Released November 16, 2015 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Planned refinery turnarounds fell sharply in 2015 as refiners delayed projects to process the flood of inexpensive crude oil, said Chris Paschall, Industrial Info's vice president of global research for the Oil & Gas and Petroleum Refining Industries, to several hundred attendees at Industrial Info's 2016 Market Outlook in Baton Rouge, Louisiana, earlier this month. But he said he expected turnarounds to increase in 2016.
"When you've got really big margins, you don't want to take your unit down for maintenance," Paschall told attendees at the Industrial Info event on November 5. "But margins have narrowed, which means deferred maintenance projects will be performed in 2016 and 2017."
U.S. crude oil production peaked in April at about 9.6 million barrels per day (BBL/d), before dropping to about 9.1 million BBL/d, he told the Baton Rouge attendees, adding that the April figure was the highest domestic crude-oil production since the 1970s. As production dropped, refiners increased their already-high utilization rate to 96% during the summer, taking advantage of lower-priced crude oil. During the June-September period, the U.S. Gulf Coast gasoline crack spreads averaged about $20 per barrel, but they have since fallen to $5 to $7 per barrel, Paschall said.
The big margins for refiners during the summer resulted in nearly 200 projects being deferred, delayed or cancelled, he said. Refiners originally planned the same number of projects for 2014 and 2015, but the average size of this year's project has swelled to about $17 million, from the average $7 million to $9 million size in 2014.
Refiners had scheduled about $16 billion of capital and maintenance projects this year, but Industrial Info sees only about $5 billion of that actually taking place. "We've seen over $16.5 billion worth of projects deferred to 2016 and 2017, while another $14.4 billion of 2015 projects have been cancelled or placed on hold," Paschall said.
"Despite the large decline in project spending for 2015, the amount of active spending going on is still quite strong, as the projects that got under way over the past two years won't reach the peak of their construction period for another 18 to 24 months," he added.
Because refiners were chasing fat margins in 2015, they increased their utilization rate and deferred turnaround projects, Paschall noted. He said planned turnaround activities at refineries "will bottom out in 2015," with about 197 planned major unit turnarounds kicking off, well below 2014's 210 planned major unit turnarounds and 2013's 237 planned major unit turnarounds. But he predicted unplanned outages will surge this year, to an estimated 352, leading to a total of 549 turnaround and unscheduled maintenance projects this year. "Planned turnaround activity should pick up in 2016," he projected.
Click on the image at right to see a bar chart of major unit turnarounds at U.S. refineries.
Given the industry's historical project fall-out rate, Paschall projected 2016 would see about $5.4 billion of projects begin construction in the U.S. next year. Of that sum, about $1.4 billion is forecast to take place on the Gulf Coast.
Paschall noted the uncertainties that hang over global crude-oil production, including production decisions by the Organization for Petroleum Exporting Countries (OPEC) and U.S. companies, as well as any geopolitical events that could affect oil production. However, despite an inability to pinpoint potential inflection points, Paschall said the global crude-oil market looks to remain over-supplied for 2016 and 2017: "We're not going to see $75 or $80 per barrel crude for another year or two."
Click on the image at right to see the recent history of global crude oil supply and demand, and a projection for the next five quarters of global crude-oil production.
That should bode well for refiners' profit margins. However, refined petroleum products are a global commodity, and as such are subject to international laws of supply and demand. Paschall noted that about 25 million BBL/d of new crude unit capacity is scheduled to be brought online between 2016 and 2020. Most of that planned capacity--about 14.8 million BBL/d--is scheduled to be built in Asia. In North America, refiners have proposed adding about 2.4 million BBL/d of new capacity by 2020. Industrial Info does not believe all of those projects--either domestically or overseas--will move forward according to their original schedules. Still, Paschall said there were so many projects under development that refinery economics could be significantly altered over the next five years.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
"When you've got really big margins, you don't want to take your unit down for maintenance," Paschall told attendees at the Industrial Info event on November 5. "But margins have narrowed, which means deferred maintenance projects will be performed in 2016 and 2017."
U.S. crude oil production peaked in April at about 9.6 million barrels per day (BBL/d), before dropping to about 9.1 million BBL/d, he told the Baton Rouge attendees, adding that the April figure was the highest domestic crude-oil production since the 1970s. As production dropped, refiners increased their already-high utilization rate to 96% during the summer, taking advantage of lower-priced crude oil. During the June-September period, the U.S. Gulf Coast gasoline crack spreads averaged about $20 per barrel, but they have since fallen to $5 to $7 per barrel, Paschall said.
The big margins for refiners during the summer resulted in nearly 200 projects being deferred, delayed or cancelled, he said. Refiners originally planned the same number of projects for 2014 and 2015, but the average size of this year's project has swelled to about $17 million, from the average $7 million to $9 million size in 2014.
Refiners had scheduled about $16 billion of capital and maintenance projects this year, but Industrial Info sees only about $5 billion of that actually taking place. "We've seen over $16.5 billion worth of projects deferred to 2016 and 2017, while another $14.4 billion of 2015 projects have been cancelled or placed on hold," Paschall said.
"Despite the large decline in project spending for 2015, the amount of active spending going on is still quite strong, as the projects that got under way over the past two years won't reach the peak of their construction period for another 18 to 24 months," he added.
Because refiners were chasing fat margins in 2015, they increased their utilization rate and deferred turnaround projects, Paschall noted. He said planned turnaround activities at refineries "will bottom out in 2015," with about 197 planned major unit turnarounds kicking off, well below 2014's 210 planned major unit turnarounds and 2013's 237 planned major unit turnarounds. But he predicted unplanned outages will surge this year, to an estimated 352, leading to a total of 549 turnaround and unscheduled maintenance projects this year. "Planned turnaround activity should pick up in 2016," he projected.
Click on the image at right to see a bar chart of major unit turnarounds at U.S. refineries.Given the industry's historical project fall-out rate, Paschall projected 2016 would see about $5.4 billion of projects begin construction in the U.S. next year. Of that sum, about $1.4 billion is forecast to take place on the Gulf Coast.
Paschall noted the uncertainties that hang over global crude-oil production, including production decisions by the Organization for Petroleum Exporting Countries (OPEC) and U.S. companies, as well as any geopolitical events that could affect oil production. However, despite an inability to pinpoint potential inflection points, Paschall said the global crude-oil market looks to remain over-supplied for 2016 and 2017: "We're not going to see $75 or $80 per barrel crude for another year or two."
Click on the image at right to see the recent history of global crude oil supply and demand, and a projection for the next five quarters of global crude-oil production.That should bode well for refiners' profit margins. However, refined petroleum products are a global commodity, and as such are subject to international laws of supply and demand. Paschall noted that about 25 million BBL/d of new crude unit capacity is scheduled to be brought online between 2016 and 2020. Most of that planned capacity--about 14.8 million BBL/d--is scheduled to be built in Asia. In North America, refiners have proposed adding about 2.4 million BBL/d of new capacity by 2020. Industrial Info does not believe all of those projects--either domestically or overseas--will move forward according to their original schedules. Still, Paschall said there were so many projects under development that refinery economics could be significantly altered over the next five years.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
