U.S. refiners step up imports of West African crude

U.S. refiners last quarter imported West African oil at the highest rate in nearly three years, customs data showed, buying the gasoline-friendly crudes as they boosted motor fuel production to meet summer driving demand, as per Reuters.

Imports from West African nations, primarily by East Coast operations of PBF Energy, Phillips 66 and Monroe Energy, were at least 11.6 MM barrels in the second quarter, U.S. customs and ship-tracking data on Refinitiv Eikon showed, the highest since the third quarter of 2019.

Imports rose even as prices for Nigeria's Qua Iboe and Yoho crudes touched record levels. Qua Iboe averaged a $4.20 premium to dated Brent in the quarter. U.S. gasoline demand has climbed. Consumption of finished motor gasoline reached 9.4 MM barrels per day, the highest since the end of 2021, according to the U.S. Energy Information Administration. East Coast gas prices were USD4.50 to USD5 per gallon.

West African imports spiked in May with 5.2 MM barrels being discharged in the United States, more than doubling from April. Light oil, like that from West Africa, typically produces a greater percentage of gasoline than heavy oil. "Some refiners have been forced into running more light sweet in lieu of Russian sour," a seller of West African crude said. The United States in March banned imports of Russian crude and refined products over Moscow's invasion of Ukraine, which it calls a "special operation."

The U.S. share of West Africa light sweet crude imports climbed to about 20% last month, from about 8.2% before Russia's invasion, said Houston-based independent energy strategist Clay Seigle, citing data from energy analytics firm Vortexa. Asia's share fell to about 23% from 42%. Imports of Arab light and extra light sour crude grades in June also touched their highest since May 2020, at 19.3 MM barrels.

As per MRC, Oil refining company and labor union representatives pressed the U.S. Environmental Protection Agency at a virtual meeting last week to lower costs of the nation's biofuel blending program when it resets the policy next year, according to sources familiar with the call. The refining industry and unions representing its workers have grown more concerned about the impact of an expected overhaul of the Renewable Fuel Standard (RFS). It requires refiners to blend billions of gallons per year of biofuels like ethanol into the nation's fuel or buy credits called RINs from those that do. When Congress enacted the RFS in 2005, it set yearly volume requirement targets of renewable fuel through 2022 and gave the EPA broad authority to reshape the policy after that. The EPA is expected to propose changes by mid-September.
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The prices of renewable identification number (RIN) credits—a compliance mechanism used for the Renewable Fuel Standard (RFS) program administered by the U.S. Environmental Protection Agency (EPA)—have remained high in 2022, said Hydrocarbonprocessing.

So far this year, RINs generated by biomass-based diesel (biodiesel and renewable diesel) production, known as D4 RINs, peaked on April 28 at USD1.91 per gallon (gal), and RINs generated by ethanol production (D6 RINs) peaked on June 7 at USD1.68/gal, close to the high prices seen in 2021.

The RFS program sets annual targets, also called Renewable Volume Obligations (RVOs), for the amount of renewable fuels that must enter into the U.S. fuel supply to increase biofuels use. Petroleum refiners and importers of motor gasoline and diesel comply either by blending biofuels into petroleum-based fuels or by purchasing RIN credits. In general, RIN credit prices increase for two reasons.

The first reason RIN prices increase is when the cost of a biofuel is higher than the petroleum fuel it is blended into. In this case, blenders sell the RIN at a higher price so that they can offset the costs of the more expensive feedstock and continue blending at levels suitable for RFS compliance. Rising global demand for the agricultural feedstocks used to make biodiesel fuels has made biodiesel more expensive than petroleum diesel, driving D4 RIN prices higher in 2022 and creating an incentive to blend biodiesel and renewable diesel.

At its peak on April 28, the U.S. Gulf Coast spot price for biodiesel reached $8.36/gal. Even when accounting for a $1.00/gal biodiesel tax credit that blenders receive for blending biodiesel, biodiesel spot prices were more than $3.00/gal more expensive than the USD4.30/gal U.S. Gulf Coast spot price for ultra-low sulfur diesel. This difference has decreased slightly since then to USD2.52/gal as of July 11 but remains a large enough difference that high D4 RIN prices are needed to drive enough blended fuel to meet the RFS targets.

