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Outage at ExxonMobil refinery expected to impact market

Explosion and fire at ExxonMobil refinery in Torrance, California expected to affect gasoline supply
Outage at ExxonMobil refinery expected to impact market

On 18 February 2015, an explosion and fire occurred at the ExxonMobil refinery in Torrance, California. The Torrance refinery, the third-largest refinery in southern California, has about 20% of the region's fluid catalytic cracking capacity and is an important source of gasoline and distillate supply. Based on publicly available information, it can be estimated that Torrance produces about 117,000 bbl/d of gasoline (about 15-20% of southern California's supply) and about 50,000 bbl/d of distillate and jet fuel (about 10% of southern California supply).

Unplanned refinery outages can have noticeable impacts on liquid fuel markets, disrupting supplies of gasoline and distillate, particularly in regions that are tightly balanced, such as Petroleum Administration for Defense District (PADD) 5 (West Coast). While refineries make arrangements for alternative sources of supply during periods of planned maintenance to ensure that supply obligations are met, it sometimes takes days or weeks for markets to adjust to the sudden loss of production when an unexpected outage occurs. As a result, unplanned outages often result in a reduction in supply that causes prices to increase, sometimes dramatically. The severity and duration of these price spikes depend on how quickly the refinery issue can be resolved and how soon supply from alternative sources can reach the affected market. The recent incident at Exxon's Torrance refinery in southern California is a case in point.

PADD 5 is relatively isolated from other US markets and located far from international sources of supply, so the region is very dependent on in-region production to meet demand. Additionally, California's more-restrictive gasoline specifications (CARBOB) limit the availability of supply from other markets. Mainland PADD 5 has three distinct supply/demand centers and is geographically separated from other markets by mountains to the east and the Pacific Ocean to the west. As a result, moving product to southern California requires long lead times

West Coast product markets reacted immediately to the potential loss of supply from the Torrance refinery. Spot prices in Los Angeles (LA) for California Reformulated Blendstock for Oxygenate Blending (CARBOB) gasoline increased US$0.22 to $2.02 per gallon (gal) between 17 February and 23 February. Spot

CARBOB prices increased from $0.25 premium above the New York Mercantile Exchange (Nymex) Reformulated Blendstock for Oxygenate Blending (RBOB) front month futures contract, a standard pricing basis for gasoline, to $0.41 above over the same time.

This rapid price response is not unusual and is similar to what happened following past unplanned outages. During a series of West Coast supply disruptions in 2012, LA-CARBOB spot prices spiked higher to $1.16/gal over the Nymex RBOB front month contract (Figure 2). The 2012 spot price spikes, as well as price spikes during supply disruptions in California in 2008 and 2009, resulted in price increases that persisted for an average of eight weeks and took, on average, two weeks to be passed through to retail prices.

On 23 February, average regular retail gasoline prices in California were $0.63/gal higher than the US average, at $2.96/gal. California retail gasoline prices are typically $0.30-$0.40/gal above the national average retail gasoline price. PADD 5 as a whole had an average price of $2.76/gal.

The most immediate source of replacement product supply on the West Coast is regional inventories. As of 20 February, diesel fuel inventories in PADD 5 are above the five-year average, and as a result supply is likely to be adequate assuming no additional disruptions or increases in demand. As of 20 February, total PADD 5 gasoline inventories were just under 31 million barrels, sufficient to supply approximately 20 days of demand. However, EIA does not collect product inventories below the PADD level, and therefore does not know the inventory held in southern California. In addition, product exports from the region, to the extent they meet CARBOB specifications (and not all do), could be diverted to meet local demand.

Replacement supply could also reach southern California from a variety of locations outside the region, with differing logistical limitations and lead times. Potential sources of alternative product supply include refineries in northern California and the Pacific Northwest, the US Gulf Coast (USGC), and imports.

Refineries in northern California as well as Tesoro's Anacortes refinery and BP's Cherry Point refinery in Washington State can produce CARBOB. In addition, some refineries along the US Gulf Coast (USGC), a region that produces more gasoline than is consumed locally, and can also produce CARBOB.

Resupply from these refineries, which would require a US coast-wise compliant vessel, could take three to four weeks to reach southern California, taking into account both the time needed to manufacture and deliver CARBOB. CARBOB may also be available from SK Energy's refinery in South Korea. Shipping product from Asia could take about four weeks.

EIA will continue to monitor West Coast product prices as the market responds to the unexpected loss of supply. As with previous disruptions, prices should stabilize as more information about the severity and duration of the expected outage becomes available.

Gasoline and diesel fuel prices increase

The US average price of retail gasoline rose six cents from the week prior to $2.33/gal as of 23 February 2015, down $1.11/gal from the same time last year. The West Coast price increased 14 cents to $2.76/gal. East Coast and Rocky Mountain prices rose five cents, to $2.30/gal and $2.04/gal, respectively. Midwest and Gulf Coast prices increased four cents, to $2.27/gal and $2.11/gal, respectively.

The US average price of diesel fuel increased four cents to $2.90/gal, $1.12 per gallon less than the same time last year. Only the Rocky Mountain price decreased, falling by a penny to $2.76 per gallon. The West Coast price increased seven cents to $3.07/gal. The East Coast price rose five cents to $3.01/gal, followed by the Midwest price which rose three cents to $2.87/gal. The Gulf Coast price increased by a penny to $2.80/gal.

US propane stocks decreased by 2.2 MMbbl last week to 59.2 MMbbl as of 20 February 2015, 32.6 MMbbl (122.1%) higher than a year ago. Gulf Coast inventories decreased by 1.0 MMbbl and East Coast inventories decreased by 0.7 MMbbl. Midwest inventories decreased by 0.5 MMbbl while Rocky Mountain/West Coast inventories remained unchanged. Propylene non-fuel-use inventories represented 7.5% of total propane inventories.
Residential heating oil price increases while residential propane price decreases.

As of 23 February 2015, residential heating oil prices averaged nearly $3.19/gal, almost $0.15/gal higher than last week, and $1.06/gal less than last year's price for the same week. Wholesale heating oil prices averaged $2.30/gal, nearly $0.19/gal higher than last week and almost $1.09/gal lower when compared to the same time last year.

Residential propane prices averaged $2.35/gal, less than $0.01/gal lower than last week, and $1.12/gal less than the price at the same time last year. The average wholesale propane price increased by almost 3 cents per gallon this week to $0.75/gal, $1.09/gal lower than the 24 February 2014 price.

Image from EIA

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