Refining unit breakdowns raise concerns in US
Oil refining's perception problem has taken a new, unflattering turn: Not
only are there not enough refineries, they don't run right.
After several years of calls for more production capacity in one of the
world's most technically sophisticated industries, attention has shifted to
what appears to be an unusual number of breakdowns and extended downtime,
raising concerns about the adequacy of oil-product supplies.
Just about every day in recent weeks -- normally a period when refineries
ramp up production -- unit malfunctions, fires and other mishaps have oil
traders and market watchers riveted. Oil futures and wholesale prices have
staged breathtaking rallies that traders say are due to the prospect of lost
supply and falling inventories.
New York Mercantile Exchange gasoline-related futures for May delivery rose
6.47 cents to $ 2.3550 a gallon, the highest level for a front-month
contract since last August. Over the week, the May contract gained 22.39
cents a gallon, or 10.5%.
Retailgasoline prices have vaulted to $ 3 a gallon in many locations.
Analysts are using the word "scary" to describe the country's fuel supply
"The problem is we have an antiquated refining system that continues to fall
apart and is having significant problems coping" at utilization rates
normally seen at this time of year, said Nauman Barakat, senior vice
president at Macquarie Futures USA in New York.
The operational problems have affected refineries of all sizes, all types of
processing units, in all regions -- and were caused by all kinds of events,
including fires, severe storms, crane accidents, human error and rodents'
unfortunate contact with electrical substations.
Some recent examples include BP's giant refinery in Whiting, Indiana, where
a fire one week and a power outage the next shut crude and gasoline
processing units; Valero Energy's plant in Norco, Louisiana, where
mechanical failure shut a gasoline-producing unit; and Marathon Oil's
refinery in Garyville, Louisiana, where a fire shut a gasoline production
The oil market, still reeling from the mid-February fire at Valero's McKee
refinery in Texas and the resulting price fallout, reacted to the incidents
with massive buying. Industry observers and participants, while
acknowledging the large number of incidents, aren't so quick to attribute
the operational problems to aging infrastructure. They point to changes in
refineries and fuel composition, how companies carry out scheduled
maintenance and labour issues.
"I think you're looking at random events that aren't common but they're
clustered," said John Jenkins, director of refining, chemical and
petrochemical consulting for Jacobs. Jacobs is a division of Jacobs
Seasonal maintenance programs, called turnarounds, are better planned than
they used to be but may be taking longer due to workforce issues involving
"There are problems getting workers, problems with their level of experience
and productivity," Jenkins said. In addition,ramping up high-temperature,
high-pressure units after shutting them down to perform repairs, is a
process fraught with glitches.
"As they come up, units can leak and malfunction until they get hot," he
"Until you're up and running comfortably, the probability of having a
problem is higher," Rich Marcogliese, Valero's head of refining, said the
addition of units, called hydrotreaters, needed to make mandated lower-sulphur
gasoline and diesel has made all units in refineries more inter-related. As
a result, outages of those units can restrict the amount of petroleum
feedstock processed throughout the refinery.
"Refinery operations have been more complicated and therefore, (feedstock)
throughput is restricted when you have outages more so than we've seen
historically," Marcogliese told.
Some don't have a ready explanation for the rash of refinery problems and
see them as ultimately surmountable but they acknowledge the outages' effect
"Anecdotally, it's everywhere and it's a lot," said Mark Routt, an analyst
with Energy Security Analysis in Wakefield, Massachusetts.
"They should be fixable," he said, referring to the breakdowns. "However,
because they're so widespread and going on and on, they're having a
Source: Dow Jones & Company