The second reason RIN credit prices increase is when RFS targets are set at a higher level than normal market-driven biofuel consumption can support. In this case, a higher RIN price encourages blending to the higher target level. The value of the higher RIN provides an incentive for blenders and retailers to offer higher biofuel blends at discounted prices to encourage higher consumption of biofuels to meet the increased RFS targets. So, the recent increase in D6 RIN prices is likely due to the higher RFS target announced by EPA on June 3, 2022.

The EPA announcement set the implied RVO target for ethanol at the statutory maximum of 15 B RINs, the same as in 2019. This target is an increase from 2020 and 2021 targets, which were lower because of reduced driving demand during the COVID-19 pandemic.

We remind, Oil refining company and labor union representatives pressed the U.S. Environmental Protection Agency at a virtual meeting last week to lower costs of the nation's biofuel blending program when it resets the policy next year, according to sources familiar with the call. The refining industry and unions representing its workers have grown more concerned about the impact of an expected overhaul of the Renewable Fuel Standard (RFS). It requires refiners to blend billions of gallons per year of biofuels like ethanol into the nation's fuel or buy credits called RINs from those that do. When Congress enacted the RFS in 2005, it set yearly volume requirement targets of renewable fuel through 2022 and gave the EPA broad authority to reshape the policy after that. The EPA is expected to propose changes by mid-September.
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Neste has received a positive grant decision for up to EUR 135 MM from the EU Innovation Fund for the company’s project to build chemical recycling capacities at its Porvoo refinery in Finland, said the company.

Project PULSE (“Pretreatment and Upgrading of Liquefied Waste Plastic to Scale Up Circular Economy”) aims to implement Neste’s proprietary technologies to pretreat and upgrade liquefied waste plastic and integrate the technologies into the refinery operations. The PULSE project targets pretreatment and upgrading capacities of 400,000 tpy contributing to Neste’s goal of processing over 1 MMtpy of waste plastic per year from 2030 onwards. A feasibility study evaluating the investments related to PULSE was announced in March 2022. Investment decision readiness is targeted for 2023 and gradual implementation is expected to start in 2024.

Project PULSE plays an important role in commercializing chemical recycling of waste plastic as it allows scaling up chemical recycling and bridging the quality gap between unprocessed liquefied waste plastic and the petrochemical industry’s raw material requirements. Once scaled up, chemical recycling can contribute to combating waste plastic pollution by increasing recycling rates for plastics and reducing dependence on virgin fossil resources.

"We are excited to be among the projects selected by the EU Innovation Fund,” says Mercedes Alonso, Executive Vice President Neste Renewable Polymers and Chemicals. “While showing recognition for and faith in our work on chemical recycling, the funding also highlights the importance of the approach itself. If we want to move towards a circular economy for polymers and chemicals, chemical recycling will have a major role to play."

The EU Innovation Fund is one of the world’s largest funding programs for the demonstration of innovative low-carbon technologies. This year, the Fund grants more than EUR 1.8 billion to 17 large-scale projects contributing to a low-carbon society. Following the positive grant decision, individual grant agreements will be prepared with the European Climate, Environment and Infrastructure Executive Agency (CINEA) in charge of the Innovation Fund.

As per MRC, Neste has made the final investment decision to invest into new renewable products production capacity in Rotterdam. The decision is based on demand for renewable products growing substantially with customers' higher climate ambitions. Neste’s current 1.4 MMt capacity for renewable products in Rotterdam is the largest in Europe. The Rotterdam refinery expansion investment of approximately EUR 1.9 B will expand Neste’s overall renewable product capacity by 1.3 MMtpy, bringing the total renewable product capacity in Rotterdam to 2.7 MMt annually, of which sustainable aviation fuel (SAF) production capability will be 1.2 MMt. The company’s target is to start up the new production unit during the first half of 2026.
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A new battle for control of Citgo Petroleum, the eighth largest U.S. oil refiner and Venezuela's foreign crown jewel, could soon be unleashed under a proposed management shake-up by the South American country's opposition lawmakers, said Reuters.

The revamping would come despite the company posting strong profits after two years of losses and could lead to executive departures, experts and current board members said. The lawmakers say they want to shore up the stability of Citgo after three years of frequent reshuffles and as the political environment in Venezuela looks set to shift.

However, the U.S. State Department is worried that the changes could trigger a messy fight for control, two people involved in talks about the topic said. Washington has pressed Venezuelan lawmakers to stabilize the country's foreign operations.

