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The Dud Refineries of PADD 5 Oil Industry

By Market Analyst Dan

Aug 04, 2013
 

A summary overview of refinery configurations in PADD 5 that can benefit from strategic debottlenecking or outright closure.            

 
 

In this article, I will discuss the 4 least competitively configured refineries in PADD 5.  If your refinery happens to fall on this list, please do not immediately react and claim this analysis inaccurate. 


Remember that my aim is not to assess whether your refinery is profitable or not, but to compare its configurational capabilities to other competitors in the same region.  

 

It is quite probable that your refinery has operated with a healthy margin over the recent

 

past.  Most US refineries have enjoyed the benefit of the midcontinent crude disconnect.  What may prove prudent at this very moment, is to determine if your refinery is worth putting on the sales block. 


As they all say, buy low and sell high.  The crude arb has tightened, so consider cashing out if you fall on this Dud list.                

 

For PADD 5 petroleum refineries with a minimum capacity of 40 KBD crude throughput, I have selected the following sites:

 

  • US Oil Tacoma
  • Chevron Hawaii
  • Tesoro Hawaii
  • Phillips 66 Ferndale
  • Tesoro Anacortes (honorable mention)

 

As Tesoro Hawaii has been recently sold, I chose an honorable mention 5th refinery.  Unlike the PADD 3 Dud refineries that served extremely niche markets, there appear to be surplus refining capacity with viable logistics to supply areas of the inefficient Dud PADD 5 refineries.  This will increase likelihood of PADD 5 refinery closures over the next 8 years as RFS and LCFS requirements ramp up.

 

 

The chart below has a quick comparison of major refining units.

 

 

 

 

By normalizing refinery configuration based on conversion capacity, I have depicted the 5 bottom refineries relative to the PADD 5 average.  


With an average conversion factor of 0.95, majority of the refinery conversion factors ranged between 0.6
and 1.4.  All 5 refineries on

the Dud List fall outside of this band primarily due to the lack of gasoil and resid upgrading capabilities.


While PADD 5 does not carry the reputation of having refineries with large resid upgrading capabilities, there are many in the LA basin of PADD 5 that

 

rival the USGC in terms of % Coking capacity.

 

For the Dud refineries selected on our list, none have cokers. 


Tesoro Anacortes has resid upgrading capability in a Solvent Deasphalting unit, but this configuration still

comes with limitations.  Tesoro Hawaii has a visbreaker, but that too is also inferior resid upgrading technology.


All of the PADD 5 refineries lack strength in conventional hydrotreating capacity.  This was a common trend for the Dud refineries of PADD 3.

 

Hydrotreating capacity improves a refinery’s ability to select higher margin feedstocks, and lack of hydrotreating is a significant flexibility inhibitor. 

 

What is even more surprising is the types of hydotreating capacity missing.  Take Chevron’s

Hawaii refinery for example.  Industry data shows that it does not have a naphtha, gasoline, or distillate hydrotreater.


The Tesoro Hawaii refinery is not that much further ahead with a lack of a gasoline and distillate hydrotreater.  It is absolutely incredible to not have any real hydrotreating capacity in today’s environment.  Essentially, this means that crude stocks processed at these two refineries are extremely sweet (i.e. low sulfur).  This makes for very expensive feedstock costs.

 

To have competitive feedstock processing flexibility, refineries must meet the PADD 5 average of 85% hydrotreating capacity as a ratio of total refinery input.  The most advanced refineries have 125% or higher.


Similar to hydrotreating capacity, refinery sulfur capabilities provide indication on feedstock flexibility.  For more mature refineries, you often

 

find adequate hydrotreating capacity, but inadequate sulfur recovery capacity

 

However, it doesn’t make much sense to have SRU capacity without hydrotreating capacity.  Thus, the sulfur handling capabilities for the PADD 5 Dud refineries all fall below standard.


Reformer capacity provides indication in two areas:  how well can a refinery maintain octane balance and how well can a refinery maintain hydrogen balanceSince PADD 5 lacks the concentration of 3rd party Hydrogen producers that PADD 3 enjoys, most PADD 5 refineries have to

 

produce their own H2.  This comes either from Hydrogen Plants (i.e. SMRs) or naphtha reformers. 

 

Since the Dud refineries of PADD 5 lack hydrotreating capacity, there isn’t a large driver of reformer hydrogen for many. 


So the real question now 

becomes how do these refinery maintain octane balance?  The Chevron Hawaii refinery shows no reformer capacity completely, so this suggests that most of the produced naphtha must be sold into export markets. 


