Refinery Overhauls to Crimp US Oil Output // California Budget Deficit Curbs Climate Goals // Japan's Power Titan Scouts Long-Term Ammonia Deals

Refinery Overhauls to Crimp US Oil Output

U.S. oil refiners are planning twice as many refinery overhauls this spring as usual. They aim to resume maintenance that was delayed by the pandemic and by enticing record-high margins.

"A lot of plants didn't want to shut down last year when margins were strong, but they have to get this work done," John Auers, refining analyst with Refined Fuels Analytics, told Reuters.

Data provider IIR Energy and Reuters report that at least 15 U.S. oil refineries plan maintenance ranging from 2 to 11 weeks through May.

"The size of the planned outages suggests supplies of gasoline and diesel could tighten and margins rise as the European Union's Feb. 5 ban on imports of Russian petroleum products takes effect, increasing the call on U.S. fuels," reports Reuters.

By mid-February, U.S. refiners will drop around 1.4 million barrels per day of processing capacity. That's double the five-year average, according to IIR's analysis.

However, new capacity should come to market soon. Exxon's $2 billion expansion of its Beaumont, Texas refinery, Iraq's Karbala oil refinery which is expected to start in March, and a second leg of Kuwait's 615,000 barrel per day al-Zour refinery due to start up next quarter are all waiting in the wings.

California Budget Deficit Curbs Climate Goals

California's latest proposed budget for 2023-2024 has a $22 billion deficit, forcing the state to cut back on some of its climate and decarbonization programs.

"The new 2023-2024 budget proposal issued by Gov. Gavin Newsom retains 89 percent of previously budgeted climate measures, cutting them to $48 billion from $54 billion, according to a summary put out by the governor's office," reports California Energy Markets. "The $297 billion capital budget includes about $224 billion for the state's general fund."

"It was crystal clear where things were going, even last year," Governor Gavin Newsom said at a Jan. 10 news conference. Newsom stated that state officials expected a deficit was on the horizon and that the majority of the surplus revenue from previous budgets was for one-time spending. "Nothing about this presentation should surprise anybody, especially those who have written about it," he said, in reference to a recent Legislative Analyst's Office report that had a similar analysis.

The cuts were achieved through delayed spending, reductions and pullbacks, funding shifts, trigger reductions, and limited revenue generation and borrowing.

The Zero Emission Vehicle program's cuts include a $1.1 billion decrease in funding for ZEV adoption programs from $10 billion over five years to $8.9 billion. The cuts come from reductions in funding for equitable ZEV programs and infrastructure, heavy-duty ZEVs and supporting infrastructure, ZEV mobility for low-income communities, and demonstration and rail projects in high-carbon-emitting sectors.

Additionally, funding for COVID-19-related utility customer arrearage programs, the Residential Solar and Storage Program, the Long Duration Energy Storage Program, and the CEC's carbon-removal program have been reduced. The state plans to seek federal funding to offset these cuts, taking advantage of provisions in the Inflation Reduction Act.

Japan's Power Titan Scouts Long-Term Ammonia Deals

Jera Co., Japan's top power producer, will kick off one of the largest global auctions to buy ammonia as a clean-burning fuel.

"Jera will conduct an international competitive bid for as much as 500,000 tons of fuel ammonia a year from fiscal 2027 into the 2040s, and is looking to also participate in the production projects," reports Bloomberg. "A joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co., Jera is targeting to have its domestic coal power plants operate on 20% ammonia by the early 2030s and 100% by mid-century."

Jera signed a memorandum of understanding last year with Norway-based Yara International and Japanese oil refiner Idemitsu Kosan Co to introduce clean ammonia to Japan. Japan's national energy strategy now includes ammonia and hydrogen for the first time and aims for the two fuels make up 1% of the nation's energy mix by April 2030.

According to estimates from the Ministry of Economy, Trade and Industry, if all major power producers in Japan were to run coal-powered plants with 100% of the fuel source, Japanese utilities would need 100 million tons of ammonia a year.

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Conversation Starters

1. Australia's New South Wales is going to level the playing field for coal producers. "New South Wales will require thermal coalminers reserve as much as 10% of their output for domestic coal-fired power stations and other users in a bid to share the burden more fairly among producers," reports BBC. "The move, announced on Thursday, is the latest government intervention in energy markets in a bid to limit price increases and avoid a repeat of last June’s supply shortages that helped trigger a suspension of the national electricity market."

2. Nickel processing is coming to Indonesia. "Germany's BASF and French miner Eramet are finalising a $2.6 billion partnership deal to invest in a facility in Indonesia to process nickel for use in batteries for electric vehicles," reports Reuters. "The Indonesian announcement comes as Southeast Asia's biggest economy has been courting global companies to build facilities to produce EV batteries and electric cars to exploit the country's rich nickel resources."

3. China pledges to crack the whip on iron market manipulation. "Rising iron ore costs recently prompted theChinese Government to make yet another effort to curb speculation. Just last weekend, China’s National Development and Reform Commission (NDRC), the country’s economic planning organization, declared that it would 'pay close attention' to modifications in the iron ore market," reports Oilprice.com. "The agency said in a statement on Sunday that it would collaborate with the appropriate departments to 'severely crack down' on illegal activities. They cited such examples as fabricating and disseminating information on iron ore price increases, hoarding, and price gouging. The goal, they said, is to 'effectively ensure the smooth operation of the iron ore market.'"

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