HOUSTON -- Thanks to Katrina and Rita, as well as political pressure to increase gasoline output, the nation's refiners face a dilemma as their fall maintenance season nears, reported the Wall Street Journal.
Following through with their maintenance schedules would mean shutting down production, adding to the shortfalls caused by the hurricanes, and keeping gasoline supplies tight and prices high. But postponing necessary maintenance could increase the chance of accidents, potentially disrupting even more production, said the report.
Valero Energy Corp. told the Journal that it intends to put off any maintenance that can be safely deferred to continue producing as much fuel as possible. And Tesoro Corp. said it is forgoing maintenance at its Golden Eagle refinery near San Francisco until first-quarter 2006, though it said the decision was made some time ago. Among the refineries going ahead with maintenance is ConocoPhillips' plant in Roxana, Ill., which is scheduled to begin maintenance today.
Tuesday, eight refineries remained shut down as a result of Rita, crippled in large part by lack of power. Eight others were restarting, or attempting to do so, while four other plants remained shuttered from Katrina. The outages account for a loss of about 3.5 million barrels of fuel a day, or about 20% of U.S. refining capacity, according to the report, citing the U.S. Energy Information Administration (EIA). [Click here to read EIA's current This Week in Petroleum.]
Rita triggered what could be monthlong shutdowns at two big refineries in Port Arthur, Texas, and caused damage to at least three other plants.
ConocoPhillips on Wednesday said damages from Rita may keep its Lake Charles refinery in Louisiana closed until mid-October. To brace for the storm last week, ConocoPhillips shut its 229,000-barrel-per-day (bpd) Sweeny refinery in Old Ocean, Texas, as well as its 239,000-bpd Lake Charles refinery in Westlake, La. The Sweeny plant weathered the hurricane without damage and operations should return to normal this week, the company said.
It added that it expects to have adequate crude supply to keep refineries running at capacity; however, the supply of refined products such as gasoline and diesel have been significantly impacted by the refinery shutdowns. Due to the significant number of refineries shut down by the hurricanes, the company said it expects overall U.S. processed refined products will be constrained throughout the remainder of this year.
There is ample incentive for refiners to get their plants going again as quickly as possible, and to keep them going, said the Journal. In a report Tuesday, Morgan Stanley predicted that Gulf Coast refining profit margins would hit $10.50 in 2006, up 13.5% over this year and more than double 2003 margins.
Meanwhile, soaring gasoline prices are fueling rumors that refiners are somehow manipulating the market, said the report. Tuesday, Democratic senators called on the Senate Commerce Committee to investigate allegations of price gouging in what they said was an effort to hold oil companies accountable for rising gas prices.
Deferring maintenance can come with its own price. Last week, BP PLC agreed to pay workplace-safety regulators $21.4 million in fines for safety violations tied to a deadly March 23 explosion at an octane-boosting processing unit at its Texas City, Texas, plant. Investigators said BP officials were aware that repairs were necessary but had opted to delay them until after the unit's startup. BP agreed to pay the fines without admitting to the alleged violations.
You've got to weigh the economic benefits and the pressure to produce against what's prudent and safe, Doug MacIntyre, an analyst with the EIA, told the newspaper.
High utilization rates tend to yield more outages. Before Rita and Katrina, the nation's refining industry experienced a string of outages at more than a dozen refineries. The glitches may have been no more than a run of bad luck. But Larry Goldstein, president of the Petroleum Industry Research Foundation, said pushing plants hard yields a disproportionate number of surprises.
[Editor's Note: More than 90% of the approximately 350 respondents to a U.S. Postal Service/CSP Daily News Poll earlier this week that asked Do you think major oil companies should build new refineries in the United States? said yes. Also, click here to read yesterday's Wall Street Journal editorial, Refining Incapacity, on the CSP Discussion Board.]
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