P66 Ferndale also shows lower reformer capacity than the PADD average.  Using the rest of Ferndale’s configuration data (i.e. high distillate treater capacity, high Vac Capacity, and modest FCC/Alky), it would suggest that Ferndale manages crude diet to maintain octane balance as it has the ability to produce a higher amount of distillates and heavier products. 

 

Tesoro Hawaii has a hydrogen plant, so that helps to offset H2 requirements.  However, octane balances are strained with such limited reforming capacity.  US Oil is such a small facility that it’s not worth discussing much.

 

Interestingly enough, the PADD 5 Dud refineries mostly have adequate gasoil cracking capabilities when compared to the region peers.  Three of the refineries meet or exceed the PADD average.  Tesoro Hawaii does

 

not have a FCC, but instead has a gasoil hydrocracker.  In today’s distillate market, this may actually be an advantage.

 

US Oil is the odd refinery out without any gasoil conversion ability.  This suggests selling all US Oil VGO into the open market, which is not economic.



In addition to the high level indicators of refining configuration discussed above, let’s dive a little deeper into some of the other details that support my views on these mismatched refinery units.

 

 

US Oil & Refining Co - Tacoma

 

Cons

  • Lack complexity - no gasoil conversion, no coker, low hydrotreating capacity
    • Suggests that all gasoils are sold

 

  • High Vacuum Distillation capacity relative to Atmos capacity
    • Suggests some flexibility to handle heavier crudes, however lack of resid upgrading means that all resid is sold as asphalt or fuel oil

 

  • Logistically Challenged
    • Very small refinery in remote location
    • Crude imports limited likely by small refinery tankage, so logistics costs are uncompetitive
    • Heavy intermediate products likely all moved by barges as well

 

Pros

 

 

Chevron Corporation – Hawaii Refinery

 

 

Cons

  • Lack complexity
    • No resid upgrading - all resid must be sold as fuel oil
    • No reformer - octane balance challenging to meet, so suggests naphtha exports
    • Non-existent hydrotreating capabilities - suggest extremely sweet crude purchases
    • Small alky compared to large FCC – suggests inefficient means of olefin management

 

  • Logistically Challenged 
    • It’s a refinery on an island!  That only spells doom, like our Hovensa St. Croix refinery.
    • There are 2 refineries on one island

 

Pros

  • None that we can think of

 

 

Tesoro Refinery  – Hawaii

 

 

Cons

  • Lack complexity
    • Limited resid upgrading with small visbreaker
    • Small reformer
    • No FCC / Alky
    • Limited hydrotreating capacity - suggest extremely sweet crude purchases

 

  • Logistically Challenged 
    • Like the Chevron facility, it’s on an island

 

  • Refinery being sold to Par Petroleum Corp, a company that has limited experience operating a refinery
    • If a savvy refining corporation such as Tesoro doesn’t see value in operating this refinery, it would be interesting to see what Par Petroleum tries to do with it.

 

Pros

  • Hydrocracker
  • Hydrogen Plant

 

 

Phillips 66 Refinery - Ferndale

               

 

Cons

  • Configuration Challenges
    • 107,500 BPD refinery without a coker or other resid upgrading capacity
    • Small reforming capacity relative to peer group
    • No dedicated jet hydrotreater
    • Limited hydrotreating capacity relative to peer group

 

Pros

  • Large vacuum distillation capacity
  • Close proximity to discounted Canadian Crudes

 

 

Tesoro Refinery - Anacortes

               

 

Cons

  • Limited Conversion Capability
    • Decently sized FCC, but no coker or hydrocracking capability
    • Resid upgrading technology is Solvent Deasphalting (hence larger FCC)
    • Very small alky compared to size of FCC, so inefficient olefin management
    • Small hydrotreating capacity relative to peer group suggests predominantly sweet crude refinery

 

Pros

  • Close proximity to discounted Canadian Crudes

 

 

With the increasing pressures of the U.S. Renewable Fuels Standard (i.e. RFS2), it is inevitable that refineries within North America will shut down. 

 

By stripping out all of the complexity related to supply chain logistics and location advantages, I have distilled refinery operations down to the simple common denominator of configuration capability.  It is my belief that over time the most flexible refineries will always come out on top since market inefficiencies (i.e. midcon crude discounts) will self-correct.

 

The refining business will always cycle with changing market drivers, and the ability to adapt operations will prove key.  Refiners that struck profit in the past will not always have profits in the future, so assessing your refining capability relative to peers should remain a constant focus area.   

 
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  • Roger Lott :   I would appreciate Dan getting in touch with me.

    Aug 08, 2013

  • Market_Analyst Dan :   Roger, please send me an email at: support@refinerlink.com

    Aug 08, 2013

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