Global refiners falter in meeting demand

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© Reuters. FILE PHOTO: A view of ExxonMobil’s Baton Rouge refinery in Baton Rouge, Louisiana, U.S., May 15, 2021. Photo taken on May 15, 2021.REUTERS/Katherine Flynn/File Photo/File Photo

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Laura Sanikola

(Reuters) – Refiners around the world are struggling to meet global demand for diesel and gasoline, fueling high prices and fueling prices from big consumers such as the United States and Brazil to war-torn Ukraine and Sri Lanka. Shortages in small countries.

World fuel demand has rebounded to pre-pandemic levels, but pandemic shutdowns, sanctions on Russia and export quotas from China are straining refiners’ ability to meet demand. China and Russia are two of the top three refiners after the United States. All three are below peak processing levels, undermining efforts by governments around the world to lower prices by releasing reserves.

Profits in making fuel were at a low point two years ago due to the pandemic, leading to multiple closures. Now that the situation has reversed, the pressure could continue for a few years, keeping prices high.

Ravi Ramdas, managing director of energy consultancy Peninsula Energy, said: “When the coronavirus pandemic hit, global oil demand was not expected to decline for a very long time, yet so much refining capacity was permanently cut. .”

According to the International Energy Agency, global refining capacity will fall by 730,000 barrels per day in 2021, the first decline in 30 years. The number of barrels processed per day fell to 78 million bpd in April, the lowest level since May 2021 and well below the pre-pandemic average of 82.1 million bpd.

Fuel inventories fell for seven straight quarters. So while crude oil prices are up 51% this year, U.S. futures are up 71%, while European gasoline refining margins recently hit a record $40 a barrel.short structure

For the first time in decades, the U.S. is experiencing a “structural shortage” of refining capacity, according to independent analyst Paul Sankey. U.S. production capacity fell by nearly 1 million bpd from pre-pandemic levels to 17.9 million bpd through February, the latest federal data showed.

LyondellBasell recently said it would close its Houston plant, which has a processing capacity of more than 280,000 barrels a day, citing high maintenance costs.

Operating U.S. refiners are pulling out all the stops to meet demand, especially for exports, which have surged to a record high of more than 6 million bpd. Capacity utilization is currently over 92%, the highest seasonality since 2017.

“It’s hard to see a huge increase in refinery utilization,” said Gary Simmons, Valero’s chief commercial officer. “We’ve been at 93 percent utilization; typically, you can’t sustain it for long.”

A U.S. ban on Russian imports has left refiners in the northeastern U.S. starved of the raw materials they need to make the fuel. Phillips 66 (NYSE: Phillips 66) has been running its 150,000-barrel-a-day catalytic cracker at its New Jersey refinery at a slower pace because it can’t source low-sulfur vacuum diesel, according to two people familiar with the matter.Russia’s production capacity is idle, China restricts exports

Russia has idled about 30% of its refining capacity due to sanctions, according to Reuters estimates. Analysts at JPMorgan said there are currently about 1.5 million bpd of outages and 1.3 million bpd may remain offline by the end of 2022.

China, the world’s second-largest oil refiner, has added millions of barrels of capacity over the past decade, but in recent months has curbed refining activity as part of efforts to reduce carbon emissions amid COVID-19 restrictions and export curbs. Production cuts. China’s April throughput fell to 13.1 million bpd in April from 14.2 million bpd in 2021, the IEA said.

Other countries have also not increased supply. Japan’s largest refiner, Eneos Holdings, has no plans to reopen recently closed refineries, a spokesman told Reuters.

Some new projects around the world have been affected by delays. A 650,000-bpd refinery in Lagos was due to open in late 2022, but has now been delayed until late 2023. A source with direct knowledge of the situation said the refinery has not yet hired a company for commissioning work, which will take several months.

There are some restarts. Major French TotalEnergies started restarting its 231,000 bpd Donges refinery in April after shutting down in December 2020, while Malaysia’s 300,000 bpd refinery restarted earlier this month.

supply crunch

Diesel users are squeezed, especially in agriculture. Ukrainian farmers are in short supply as supplies from Russia and Belarus are cut off by the war.

Sri Lanka, in the midst of a fuel crisis, closed its only refinery in 2021 because it lacked enough foreign exchange reserves to buy imported crude. It is looking to reopen the facility because fuel is more expensive.

Brazil’s state-owned Petrobras told the government that importers may not have access to U.S. diesel for tractors and other agricultural equipment to harvest crops in one of the world’s largest agricultural producers.

“If U.S. refineries are damaged during the hurricane season, or any other factor tightens the market, we could be in real trouble,” said a Brazilian refining executive.

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