Phillips 66's early 2022 turnarounds to end as gasoline driving season looms

Phillips 66 expects to wrap up turnarounds underway at their refineries by mid-May as it positions itself to meet demand for the summer driving season, CEO Greg Garland said on April 29 on a Q1 results call.

"We had primarily maintenance activity in the month of March, and really the back half of March, as the weather warmed up in the north, which allowed us to get into turnaround mode again, primarily in the central corridor," Garland said, referring to Phillips 66's Midcontinent US refineries.

"We will have most of our turnaround activity wrapped up by mid-May; and certainly, all of our conversion units will be back online kind of middle the month.

"It really positions us well then to run very strong throughout the summer driving season, and we won't come back to any significant turnaround activity until after Labor Day," he added.

Phillips 66's Midcontinent refineries had a "pretty good headwind...with our lagged Canadian crude buying program", Garland said.

Phillips 66 is one of the largest importers of heavy Canadian crude, taking about 165,000 b/d of Western Canada Select into its Central Corridor or Midcontinent refineries in February, according to most-recent US Energy Information crude import data.

As prices of heavy crude rose following bans announced late February on Russian crude and petroleum products after the country's its incursion into Ukraine, Phillips 66's saw its Midcontinent refining margins negatively impacted by about $3/b.

"It has a lot to do with how quickly crude ran up, particularly in the back couple weeks of the quarter," Garland added.

Q2 utilization to rise as planned work ends

The company's Q1 refinery utilization was 89%, due in part to heavy maintenance, particularly at Phillips 66's Midcontinent refinery operations. Turnaround costs were $102 million.

Q2 refinery utilization is expected to be in the low 90% range, with turnaround expenses of $230 million-$250 million.

Phillips 66's refining segment Q1 earnings were $140 million, down from $404 million in Q4, due in part to lower clean product volumes on higher outages.

"Favorable impacts from higher margin cracks were more than offset by higher RINs costs, lower Gulf Coast product realizations and secondary margins as well as inventory impacts," said CFP Kevin Mitchell.

RINs are credits issued by the US Environmental Protection Agency's Renewable Fuel Standard and bought by refiners who cannot blend enough renewable fuels in with their hydrocarbon-based gasoline and diesel to meet their annual renewable volume obligations.

Rodeo Renewed and renewable diesel

In an effort to mitigate the cost of RINs, Phillips 66 is moving forward with plans to convert its Rodeo, California, refinery into a renewable diesel production facility, as it awaits the final permit for the project following conditional approval from the Planning Commission in Contra Costa, California. A special meeting to address the permit will be on May 3, said Bob Herman, who heads up Phillips 66's refining segment.

"Coming out of that, we would expect the Board of Supervisors to grant the permit and allow us start work shortly after that. Everything we can see, we've got good support in that community," he added.

Herman said Phillips 66 realizes there is push in California toward alternative vehicles such as EVs, but "renewable diesel is a needed fuel now, and the quicker we can get going the quicker we can get ... up and running to provide those fuels to the California public."

Tight global inventories of global diesel are making renewable diesel volumes more important.

Phillip 66's first announced renewable project, the conversion of diesel hydrotreater known as Unit 250, to run renewables, began production last April and ramped to 8,000 b/d of renewable diesel later in the year.

The company sees "profitability on that unit", Herman said, adding it's been a learning experience as to how feedstock costs like soybean oil, the price of California's Low Carbon Fuel Standard credits and RINs intersect on the commercial side as well as operational best practices for using bean oil feedstocks through the units.

"And I would add, we're able to get all the volume out of Unit 250 to the end consumer through our retail and wholesale network in California," added Brian Mandell, Phillips 66's executive vice president of marketing.

Unit 250 is a prelude to the bigger project, which is the conversion of the complete 120,200 b/d hydrocarbon refinery into a 50,000 b/d renewable fuel plant, which will start up in early 2024, depending on permitting.