(Bloomberg) – Marathon Petroleum Corp, the largest independent oil refinery in the United States, has said it will not restart two refineries in California and New Mexico, despite concerns that fuel demand is unlikely to return to pre-levels. pandemics this year.
Both refineries were inactive in April as Covid-19 decimated the demand for refined products such as gasoline and jet fuel. Marathon said Martinez and Gallup had been targeted on May 5 during its first quarter earnings because they are the most expensive of its 16 refineries. He assumed that demand for products would improve enough to restart them later this year. Subsequently, gasoline demand improved briefly after a number of states attempted to reopen their economies around Memorial Day, then stopped as Covid-19 raged again.
London-based consultancy Energy Aspects says global refining capacity is excessive and existing refineries will be driven by new online facilities that can operate more efficiently, forcing some shutdowns of older sites. Project that global demand will not return to pre-coronavirus levels until 2022.
“WE. The demand for gasoline may never return to normal,” Amrita Sen, chief oil analyst and co-founder of Energy Aspects, said in an interview, “The demand is falling and, if anything, Covid is accelerating it.” .
Martinez was also under pressure because California’s environmental regulations increase operating costs in its busy refining market. “The situation in the West Coast market, which had long been a refinement of capacity, has been exacerbated by the destruction of demand caused by Covid 19,” said Andy Lipow, president of Lipow Oil Associates in Houston, in an interview.
California gas demand, the state with the most registered vehicles in the country, is around 60 percent of pre-Covid levels, according to the California Fuels and Convenience Alliance.
The Marathon, which acquired Martinez and Gallup 2018 when it bought its rival Andeavor for $ 23.3 billion, may have had to face high-cost refineries in its portfolio that require expensive capital expenditure, says Lipow. “In the face of falling demand, it made more sense to shut them down.”
Gallup’s closure is not surprising, said Jon Sudduth, senior North American analyst for Energy Aspects in Houston. It is in a very small market and its regional source of crude production has decreased with the drop in drilling, which would have forced the Marathon to find another, perhaps more expensive, supply, he said.
The company plans to begin a gradual reduction of staff in the two refineries in October. The marathon will report second quarter earnings on Monday.
(Updates with analyst comment to the 5th paragraph)
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