Crude oil inventories in the U.S. have slumped to their lowest levels in more than three years, fueled by high exports and near-record refinery performance. The massive influx of business means many refineries will need to undergo maintenance-related turnarounds--many of them unplanned--to stay in shape.

Industrial Info is tracking more than $3 billion in planned turnarounds at Petroleum Refining facilities in North America, including $2 billion that are projected to begin within the next 12-month period. A solid majority of the total--more than $2.3 billion--are within the U.S., which the U.S. Department of Energy divides into five Petroleum Administration for Defense Districts (PADD).

Crude runs in PADD II, which covers the U.S. Midwest region, should be lower due to planned work at Marathon Petroleum Company's 93,000-BBL/d Canton Refinery in Ohio and Valero's 180,000-BBL/d Memphis Refinery in Tennessee. PADD III, which covers the U.S. Gulf Coast, recently saw a jump in unplanned maintenance from two major events: a shutdown at Phillips 66's 250,000-barrel-per-day (BBL/d) Alliance Refinery in Louisiana that will last two and a half weeks, and increased work at Motiva's 238,000-BBL/d Norco Refinery in Louisiana.

According to a report earlier this month from the U.S. Energy Information Administration (EIA), Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) remains the No. 1 refiner in the U.S, with a capacity of nearly 2.2 million BBL/d.

Turnaround Activity

For the refinery turnaround schedule 2018, we project $1.7bn worth of turnaround activity, which is an increase from the amount in 2017. Some of the planned maintenance slated for Q3 are associated with damaged units and have naturally been delayed and pushed into 2018.

For the current 12-month outlook period covering Q2 2018 into Q1 2019, there are 220 maintenance and turnaround projects valued at $1.61bn. Our longer-term projections for shutdown activity from our turnaround forecast model indicates 2018 could be a peak year, both in terms of dollar spent and the number of projects, with some softening seen into 2019.

The onset of seasonal refinery turnaround schedules has meant that utilization rates have declined over February. EIA data shows refinery utilization for February at 89.6%, lower than the 94.7% and 91.8% seen in December and January, respectively.

The EIA estimates Q1 2018 utilization at 90%, followed by 93% in Q2. Overall utilization in 2018 is pegged at 91.75%, higher than in 2017. Petroleum product exports, after a strong 2017, have started to moderate over the first few months of 2018, with the January to March 16 period posting a y-o-y decline of nearly 2%. Some of this decline can be attributed to the onset of seasonal maintenance across U.S. refineries.

U.S. refiners continue to adjust their operations and allocate expenditures to modify process units to take advantage of discounted domestic crude supply and invest to build greater levels of crude processing optionality.

The reason for the drop in current crude runs can be clearly attributed to an increase in turnaround activity. IIR’s CDU outage tracking on the week of July 16th 2018 moved up 437 kbd due to a combination of planned and unplanned refinery shutdown events.

The two events that most moved the needle were the unplanned shutdown of Alliance (expected to last through the week of July 20) and the unexpected change in magnitude for the Norco planned maintenance event (will extend through the week of August 3). Together, these two events sent Padd 3 crude runs down 262 kbd on the week, and will potentially move rates lower for the future weeks to come.

The biggest influencer as to how the outage activity plays out will be down to current crude run rates. As inventories fall because of the increase in domestic and export demand, this is leading to refiners ramp up production activity.

This is resulting in much higher utilization rates, the highest we have seen in 12 years. Our longer-term projections for turnaround activity, from our turnaround forecast model, indicates 2018 could be a peak year, both in terms of dollars spent and the number of projects.

Refinery Project and Maintenance Spending

Compared with Europe and the Middle East, U.S. refining margins are quite high, which has led to recent refinery utilization rates of 99% or higher in parts of the U.S., hitting a record run rate of almost 18 million BBL/d in August. It really comes down to the spread between Brent and WTI. As long we continue with this wide spread of $5 to $10 with WTI priced lower, it has an advantage to the U.S. refiners.

Industrial Info is tracking about $30 billion of North American Refining activity planned to kick off in 2019 and 2020. About $10 billion is related to grassroot spending. We have one refinery that's under construction. We're tracking another eight that may or may not begin construction in the next two years." U.S. demand for refined products is softening, which could curtail some of this planned construction.

Among the Refining projects garnering funding are crude slate changes in the U.S. to process more sweet crude, as produced in shale formations. Also on the books are projects to comply with Tier 3 low-sulfur specifications, which reduce the sulfur content of gasoline from a maximum of 30 parts per million (ppm) to 10 ppm.

Industrial info is tracking $4.5bn of crude unit spending. These projects are associated with expanding, upgrading or revamping crude processing units at existing refineries between 2018-19.

For the whole of 2018, we project $1.7bn worth of refinery turnaround activity, which is an increase from 2017. Some of the planned turnarounds slated for this quarter are associated with damaged units and have been delayed and pushed into 2018.

For the current 12-month outlook period covering Q2 2018 into Q1 2019, there are 220 planned maintenance and turnaround projects valued at $1.61bn.

Outside Texas, most of the refining projects are related to upgrades or maintenance. Delek Group Limited (Herzlia, Israel) is preparing for $20 million in Tier 3-related upgrades to its refinery in El Dorado, Arkansas, which includes constructing a selective hydrogenation unit (SHU) that would increase its hydrotreating capacity from 8,000 to 11,200 BBL/d, while Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) expects to finish a $10 million wastewater treatment plant upgrade at its refinery in Garyville, Louisiana, which includes the addition of a 25,000- to 30,000-gallons stainless steel tank.

We do expect, however, some softening into 2019. The average project size for the next 12-month outlook period has seen a slight increase from the previous $6.8mn to around $7.4mn, but projects range from $1mn to $45mn.

Key Planned Refinery Shutdown Updates Include:

• IIR has confirmed that Motiva has cancelled plans to perform 40 days of repairs previously scheduled to begin on July 21, 2018 on their 81,000 b/d FCCU 3 at its 600,000 b/d Port Arthur, Texas refinery. The unit experienced catalyst issues earlier this month that have since been resolved. The FCCU continued to operate at normal rates throughout the issues. The next planned maintenance event for the FCCU is scheduled for First Quarter 2020.

• Husky Energy, remains idled at its 45,000 b/d Superior, Wisconsin refinery after a fire and explosion occurred at the facility on April 26, 2018. Plant personnel now hope to complete extensive repairs and restart the facility by late April 2020, although it could possibly take longer. The fall 2018 planned maintenance has been cancelled as this work is now ongoing and will be performed during the extended facility downtime.

• Delek, has rescheduled a 40 day plant wide maintenance turnaround at its 65,000 b/d Big Spring, Texas refinery. The work will now take place in February 2020 instead of September 2019.

• Valero, has accelerated planned maintenance on the 95,000 b/d Crude 2 at its 170,000 b/d McKee Refinery located in Sunray, Texas. The unit will now perform planned repair starting in March 2019 instead of October 2020 as previously reported. At that time additional planned maintenance will be performed on the 30,000 b/d Hydrocracker and the 18,000 b/d Reformer 2.

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