Citgo, a subsidiary of state-run oil firm PDVSA, is currently run by boards appointed by Juan Guaido, whom Washington recognizes as Venezuela's legitimate leader. It views President Nicolas Maduro's 2018 reelection as a sham. But the power of Guaido has been waning, and some opposition politicians fear that his mandate as leader of Venezuela's parallel "interim government" may not be renewed in January.

Arguing that greater stability was needed, they approved a deal last month to move the power of board appointments for Citgo and Venezuela's other foreign assets from Guaido to a new super-advisory council. The three-member council, to be appointed by the lawmakers, will also supervise and evaluate Citgo's performance, proposing changes and designing legal strategies with the intention of protecting the refiner and the other companies abroad. Citgo and the U.S. State Department declined to comment.

The move was led by parties including Primero Justicia, which has called for all Venezuelan assets overseas to be transferred to an independent body. Julio Borges, Primero Justicia's leader, said new structure was needed to save Citgo and other holdings from meddling by individual parties. "We must take them away from political control," Borges told Reuters. Gustavo Marcano of the Primero Justicia party said the council "is a first step in giving greater stability to the foreign companies before any possible political changes."

After revisions that gave Guaido a say in the boards' make-up, Guaido's Voluntad Popular party agreed to the pact, two sources close to the decision said. Guaido's final approval will still be required for ratifying Citgo executive appointments.

As per MRC, Citgo Petroleum is willing to resume imports of Venezuelan crude, suspended since 2019 by Washington's sanctions on its parent company PDVSA, if the U.S. government authorizes the flow. Since March, top U.S. and Venezuelan officials have been engaged in political negotiations that could lead to Washington easing oil trading sanctions that have hit the OPEC country's production and exports. OPEC and the French government, representing Europe, have called for Washington to allow Venezuelan and Iranian crude to flow to consuming nations that are struggling to replace Russian energy supplies during the war in Ukraine.
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Shell Chemicals Park Moerdijk, a subsidiary of Shell, announced a new investment that supports its plan to transition the chemicals park into a site able to serve the changing needs of the customers, said Hydrocarrbonprocessing.

Customers want more low-carbon products and products made using recycled material. Shell Moerdijk will build a new pyrolysis oil upgrader unit that improves the quality of pyrolysis oil, a liquid made from hard-to-recycle plastic waste and turns it into chemical feedstock for its plants. The investment marks a first major step in transitioning the park, within ten years, by increasing the use of circular and bio-based feedstocks, growing its offer of low-carbon products and becoming net-zero emissions through the application of hydrogen and CCS.

To achieve these ambitions, Shell intends to invest billions in Shell Moerdijk's chemical complex over the next decade, subject to investment decisions and within existing capital allocation frameworks.

The new pyrolysis oil upgrader unit treats liquid made from plastic waste that cannot be mechanically recycled and would otherwise be incinerated. Expected to start production in 2024, the unit will have a capacity of 50,000 tons per annum, which is the equivalent to the weight of about 7.8 B plastic bags; and supports Shell’s ambition to recycle one million tons of plastic waste in its chemicals plants by 2025. Shell will use the treated pyrolysis oil to produce circular chemicals which are the ingredients used in many end products that are all around us. The investment responds to growing customer demand.

An important step to achieve net zero by 2032 is hydrogen. Shell Chemicals Park Moerdijk is developing plans, pending final investment decisions, to build a facility that will produce hydrogen from the residual gases from the Park’s production process. Shell will use this hydrogen to heat the industrial furnaces. The aim is to capture and store the CO2, a residue in the process of making hydrogen, in old gas fields under the seabed.

In addition to the use of circular pyrolysis oil, bio-based feedstocks can be used. In 2021, Shell decided to invest in the construction of a biofuels facility at Shell Energy and Chemicals Park Rotterdam. The biofuels facility is currently being built and is expected to start production in 2024.

Shell looks at doubling the number of plants at Shell Chemicals Park Moerdijk in the coming decade, subject to investment decisions. The expansion will support the introduction of a number of new products with a lower carbon footprint, while meeting society’s increasing demand for these.

As per MRC, Shell said surging demand for oil products that had almost tripled refining profits in the second quarter would boost earnings by up to USD1.2 bn. In an update before second quarter results on July 28, Shell also said it would reverse up to USD4.5 B in writedowns on oil and gas assets after it raised its energy prices outlook following Russia's invasion of Ukraine. Earnings from oil and refined products trading were expected to be strong in the quarter but lower than the first quarter of 2022, Shell said.
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