End the moratorium on investment in conventional (not renewable) fuels refining

Biden ideas to reduce fuel prices:

    Ban exports = BAD IDEA

    Windfall tax = BAD IDEA

    End moratorium on investment for conventional (not renewable) clean fuels = GREAT IDEA

Question from Petroleum Quarterly Technology, 4Q2022 issue:

In view of the recent wave of refinery closures, including five in the US during 2021 and other closings, what technologies and market strategies are emerging to keep plants operating?

Answer from George Hoekstra, President, Hoekstra Trading LLC, george.hoekstra@hoekstratrading.com

According to American Fuel and Petrochemical Manufacturers, the US has lost 1.1 million barrels/day of refining capacity since early 2020, and other refineries are ‘on the bubble’. Valero’s CEO Joe Gorder, when asked in their April 2022 earnings conference call about the possible purchase of the Lyondell Houston refinery, sounded bearish, saying Valero’s experience in buying such assets indicates “it’s going to cost $3 billion to get it up to a Valero standard, and I look at it maybe that wasn’t exactly the best thing.” When I followed up and asked Valero’s Investors’ Relations whether the $3 billion was needed for safety, environmental, reliability, or profitability improvement, they said it was for reliability and profitability.

My research says refiners have been investing for safety, environmental, reliability, and diversification into other businesses, but around 2014 they stopped investing in technology for the profitable manufacture of conventional clean fuels for the US market.

The sudden halt in conventional fuels refining investment was an abrupt change in investment strategy. According to EPA, 85 US refineries installed new FCC feed pretreaters or gasoline desulphurisers in 2000-2005 to meet the US Tier 2 clean gasoline sulfur standard, which was phased in from 2004-2006.

    85 US refineries installed new FCC feed pretreaters or gasoline desulphurisers in 2000-2005 to meet the US Tier 2 clean gasoline sulfur standard

That came immediately after a similar round of investments to meet the ultra-low sulphur clean diesel (ULSD) specification. Those investments in the first decade of this century did much more than merely comply with clean fuel specifications. In retrospect, they unquestionably paid off handsomely in higher profitability.

    But then investment in US conventional fuels refining suddenly stopped.

But then investment in US conventional fuels refining suddenly stopped. During the six-year phase-in for investment for Tier 3 gasoline, 2014-2019, US refiners made almost none of the anticipated $3 billion+ capital investment that was understood by all to be needed. As a result, many US refineries today are producing much less on-spec gasoline marketable in the US.

In my opinion, to keep US refineries operating, profitable, and healthy, we need an immediate reversal of this sudden, unprecedented halt in investment in conventional clean fuels refining technology.

Much is being made of the US losing 1 million barrels/day of crude refining capacity. But what about the record levels of US fuels exports to Mexico, Central and South America? According to a July 2022 detailed study, the US is exporting nearly 1 million barrels/ day of both gasoline and diesel to Mexico, Central and South America. Conventional wisdom says these fuel barrels are being exported because of global economics and because we cannot move them to where they are needed in the US.

I wonder whether the gasoline barrels we are exporting even meet US clean fuels specifications? I think not – so if we quit exporting them, they would not add to US gasoline supply anyway – they would be downgraded barrels, too high in sulfur and/or low in octane to be suitable for sale here.

    Unless we want our fuel supply to go the way of California’s electric grid, it is time for refiners to start investing again in conventional fuels refining technology, starting with gasoline desulphurisation.

Unless we want our fuel supply to go the way of California’s electric grid, it is time for refiners to start investing again in conventional fuels refining technology, starting with gasoline desulphurisation for Tier 3 compliance.

Recommendation

Every refining executive should have a comprehensive understanding of the technical, regulatory, and economic aspects of Tier 3 gasoline, the sulfur credit program and how they affect your business. Those wanting a quick education on the Tier 3 issue should get the short book, Gasoline Desulfurization for Tier 3 Compliance, which will make you an expert in a day. Once you have become expertly informed of the problem, you can save yourself and your team years of research by buying Hoekstra Research Report 8. We saw the problem coming, gathered the required data, ran the simulations and analyzed the results so you and your team can concentrate on initiating informed strategies that will immediately go to the bottom line. The report includes detailed pilot plant and commercial field test data, full detail of sulfur credit pricing, spreadsheet models to help improve gasoline optimization, investment decisions, sulfur credit strategy and refining margin capture in the Tier 3 world.

Don’t get caught panic buying after the credits spike.