May 2020

PETROLEUM WATCH CALIFORNIA ENERGY COMMISSION

INSIDE REFINERY NEWS

Gasoline Retail Prices by Brand • Kern Oil: On April 8, a heater • Marathon Martinez: On April 27, Diesel Retail Prices by Region fire occurred at the refinery the refinery temporarily idled due due to unknown reasons to demand concerns resulting Downstream Capacity (California Governor's Office from COVID-19 (Reuters). California Refineries of Emergency Services). 2019 Net Production • Chevron Richmond: On April 22, the Bay Area Air Quality Production Share Management District (BAAQMD) of Refined Products announced that Chevron USA Featured Topic: Inc. agreed to pay $146,500 to settle air quality violations Refining Operations Under in Richmond (BAAQMD). Decreased Demand CALIFORNIA GASOLINE RETAIL PRICES BY BRAND

April 2020 vs. 2019 $4.60 (Percentage Change) $4.40 $4.20 76 26% lower $4.00 ARCO 30% lower $3.80 $3.60 Chevron 26% lower $3.40 Hypermart 33% lower $3.20 Shell 26% lower $3.00 $2.80 Unbranded 29% lower $2.60 Valero 28% lower $2.40

Dollars per Gallon (Nominal) $2.20 April 2020 Averages $2.00 76 $2.95 Jul-19 Oct-19 Apr-20 Jun-19 Jan-20 Feb-20 Mar-20 Aug-19 Nov-19 Dec-19 Sep-19 ARCO $2.64 May-19 May-20 76 ARCO CHEVRON Chevron $3.02 HYPERMART SHELL UNBRANDED VALERO Hypermart $2.47 Source: California Energy Commission (CEC) analysis of Oil Price Information Service (OPIS) data Shell $3.00 Unbranded $2.71 Valero $2.80

CALIFORNIA DIESEL RETAIL PRICES BY REGION

April 2020 vs. 2019 $4.40

(Percentage Change) $4.20

Northern CA 18% lower $4.00 Central CA 20% lower $3.80 Southern CA 18% lower $3.60 April 2020 Averages $3.40 Northern CA $3.28 Central CA $3.11 $3.20

Southern CA $3.23 Dollars per Gallon (Nominal) $3.00

$2.80 Jul-19 Oct-19 Apr-20 Jan-20 Jun-19 Mar-20 Feb-20 Aug-19 Sep-19 Nov-19 Dec-19 May-19 May-20

Northern Central Southern Source: CEC analysis of OPIS data

DOWNSTREAM CAPACITY

United States Total Refineries

U.S. Total

End−Product 80% Vacuum Hydrotreating Distillation 60%

40%

20%

0% Mid−Stage Thermal Hydrotreating Cracking

Reforming/ Catalytic Polymerization Cracking

Petroleum Administration for Defense Districts (PADD) 1

PADD I Pennsylvania

80% 80% End−Product End−Product Hydro. Vac. Dist. Hydro. Vac. Dist. 60% 60%

40% 40%

20% 20%

Mid−Stage 0% Therm. Mid−Stage 0% Therm. Hydro. Cracking Hydro. Cracking

Cat. Cat. Ref./Poly. Cracking Ref./Poly. Cracking

PADD 2

PADD II Illinois Ohio Oklahoma

80% 80% 80% 80% End−Product End−Product End−Product End−Product Vac. Hydro. Vac. Dist. Hydro. Dist. Hydro. Vac. Dist. Hydro. Vac. Dist. 60% 60% 60%60% 60%

40% 40% 40%40% 40%

20% 20% 20%20% 20%

Mid−Stage 0% Therm. Mid−Stage 0% Therm. Mid−Stage 00 %% Therm. Mid−Stage 0% Therm. Hydro. Cracking Hydro. Cracking Hydro. Cracking Hydro. Cracking

Cat. Cat. Cat. Cat. Ref./Poly. Cracking Ref./Poly. Cracking Ref./Poly. Cracking Ref./Poly. Cracking

PADD 3

PADD III Louisiana Texas 80% 80% 80% End−Product End−Product End−Product Hydro. Vac. Dist. Hydro. Vac. Dist. Hydro. Vac. Dist. 60% 60% 60%

40% 40% 40%

20% 20% 20%

0% Mid−Stage 0% Therm. Mid−Stage 0% Therm. Mid−Stage Therm. Hydro. Cracking Hydro. Cracking Hydro. Cracking

Cat. Cat. Cat. Ref./Poly. Cracking Ref./Poly. Cracking Ref./Poly. Cracking

PADD 5

PADD V PADD V (except CA) California Washington 80% 80% 80% 80% End−Product End−Product End−Product End−Product Hydro. Vac. Dist. Hydro. Vac. Dist. Hydro. Vac. Dist. Hydro. Vac. Dist. 60% 60% 60% 60%

