Clean fuel boost for US oil refineries

Oil refineries are seeking to capitalise on new international rules requiring cleaner-burning fuels on ocean-going ships.

Foundation work for a new hydrogen plant at of PBF Energy's Delaware City refinery.

The oil refinery owned by PBF Energy near Delaware City town was mothballed nearly a decade ago. Today it is running almost full bore, and PBF and a business partner are spending $US100 million to expand it.

The refinery is seeking to capitalise on new international rules that require cleaner-burning fuels on the world’s ocean-going ships from January 1.

US refiners are anticipating a bonanza. The industry estimates it has spent $US100 billion ($144bn) on upgrades in the last decade to make cleaner fuels, putting it in a position to boost revenues if the rules raise the demand and prices for the products it makes, as many expect.

The new rules were met with scepticism by the Trump administration and others concerned about the impact on jobs and energy prices. At places like Delaware City, however, the upgrades required to meet the new standards have translated into more good-paying jobs, said James Maravelias, president of the Delaware Building Construction Trades Council.

As car makers and chemical plants have left the region, he said, refiners have become some of his members’ most reliable employers. “Energy is pretty much it for us,” said Mr Maravelias, who is based out of Newark, Delaware. “There’s no other industry that’s bringing in those kinds of jobs to Delaware right now.“

At refineries, maintenance work, usually done when the refinery is shut down, often employs 1200 people at a time, Mr Maravelias said. And expanding the plant in Delaware City suggests a future full of even more of those tune-ups and more work to go around, he added.

A rosy outcome isn’t certain for everyone affected — other sectors, countries and even refiners — but some analysts and economists are expecting that a boost for refiners will have a wide-ranging positive impact. With record US fuel output leading to more exports and fewer imports, more revenue stays within the country, often reinvested.

Strong investment usually produces more economic growth than does strong consumption, said Kevin Book, managing director of the analysis firm ClearView Energy Partners LLC. So he expects US refiners would profit and that rising investment would produce a net benefit for the economy even if consumer prices rise.

“More money for US refiners is generally good news,” Mr Book said. “It’s awfully hard to argue that in the aggregate this is bad news.”

The marine-fuel rules were imposed by the International Maritime Organisation, an arm of the United Nations, with the aim of lowering sulphur pollution that can cause respiratory ailments and aggravate heart disease.

A fast way for ships to come into compliance is to switch to more low-sulphur diesel or similar fuels known as distillates. Many expect that to cause a surge of demand and price increases for those fuels. While that could help the refiners that make them, retail consumers could be hit because that type of fuel is widely used as heating oil in the Northeast.

They could face price increases for diesel and distillates of 5 per cent to 20 per cent due to the UN rules, analysts estimate. That has raised concerns at the White House about rising energy prices in an election year.

In October, the White House started a push to soften early enforcement of the rules, slowing a rollout over several months. Shares of independent refiners plummeted after The Wall Street Journal reported the effort.

The full implications of the rules weren’t well understood, and dire initial economic forecasts caused fear, said Mandy Gunasekara, a senior policy adviser at the Environmental Protection Agency until earlier this year. As people learned more, those fears receded and officials better understood how the US might benefit. “The US is in very good standing because of forward-looking investments by our refiners,” said Mrs Gunasekara, who now runs a strategic-communications business.

White House advisers haven’t ruled anything out, but they have stopped actively trying to slow the rollout, according to lobbyists and analysts familiar with the matter. US officials didn’t again broach the proposal to delay the rules during IMO committee meetings in London two weeks ago, according to analysts and interest groups that attended or followed the meetings. That was the last round of meetings before the sulphur cap takes effect.

“The United States is not seeking to change the existing IMO 2020 deadline that was certified in October 2016. We are continuing to assess the macroeconomic impacts of implementation to consumers and industry,” a senior administration official said.

More-recent economic changes and forecasts have reduced the urgency to intervene. Crude prices are down 23 per cent from a four-year high in October.

Crude prices are likely to go lower next year, despite changes from the IMO, the Energy Information Administration has said in recent months.

“The US refining sector is actually going to ensure the world market is prepared,” said Brendan Williams, PBF’s in-house lobbyist in Washington. “We hope there’s a better understanding of not just the preparedness, but the benefits … that could happen to the US economy.”