Genscape expects U.S. crude runs to grow by +295 Mb/d in 2017, primarily due to a lighter turnaround slate and crude distillation unit capacity additions.
The downside risk to the forecast is how much refining margins compress. Thanks to the support of OPEC’s commitment to take at least 1.2 MMb/d of crude supply off the market, crude prices and feedstocks costs have about doubled in the past few weeks from late January 2016 lows. It remains to be seen how much higher prices can go.
Due to more down time in 2016, U.S. crude runs grew a meager +15 Mb/d year-over-year last year, though more than 300 Mb/d of CDU capacity was added to North American refineries since December 2015.
U.S. refiners faced a challenging market in 2016. While crude prices offered low feedstock costs, a glut of refined products from record crude runs in the back half of 2015 translated to relatively low product prices in Q1 2016. In the latter half of 2015, some refiners deferred planned work to 2016 from 2015 to take advantage of high refining margins.
For 2017, North American refiners will seek to use more fully the added CDU capacity. The bulk of this new capacity is concentrated in the U.S. Gulf Coast. Valero Energy accounted for more than half of the added capacity, installing more light crude processing capacity at three of its Texas refineries in the first half of 2016. Below is a sample of other capacity changes in 2016.
*For a full list of known CDU capacity changes out to 2020, please take a look at our North American Crude Oil Runs Forecast Report.
As crack spreads waned in early February 2016 (dipping into the low single digits for most regions), refiners initiated run cuts and delved into a year of higher-than-average turnarounds. Major work sets a refinery up to run with minimal disruption to crude throughput from three to seven years. In 2016, the amount of CDU capacity offline due to planned outages in the U.S. peaked in April and November at more than 1.1 MMb/d, according to the U.S. Energy Information Administration. This was well above the highest monthly average of 890 Mb/d offline (which occurs in the month of October, according to data from 2006 to 2015).
Lighter 2017 Maintenance Slate Expected
Considering the above-average amount of major work in 2016, a lighter slate of maintenance for 2017 is anticipated. Total CDU capacity offline should peak in February at just shy of 700 Mb/d, in contrast to the February average of close to 800 Mb/d offline (according to averages from 2006-2015, per the U.S. Energy Information Administration). More information will crystallize the turnaround picture as the first half of the year proceeds, but expected major events in each region driving the 2017 CDU capacity offline estimate are:
- PADD 1: PES Philadelphia (reformer/unifiner) and PBF Delaware City (FCC work), February/March 2017
- PADD 2: Citgo Lemont (five-year run on its crude unit) and TSO Mandan (seven-year run on its crude unit), April 2017
- PADD 3: XOM Baton Rouge (five-year runs on pipestills 8 & 10), XOM Baytown (FCC work) in January/February 2017, MPC Galveston Bay/Texas City (major turnaround) in February/March 2017
- PADD 4: PSX Billings (plant-wide turnaround) April 2017
- PADD 5: PBF Torrance (FCC/alkylation unit work) in Q1 2017, possible major turnarounds at PSX Ferndale (replacing crude unit) and TSO Anacortes (four-year run on crude unit) in H1 2017
When refineries go down for planned work, Genscape’s monitors are able to not only detect a discrete on/off signal at 34 Gulf Coast refineries in real-time, but can also aid in quantifying the crude run impact of the turnarounds at 13 of those 34 Gulf Coast refineries on a week-to-week basis in the North American Crude Oil Runs Forecast Report. To look at one recent example, one of the most comprehensive turnarounds in fall 2016 occurred at Valero’s 292,000 bpd Port Arthur, TX, refinery, and Genscape’s Spring Rock team quantified this outage in real-time using Genscape’s proprietary monitors. By assigning utilization rates to on/off signals for a sample of the refinery’s monitored units, Genscape estimates a weekly utilization rate for the entire refinery. Utilization estimates can be compared to calculations from actual crude throughput quantities from the Texas Railroad Commission (TxRRC) and historical EIA refinery capacity. Below is a history of how Genscape’s utilization estimate has lined up with the calculated actual utilization rate for Valero Port Arthur.
Week-to-week, Genscape’s utilization estimate tracked the nuanced change in crude throughput closely, according to exactly when the units went down. Here’s how the timeline for the outage proceeded:
- Late July 2016: In its Q2 earnings call, Valero broadcasted to the market that Port Arthur would be taking its crude/coking complex down for a major five-year turnaround around September, though less was known about the exact timing and duration
- August 19: Bloomberg reported that the refinery would be going down shortly, two weeks ahead of schedule
- August 24: Genscape monitors detected the shutdown of the 75 Mb/d CDU and 72.5 Mb/d VDU
- September 13: Genscape identified that the 45 Mb/d hydrocracker was shut (also briefly shut August 24-26)
- September 19: Genscape’s monitors showed the 100 Mb/d coker associated with the 235 Mb/d CDU was down; Reuters' report on September 20 confirmed that the large 235 Mb/d CDU was offline (larger CDU not monitored by Genscape)
- October 25: Genscape monitors detected restart activity at the smaller crude section
- October 27: Genscape alerted that the smaller CDU/VDU restarted
- November 1: Genscape monitors detected the restart of the 100 Mb/d coker restarted, first indication that larger CDU may return to full processing rates
- November 6: Hydrocracker restarted, according to Genscape
Genscape’s estimate for the Valero Port Arthur in September 2016 clearly anticipates the magnitude of the decrease in the refinery’s reported September crude runs several months ahead of the state data. Genscape’s week-to-week utilization estimate adds clarity to both timing and duration of the outage, as well as the magnitude of the outage’s affects to its crude requirements in a given month.
Considering a relatively light slate of outages for PADD 2 in the fall of 2016 and high product stocks, several independent refiners vocalized concerns of imminent economic run cuts in Q4 2016 for PADD 2. Utilization rates for PADD 2 came in at 94.5 percent for December 2016, which is historically near the high end of PADD 2’s utilization rates. Genscape’s PADD 2 utilization rate estimate, which considers five days of monitor signals ahead of the last EIA weekly date, shows a dip in utilization rates towards the 93 percent range as of January 5 (91 percent of PADD 2 CDU capacity monitored). Genscape sees PADD 2 utilization rates slowly sliding into the 2017 spring turnaround season, with January at 93.2 pecent, February at 90.4 percent, March at 88.6 percent, and April bottoming at 84.2 percent. It is still certainly possible that run cuts occur as Q1 goes by, even though operator expectations have not manifested.
Equipped with proprietary utilization estimates tracking crude inputs regionally and quantifying crude throughput at 13 individual, monitored PADD 3 refineries week-to-week, refinery-level turnaround tracking, and the latest historical data, our North American Crude Oil Runs Forecast Report keeps you abreast of changes to crude inputs week to week.