LyondellBasell says considers sale of Houston refinery

LyondellBasell is "weighing strategic options" for its Houston refinery, including a potential sale, the company said Sept. 8.

While the Houston Refinery is a valuable, well-performing asset, we have long held the belief that it may be even more valuable as part of a larger refining system," Bob Patel, CEO of LyondellBasell, said in a statement. "To that end, we are actively gauging market interest in this business with the goal of delivering the greatest value to all our stakeholders."

The refinery, which expected to process 263,776 b/d of crude in 2021, ran at 248,000 b/d, or about 93% of capacity, in the second quarter, Patel said during LyondellBasell's July 30 second-quarter results call.

On that call, Patel said he expected increasing demand for refined products because of coronavirus vaccination rollouts would cause refinery results to break even in the third quarter, but the cost of complying with the US Renewable Fuel Standard and the narrowing of the light-heavy crude spread were holding them back.

"The refinery has been challenged not only from a demand standpoint, but the light heavy differential narrowing," he said. "We need a RINs reset."

RINs OBLIGATION WEIGHS DOWN ECONOMICS

The price of Renewable Identification Numbers -- the credit used by refiners to meet their RFS requirements -- rallied in 2021, as the Environmental Protection Agency worked to arrive at the renewable volume requirements for each refiner.

However, RINs prices have tapered off recently as the release of the 2021 mandated volumes have been delayed several times, while the Supreme Court has allowed small-refinery exemptions to continue, calling into question demand for renewable fuels.

Ethanol D6 RINs are averaging $1.5053/RIN so far in the third quarter, compared with the $1.6148/RIN in the second, S&P Global Platts price assessments show.

Limited blending capacity at the plant means the buyer will incur higher RINs costs, which could reach $250 million to $300 million annually, according to Credit-Suisse analyst Manav Gupta.

"This will severely limit the number of potential buyers unless there is an effective RIN resolution," Gupta said in a research note. "The asset has been underinvested and would need upfront capital and at least one major turnaround to make it more competitive."

Gupta said Phillips 66 recently said it wanted to sell its Alliance refinery in Louisiana, which gives any buyer more bargaining power.

PEMEX NOT SEEN IN THE MIX

LyondellBasell is a big buyer of Mexico's Maya crude for its Houston refinery, importing on average over 75,000 b/d in 2020, according to the Energy Information Administration, making it sensitive tothe light-heavy crude spread. So far in the third quarter of 2021, the Maya-WTI MEH spread has widened to average minus $4.78/b, out from minus $3.97/b in the second quarter and minus $2.85/b in the first quarter, according to Platts assessments.

US Gulf Coast coking margins for Maya are rising so far in the third quarter, averaging $13.64/b, up from the $11.02/b in the second, according to Platts Analytics margins data.

While the LyondellBasell refinery depends heavily on Maya crude, it is unlikely Mexico's state-owned Pemex would be a bidder for the refinery, according to some analysts.

"I would not think Pemex could be in the mix of buyers given their commitment to Deer Park and the Dos Bocas project," said Lenny Rodriguez, an analyst with S&P Global Platts Analytics.

Pemex recently closed on the $600 million purchase of the half of the Deer Park, Texas, refinery it did not own from joint-venture partner Shell, as part of Mexico's strategy to become less reliant on refined product imports.

In the Mexican state of Tabasco, the Lopez Obrador administration is building a 340,000 b/d refinery in Dos Bocas, which it expects to be operational in July 2022.