Impact of Covid-19 on the US refinery sector

GlobalData Energy 14 July 2020 (Last Updated July 14th, 2020 14:14)

Impact of Covid-19 on the US refinery sector

Demand for gasoline and jet fuel have taken a hit due to nation-wide lockdown across the US since late March 2020 in response to the Covid-19 pandemic. Piling up of stocks caused challenges in the form of mounting inventory costs, while storage concerns of refined products with shorter shelf life added additional strain to the diminishing profit margins. Lack of contingency plans to address these challenges has forced US refining companies to fall back on implementing remedial actions such as reducing operational capacity and slashing capital expenditure that can see off the current depressed market situation, says GlobalData, a leading data and analytics company.

Several refineries have reduced their operating capacities, while a few others have decided to suspend operations to navigate through the current crisis. BP plc’s Whiting refinery with a capacity of 430mbd has decreased its crude runs by 30% due to a sharp fall in fuel demand amidst the Covid-19 outbreak. Total SA’s 238mbd Port Arthur III refinery has reduced production rate to nearly 60 percent. Few other refineries, such as the Martines I operated by Andeavor in the US, has suspended operations to tackle the devastating impacts caused by the virus.

Few of the refiners in the US have also reduced their capex in response to the economic slowdown and adverse impacts of Covid-19. ExxonMobil Corp slashed its overall consolidated capex by $10bn in 2020, from the initial plan of $33bn, while Chevron Corporation has reduced by $6bn, indicating the magnitude of impact that the current crisis has on the region’s refinery sector. Besides prioritising capex and saving on cash to mitigate the effects of economic slowdown and lockdown, companies may look to restructure their businesses to evaluate diverse opportunities. Refiners are likely to continue analysing the impact of Covid-19 on their operations and investments, while keeping operational readiness for new business opportunities. However, they are expected to remain focused on key growth projects, ensuring long-term competitiveness.