40% 40% 40% 40%

20% 20% 20% 20%

0% 0% 0% Mid−Stage Therm. Mid−Stage 0% Therm. Mid−Stage Therm. Mid−Stage Therm. Hydro. Cracking Hydro. Cracking Hydro. Cracking Hydro. Cracking

Cat. Cat. Cat. Cat. Ref./Poly. Cracking Ref./Poly. Cracking Ref./Poly. Cracking Ref./Poly. Cracking

Notes: PADDs are geographic aggregations: PADD 1 is the East Coast, PADD 2 is the Midwest, PADD 3 is the Gulf Coast, PADD 4 is the Rocky Mountains, and PADD 5 is the West Coast. States with total crude capacity greater than 500,000 barrels per day were used in this analysis. PADD 4 does not contain any states that meet this requirement so it has been omitted from the data. Source: CEC analysis of U.S. Energy Information Administration (EIA) data

CALIFORNIA REFINERIES 2019 NET PRODUCTION

21.2% 58.3%

17.4%

3.1%

Gasoline Diesel Jet Fuel Other Products Source: CEC analysis of CEC and EIA data

PRODUCTION SHARE OF REFINED PRODUCTS

100%

90%

80%

70%

60%

50%

40% Production Percent Production 30%

20%

10%

0% Jul-19 Apr-20 Apr-19 Oct-19 Jun-19 Jan-20 Jan-19 Feb-20 Mar-20 Feb-19 Mar-19 Nov-19 Dec-19 Aug-19 Sep-19 May-19

