A refining capacity shortage is looming globally and could materialize as soon as next year, the chief executive of Phillips 66 told Bloomberg in an interview.
The potential shortage would be triggered by capacity shutdowns, Mark Lashier said, as some refiners succumb to low refining margins. The closures could take 700,000 bpd off the market, he added.
“The US has become very competitive in refining,” Lashier said. “We’re able to compete out in the world global markets.”
Lashier’s bullish predictions come soon after reports that U.S. refiners were planning production cutbacks due to low margins. Bloomberg reported in mid-August that Marathon Petroleum planned to reduce its capacity utilization rate to 90% at all its 13 refineries, which is down from 97% for the second quarter. PBF Energy was going to cut its processing rates to the lowest in three years.
Valero Energy would be reducing its operating rate from 3 million barrels daily to 2.86 million bpd. This is the lowest processing rate in two years. Phillips 66, for its part, was planning to cut processing rates to the low 90s in terms of capacity, which would be down from 98% in the second quarter—the highest in five years.
“Compressed refining margins are setting up the stage for another round of heavy refinery maintenance in the US during the fall season,” Vikas Dwivedi, global oil and gas strategist at Macquarie, told Bloomberg also last month. “That’s going to weigh on balances and may add to crude builds in the US for the rest of the year.”
Phillips 66’s Lashier acknowledged the U.S. fuels market has been well supplied this year amid flat to weak demand, but still expects a global shortage of refining capacity next year, which could broaden markets for U.S. refiners, which can remain profitable at margins that would force the closure of refining facilities elsewhere.
