Refineries in the U.S.
Refinery maintenance: two words that can have a vast impact on gasoline prices. Often quoted and heard in the media, but many motorists seem skeptical about why it can result in higher gasoline prices. Today, I aim to further explain what refinery maintenance is, and it's impact on what you pay at the pump.
Also called a turnaround, or perhaps an outage, maintenance is planned, but a refinery can also be pushed into unplanned maintenance by an unexpected problem or faster wear than expected. Planned maintenance or a planned turnaround generally has less influence on gasoline prices than unplanned or unexpected refinery issues/kinks/etc. Why? The market isn't prepared for it, and with motorists consuming millions of gallons of gasoline every day, it can result in expectations of tighter supply a midst changing demand. Especially when demand for gasoline spikes in warmer months, these issues are more likely to have a significant impact during times when demand is high or moving higher.
So what IS a turnaround?
Turnarounds are scheduled events wherein a unit (refineries usually have several different units) of a refinery is taken offline (offstream) for an extended period for revamp and/or renewal.
Turnaround is a blanket term that encompasses more specific terms such as I&Ts (Inspection & Testing), debottlenecking projects, revamps and catalyst regeneration projects. Turnarounds can also be used as a synonym of shutdowns and outages.
Turnarounds are expensive - both in terms of lost production while the process unit is offline and in terms of direct costs for the labor, tools, heavy equipment and materials used to execute the project. They are the most significant portion of a refinery's yearly maintenance budget and can affect the company's bottom line if mismanaged. Turnarounds have unique project management characteristics which make them volatile and challenging.
Refineries generally do maintenance/turnarounds during times of year when demand is weak, so that the hit to their operating revenue is not as large. Fall and late-Winter generally are the best times for this, as gasoline and general demand is weaker. If maintenance doesn't go perfectly to plan, it may go longer than expected, and cause supply issues that the market wasn't prepared for, leading to volatility and price spikes.
Due to the change the refining industry has seen- smaller refineries closing, and larger ones expanding, we have far fewer refineries than 30 years ago, and the average size of a refinery has increased dramatically, meaning when there's an unexpected outage or even planned maintenance, the stakes are even higher than they used to be.
Why do gasoline prices go up?
Mainly due to a lower output of refined products (think gasoline, diesel, jet fuel, kerosene, propane, heating oil, etc). Since demand accelerates in the spring, longer outages than expected really put pressure on prices.
When fewer refineries do maintenance, there's less an impact. Last year (2013) saw a significant schedule of maintenance across the nation's refineries. Because of the significant amount of maintenance last year, 2014 should see slightly less maintenance, and likely a difference at the pump.
If you'd like to read more on refinery maintenance,
check out this PDF overview about them. For even more reading, check out
this PDF which highlights how Valeroa achieved improved maintenance practices at its refineries.