Last month, EIA published its semiannual report on the possible impacts of refinery outages on gasoline and diesel fuel markets for March through June 2010. The report focuses on gasoline because U.S. gasoline consumption typically increases during these months. Historically, large gasoline price increases can occur during the spring and early summer and refinery outages have sometimes played a role in those increases. The same outage during a tight market can have a more significant effect than during softer market conditions.
EIA does not see much tightness in the gasoline market this spring. EIA's April Short-Term Energy Outlook projects March through June gasoline consumption to be about 3 percent (240 thousand barrels per day) lower than experienced during the same period in 2007. At the same time, the growing use of ethanol to meet the Renewable Fuel Standard set out in the Energy Independence and Security Act of 2007 has further reduced the need for gasoline from refiners. EIA estimates that ethanol use from March through June will increase about 400 thousand barrels per day over the same period in 2007. The increase in ethanol use on top of lower consumption suggests that some 640 thousand barrels per day less gasoline will be needed from refiners and importers March through June 2010 than was required in 2007.
Weakness in both the demand for gasoline from refineries and industry profitability has resulted in refinery closures, removing some supply from the market. In late 2009, Sunoco closed its 145,000-barrel-per-day Eagle Point refinery in New Jersey, and Valero closed its 182,000-barrel-per-day refinery in Delaware. On the other hand, Marathon started operation at its 180,000-barrel-per-day refinery expansion in Garyville, Louisiana in early 2010. Since refineries on the Gulf Coast normally contribute to East Coast supply, the additional Marathon capacity cushions some of the East Coast loss. Given those changes, U.S. refinery utilization during the first quarter of 2010 has run about 5 percent below 2007 levels, indicating more surplus capacity will be available through June than was the case in 2007. The effect of refinery closures on the East Coast is also diminished by a growing availability of total gasoline imports, which typically supply about 25 percent of the consumption for that region.
In short, the spring U.S. gasoline market is characterized by modest consumption, increased ethanol use, high availability of imports, and high gasoline inventories. Even with refinery closures, these factors combine to provide ample supply after refinery outages are considered, as discussed below.
The EIA outage review focuses on crude distillation and fluid catalytic cracking unit (FCC) capacities, since these are the refining units that have the most effect on production of gasoline and distillate, with FCC units mainly affecting gasoline production. The estimated planned plus unplanned distillation unit outages for the March through June period are 12 percent below normal, but the estimated FCC outages are 35 percent above normal. The higher FCC outage levels might be a concern were it not for the current favorable overall supply situation described above. (Monthly planned outages are shown in Figure 1.)
Available refinery crude distillation capacity, after accounting for capacity lost to outages, could run about 1.5 to 2.0 million barrels per day more than EIA projects is needed March through June. Eight to 10 percent of available capacity may not be needed. Likewise, despite higher-than-usual FCC outages, sufficient capacity appears to be available to increase inputs 9 percent above estimated consumption, should the need arise.
Regionally, the Midwest exhibits the tightest potential balance due to planned FCC outages. But Midwest outages can be offset by surplus Gulf Coat refinery capacity, even in the event the East Coast requires additional Gulf Coast supply. Projected West Coast FCC outages also produce a tighter balance than the overall U.S. balance might imply, but available supply still appears adequate to meet regional consumption projections.
In summary, U.S refineries should be able to meet supply needs through June, with only a minimal potential for significant price impacts due to planned outages.
Figure 1. Monthly U.S. Planned Fluid Catalytic Cracking Unit Outages
(Barrels per Stream Day)
Source: Industrial Info Resource (IIR), www.iirenergy.com, February 18, 2010database; excludes PADD 1 and PADD 5 asphalt refineries.
U.S. Average Gasoline Price Drops a Penny
At the national level, the price for regular gasoline dipped a penny to $2.85 per gallon but was $0.80 above last year. The East Coast average inched up a cent to $2.83 per gallon, while the Gulf Coast price fell two cents to $2.73 per gallon. The average in the Midwest dropped the most of any major region, falling nearly four cents to $2.81 per gallon. In the Rocky Mountains, the increase was only a fraction of a cent, taking the average to $2.89 per gallon. Although the average on the West Coast dipped slightly, the change was so small that the price remained at $3.06 per gallon. The average in California remained at $3.09 per gallon following a slight decrease.
The U.S. average price for diesel fuel increased nearly a half cent to $3.08 per gallon, $0.88 above a year ago. Despite slipping more than a half cent, the average price on the East Coast remained at $3.08 per gallon. The averages in the Midwest and on the West Coast increased about a penny to $3.05 per gallon and $3.21 per gallon, respectively, while the average in California was essentially unchanged at $3.23 per gallon. On the Gulf Coast, the price inched up fractionally to $3.04 per gallon. For the second week in a row, the largest increase took place in the Rocky Mountains, where the average gained nearly three cents to reach $3.14 per gallon.
Propane Inventories Post Strong Build
Total U.S. propane inventories continued their seasonal build by adding 3.6 million barrels, the second largest weekly build on record, to end at 34.4 million barrels. The Midwest region saw most of the gain, adding 2.3 million barrels in stocks. The Gulf Coast region added 1.0 million barrels, while the East Coast region rose by 0.4 million barrels. The Rocky Mountain/West Coast inventories of propane built slightly. Propylene non-fuel use inventories decreased their share of total propane/propylene stocks from 9.0 percent to 8.4 percent.
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