Gasoline Diesel Jet Fuel Other Source: CEC analysis of CEC and EIA data

FEATURED TOPIC

REFINING CALIFORNIA REFINERIES PRODUCTION OPERATIONS UNDER 2,000 DECREASED DEMAND 1,800 1,600

DEMAND DECLINE 1,400

Refineries in California face an 1,200 unprecedented decrease in product 1,000 demand. Refinery operators have 800 responded by decreasing production and altering finished product output 600 where possible as shown in California 400 Thousands of Barrels Per Day Per of Barrels Thousands Refineries Production. For the week 200 ending on May 1, crude input for California refineries decreased 0 by 34.3 percent from a year ago, Jul-19 Apr-19 Oct-19 Apr-20 Jan-19 Jun-19 Jan-20 Feb-19 Mar-19 Feb-20 Mar-20 Sep-19 Nov-19 Dec-19 Aug-19 while gasoline production is down May-19 31.2 percent, jet fuel is down Gasoline Diesel Jet Fuel Other Source: CEC analysis of CEC and EIA data 71.7 percent, and diesel is down 10.5 percent. In addition, gasoline desulfurized molecules since catalytic types from EIA’s data into groups inventories are at their highest level cracking units are sensitive to sulfur. representing the four functions. in five years. One of California’s Sorting is represented by vacuum Coking units, or cokers, take the 11 major refineries, Marathon’s distillation. Breaking is represented bottoms of the vacuum distilling Martinez refinery, responsible for by thermal cracking (includes coking) and cracking processes and bakes nearly 8.5 percent of California’s and catalytic cracking (combines them at extreme temperatures. total refining capacity, went idle hydro and cat cracking). Rearranging This destroys some oil and on April 27, an indication of the is represented by combining produces carbon coke. The result unprecedented lack of demand. reforming, polymerization, and is more gas oil to feed downstream alkylation. Cleaning is represented Refineries are designed and built cracking units. Thermal crackers, by mid-stage hydrotreating with the crude oil input and product cokers included, use the higher and end-product hydrotreating. output in mind. While there is temperatures that the distillation To create these groupings, a some room for adjustment, much units avoid, because the carbon downstream unit's capacity is of the process is dictated by the coke fouls the distillation units. In calculated as a percentage of the tolerances of existing equipment. a coker, the coke is cleaned out crude distillation unit capacity. Crude distillation depends on the and sold as fuel or as precursor for composition of the crude oil input. steel and aluminum industries. Downstream Capacity shows the All other units, except distillation, are percentage of downstream capacity downstream units that allow refiners Rearranging for units in the U.S., PADDs, and greater control of final products. Rearranging units focus on states. Only states with a total crude gasoline by combining light capacity greater than 500,000 REFINERY PROCESSES molecules and reshaping them barrels per day were included in the into complex molecular shapes. analysis. These percentages offer a Oil refineries convert the mixture of This adds desirable qualities view of what a refiner expects after hydrocarbon molecules from crude oil like high octane ratings. they have run the crude unit. The into refined products that people use, area and shape show how much Alkylation and polymerization units, like gasoline and diesel. Refineries refineries rely on certain processes. or alky and poly units, take light use large processing units for four States with simple refineries molecules such as butane and major functions: sorting, breaking, will cast a narrow small shape, combine them into heavier gasoline rearranging, and cleaning. Some while states with large complex molecules. Alkylation is a newer processing units need catalysts, refineries cast a wide large shape. process using an acid catalyst which like platinum or sulfuric acid, to allows a wider range of light and California’s refineries have intensive react with the unrefined oil. Nearly gasoline molecules to combine. downstream refining versus the all the units operate by changing United States in every category temperature, pressure, and the The isomerization unit, or iso but end-product hydrotreating. movement of fluids. The sorting units unit, converts straight-line California refiners have a higher mid- is the first stage at most refineries. shaped molecules into branched stage hydrotreatment percentage. shapes of the same weight. The California’s vacuum distillation and Sorting resulting hydrocarbons usually thermal cracking percentages are Sorting units separate the have higher octane ratings. higher against the U.S. total, 62 heavy hydrocarbon molecules percent against 47 percent, and from the lighter molecules. The catalytic reforming unit, or cat reformer, converts low- 25 percent against 15 percent, The crude distillation unit, or crude quality (low octane) gasoline into respectively. These units work on unit, is the primary sorting unit and higher quality by rearranging the the heavy products, meaning that the centerpiece of most refineries. molecules using a catalyst. As a California refineries are refining By boiling the crude oil, the unit side effect, the unit generates some crude oils expecting as much as 62 separates the crude into light and light hydrocarbons, like methane, percent as atmospheric bottoms heavy hydrocarbons: gasses (e.g., and splits off extra hydrogen. The to be sent to vacuum distillation propane), gasoline, jet fuel, and hydrogen becomes feed for cleaning (32 percent more than what an diesel. Refineries are boiling the (hydrotreating) and breaking units. average national refiner deals with) crude without burning it, leaving the and expecting a further 25 percent bottom of the crude distillation unit Cleaning as vacuum bottoms to be sent to with heavy unsorted hydrocarbons. Cleaning units remove sulfur, metals, thermal cracking (66 percent more salts, and other non-hydrocarbons than the national profile). The higher A secondary distillation unit, the out of the crude oil mixture. Sulfur volume of vacuum bottoms may vacuum distillation unit, takes forms compounds in hydrocarbons be driving the need for California’s the heavy oils and remaining that are corrosive, explosive, and intensive mid-stage hydrotreatment, material, commonly referred to dangerous in downstream units and which produce gas oils that require as the bottoms, from crude units create acid rain when burned in fuel. cleaning after coking is completed. and boils them again at a lower pressure to expand the sorting Hydro-desulfurization units, DECREASED PRODUCTION LEVELS process. The resulting products hydrotreaters, use a process are called gas oils and are heavier similar to hydrocracking, but leave California’s Refineries 2019 Net than diesel. Gas oils are too heavy molecules unbroken since only sulfur Production shows that 58.3 percent for everyday use and are refined is removed. These units can be used of the state's production is gasoline. further using breaking processes. to clean feeds like gas oil headed to Diesel and jet fuel account for cat crackers or for cleaning gasoline, 21.2 percent and 17.4 percent of Breaking diesel, and jet fuel, before sale. the slate, respectively. Production Breaking units, or cracking units, Share of Refined Products shows crack very heavy molecules into MEETING ALTERED DEMAND how the percentage of refinery lighter ones. Thermal cracking uses products changed in April. This extreme heat. Catalytic cracking uses Engineers and analysts look at chart displays monthly data through catalysts to speed up the process. downstream unit capacity to project March 2020 and uses weekly data California refineries use three types fuel production and find ways to shift for April 2020 to better illustrate of breaking processes: hydrocracking, production of fuels in emergencies. the production shifts. Even though catalytic cracking, and coking. Units are limited by the capabilities crude oil input was down by a third, of other units. For example, all units gasoline never dropped below 50 Hydrocracking units take gas oils, depend on the crude unit, since this percent of total production. By April add hydrogen and metal catalyst at is the only unit that can process raw 17, diesel production increased to high temperature and pressure to crude oil. Therefore, the capacity 34.2 percent, while jet fuel dropped break gas oils up into mainly diesel of the refinery is limited by the to 7.2 percent. California refineries and jet fuel-sized molecules. As a crude unit. Similarly, every cracking are currently built to produce bonus, hydrogen attaches to sulfur, unit is limited by the capacity gasoline. California refineries can allowing input of dirtier gas oils of the vacuum distillation unit. increase diesel production, but at while producing cleaner outputs. Downstream units and capacities the expense of jet fuel. Compared Fluid catalytic cracking units, or cat for each refinery in the United to other regions, California’s more crackers, use specialized catalysts States are collected by the EIA. complex refineries may be more to break gas oils into mainly gasoline California Energy Commission flexible and better situated to and lighter molecules with higher staff combined the diverse unit handle this change in demand. octane ratings. This unit is fed only

Gavin Newsom Karen Douglas, J.D. CALIFORNIA Governor J. Andrew McAllister, Ph.D. ENERGY Patty Monahan David Hochschild Commissioners COMMISSION Chair Drew Bohan Janea A. Scott, J.D Executive Director Vice Chair FOR MORE INFORMATION Instagram California's Petroleum Market Twitter LinkedIn Weekly Fuels Watch Subscribe

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