Jones Act Waiver Product Flow Can’t Fill Asian Import Void for US West Coast: Marathon Exec
Domestic refined product deliveries to the U.S. West Coast driven by the a waiver of the Jones Act requirements are not enough to overcome a lack of typical Asian imports due to the Middle East conflict, Marathon Petroleum Chief Commercial Officer Rick Hessling said Tuesday.
During Marathon’s second-quarter earnings call, Hessling told analysts that systemwide consumer demand for the largest U.S. refinery operator has been resilient across gasoline, diesel and jet, both domestically and internationally.
In addition, the owner of 13 U.S. oil refineries expects a strong global economy to support diesel and jet consumption after distillate exports rose to a record in Q2, he said.
The refining industry has been operating in a “max diesel” mode for a significant period of time in response to a global diesel supply deficit, and that’s starting to put pressure on gasoline supply and increase gasoline crack spread, Hessling said.
Hessling expects more refined product volatility in the near term, citing elevated turnaround maintenance for the refining industry during Q3 and possible supply shortfall during the Atlantic hurricane season.
“Any refining disruption as you’ve seen over the last couple of months, it really doesn’t matter what region you’re in … it is proving to cause significant outsized market moves. And we just see a lot of that continuing to happen here as we look forward through the end of the year and beyond,” he said.
In the U.S. West Coast, Marathon has taken advantage of the Trump administration’s waiver of the Jones Act that currently allows foreign-flagged ships to operate within U.S. waters, supplying the region with fuel from domestic refineries, Hessling said.
“The Jones Act waiver is allowing us and the rest of the industry to make movements from the Gulf Coast into the West Coast, but those movements aren’t enough to overcome the lack of Asian imports that are not coming in as they usually would due to the Middle East conflict,” he said.
Marathon operates the 384,500 b/d Los Angles and 125,000 b/d Anacortes, Wash., refineries in the West Coast.
Two California refineries — Phillips 66’s 147,000 b/d Los Angeles and Valero Energy’s 150,000 b/d Benicia refineries — have shut within the past 10 months, citing the difficult operating environment in the state.
Hessling said Marathon is “extremely well positioned” with its Los Angeles and Anacortes refineries to meet demand, especially with the upcoming scheduled turnarounds for other West Coast refineries.
Marathon also expects three projects at its U.S. Gulf Coast refineries to be in service by 2027, including one to increase crude throughput by 30,000 b/d and another to boost 10,000 b/d of premium gasoline export at its 649,000 b/d Garyville, La., refinery, as well as a 90,000 b/d hydrotreater project to hike ULSD supply at its 665,000 b/d Galveston Bay, Texas, refinery.
The company posted Q2 net income of $5.138 billion, up from $1.216 billion in the year-ago quarter, lifted by the widened discount of Canadian heavy crude versus oil benchmarks.
In California, Marathon ran twice as many in-state crudes than normal in Q2 due to lower prices following the recent closures of the Phillips 66 and Valero refineries, Hessling said.
During the quarter, the company also bought discounted crude inventory from the U.S. Strategic Petroleum Reserve, consumed a record amount of Canadian heavy oil for its Gulf Coast refineries, and more than doubled its use of Venezuelan crude compared to Q1, he said.
–Reporting by Frank Tang, ftang@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
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