, the distillation products will largely replace purchased intermediates at Beaumont and Baytown.
All the Major refiners reported good quarterly results for their downstream business, with many achieving record throughputs and steadily increasing utilization rates. Still, most (with the notable exception of Exxon) appear to be taking a cautious view with regards to expansion of capital spending in the space. One of the recurring topics is how each refiner is positioned for IMO 2020 regulation changes. Most agree that complex refiners will benefit from increased demand for low sulfur marine gas oil. We’ve seen refiners are all over the map on how to approach the January 2020 deadline, but all the integrated majors are reporting that they are well positioned not only to handle, but to benefit from, the new IMO regulations.
Turner, Mason & Company, continues to monitor developments in the maritime and refining industries as we approach IMO 2020. Our latest views are being incorporated in our Crude & Refined Products and World Refining Construction Outlooks, which will be issued to clients with our 2019 publications in February and August. If you would like more information on this, or for any specific consulting engagements with which we may be able to assist, please go to our website and send us an email or give us a call at 214-754-0898.