UPDATE: Multiple Fundamentals Converge, Leaving California Diesel Markets ‘Drier Than a Desert’
(Updates to add commentary from Turner, Mason & Co.)
California fuel suppliers are experiencing outages and difficulty pulling CARB diesel and renewable diesel at regional terminals, with spot market distillate prices reflecting those underlying market fundamentals in significant week-on-week moves higher, according to multiple West Coast participants.
August began the month with substantial diesel pulls, planned and unplanned renewable diesel plant work that have stymied resupply, and now the California diesel market is “drier than a desert,” one market participant said.
Trucks are reportedly taking multi-hour journeys to pick up renewable diesel or CARB diesel, the participant said.
Multiple West Coast fuel jobbers confirmed tighter renewable diesel supply and said there have been “issues” getting both CARB diesel and renewable diesel at several terminals, but did not specify where.
“It’s terrible,” a second West Coast jobber said. “Obviously, it’s rack by rack, but there are pretty much outages everywhere. June, we were flooded with product, and six weeks later, there’s nothing.”
The second jobber said they are making calls to four-plus rack suppliers before finding someone with material.
Multiple West Coast traders said a “tighter” renewable diesel market contributed to firmer diesel prices, with unconfirmed reports of maintenance at the Phillipps 66 Rodeo facility and recent work at the Marathon Martinez complex.
A second West Coast trading participant said Marathon is “back up” after a catalyst change, and added that it isn’t clear if the facility has returned to “max” production rates.
A Marathon spokesperson declined to comment on operations.
Phillips 66 has reportedly been a spot market renewable diesel buyer in recent sessions, according to the second trading participant, who said the company may be experiencing operational issues or building inventories for turnaround later this year.
A Phillips 66 representative did not immediately respond to a request for comment.
Third-quarter refining turnaround expenses for Phillips 66 were estimated between $100 million and $120 million, according to a recent earnings presentation.
“We’re also forecasting high turnarounds in ’27 and ’28 and likely more unplanned turnarounds in the near term as refiners push work out to take advantage of the higher margins,” said Brian Mandell, executive vice president of marketing and commercial, in an Aug. 5 earnings call.
Regional production of renewable diesel isn’t the only factor, traders said, citing operational issues at the St. Bernard Renewables facility in Louisiana. St. Bernard Renewables has delayed feedstock shipments due to a hydrogen supply problem, traders said. Hydrogen serves as a critical component in turning feedstocks into renewable diesel, among other things.
St. Bernard Renewables, a 50/50 joint venture between Eni and PBF, can produce 20,000 b/d of renewable diesel, according to the plant’s website.
PBF said late last month that it expects renewable diesel production at the St. Bernard Renewables facility to average between 18,000 and 20,000 b/d in the third quarter this year, which would represent a 17%-30% increase over the same period last year, if realized.
Media representatives with PBF and Eni did not respond to requests for comment.
The first jobber said the supply interruptions are an “absolute problem.” Renewable diesel railed from the Gulf Coast to California takes close to two weeks, meaning a week of downtime at a plant “takes the entire month out of play,” they said.
Eamon Cullinane, director of renewable energy markets at Dallas-based consultancy Turner, Mason & Co., said barring any hurricanes or weather events like Winter Storm Uri, unplanned outages should rarely run beyond a week or two on the system.
“SBR moves volumes into California via vessel into company and third-party racks in Southern California, but I would expect the market impact at this time to be minimal if the disruption is limited to SBR,” Cullinane said, adding that its volumes represent about 10% of the West Coast renewable diesel pool currently.
Louisiana and Gulf Coast refineries account for about 31% and 42%, respectively, of all U.S. renewable diesel refining capacity, according to an analysis by Chicago-based PLG Consulting based on U.S. Energy Information Administration (EIA) data, with SBR’s biorefinery in Chalmette, La., representing about 6.5% of total U.S. renewable diesel production capacity.
“We know of some movements of renewable diesel out of Louisiana via vessel. To go in a vessel from Louisiana to California, you would typically need to comply with the Jones Act, and you would have to route through the Panama Canal, adding cost and complexity,” Chris Bonura, managing director, ports and infrastructure development at PLG Consulting, told OPIS.
“Right now, the Jones Act has been waived because of global energy disruption within the Strait of Hormuz. The waiver data shows some renewable diesel moving between the Lower Mississippi River and California via vessel under the Jones Act waiver,” Bonura said.
A third West Coast trading participant said diesel export values have been “strong”, contributing to increased volumes leaving California, adding to the supply crunch.
In-state refinery inventories of CARB diesel for the week ended Aug. 14 increased to 1.324 million bbl from 1.161 million bbl, according to data compiled by the California Energy Commission. That’s lower than the year-ago level of 1.415 million bbl. Refinery holdings of non-California specification diesel levels dipped to 1.145 million bbl from the prior week’s 1.208 million bbl, even as refinery production increased to 503,000 bbl from 456,000 bbl.
— Reporting by Bayan Raji, braji@opisnet.com and Bryan Sims, bsims@opisnet.com
— Editing by Jordan Godwin, jgodwin@opisnet.com