Refineries Options for Dealing with Extraordinary Times

When the ‘stay at home’ and physical distancing requirements came into effect across Canada nearly two months ago, the economy slammed on its brakes and the demand for transportation fuels decreased significantly.

Almost overnight, the companies that produce, distribute and market transportation fuels in Canada needed to respond to an unprecedented shift in market conditions while focusing on the safety and well-being of their employees and communities.  At the end of April, demand for jet fuel, gasoline and diesel had declined 80%, 45% and 20% respectively compared to the same time last year.

Responding to such an abrupt decline in demand was no small task for Canadian Fuels Association members given the complexity of refinery operations and the limited flexibility to reduce gasoline production while continuing to meet the demand for diesel essential to road freight transportation, the agricultural and resource sectors, and first responders.

Baker & O’Brien Inc., a leading petroleum industry consulting firm, recently published an interesting report that outlines the specific operating challenges that the COVID-19 pandemic presents for the refining sector.  While the focus of this report is on the US industry, it uses plain language to highlight refineries’ limited options for dealing with extraordinary times, and is equally applicable to the Canadian COVID-19 experience.

The options described by Baker & O’Brien include:

Adjusting refinery operating conditions to change the mix of gasoline, jet fuel and diesel that is produced.  There are limitations to how much this can be done.

Modifying crude slates – some crudes will yield more diesel fuel and less gasoline than other crude oils.

Reducing utilization rates – generally, refineries have the ability to reduce their crude processing rates to around 65% to 75% of their nameplate capacity. Operating below that level is generally unsustainable. 

Shutting down – this is a last resort option that can range from the shutdown of certain process units only, to a complete refinery shutdown.  

Throughout the past two months, the Canadian transportation fuels sector has demonstrated its value as well as its strength and resiliency.  While overall national refinery capacity utilization has dropped to very challenging levels (62% at the end of April according to the Canada Energy Regulator), only one refinery has shutdown. 

Canadian Fuels members remain committed to keeping the national fuels and specialty lubricants network operating while continuing to support the broader response to COVID-19 through donations and repurposing our skills and capabilities.

Extraordinary times indeed.