Released on February 21, 2008
(Next Release on February 27, 2008)

Lost and Found Refinery Capacity
Losing an important item or document usually brings a moment of frustration, while finding a forgotten $20 bill often brings a moment of joy. In the gasoline supply business, however, recent history has taught us that "lost" or "found" refining capacity can have longer-lasting effects on pump prices.

As the winter draws to a close, well ahead of the summer driving season, gasoline prices are already rising, reaching $3.04 per gallon this past Monday. While increases over the past year have been driven mainly by rising crude oil prices, which closed over $100 per barrel (or $2.38 per gallon) on Tuesday for the first time ever, unusual refinery outages also contributed to gasoline price pressure in 2006 and 2007. Will unusually tight refining conditions contribute this spring, adding even more pressure to gasoline prices?

EIA expects refinery outages in late spring and early fall, since that is the time between peak heating and driving seasons when refiners typically do most of their planned maintenance. As noted above, the United States experienced higher than usual losses of refinery capacity for the past two years. From January through May 2006, U.S. refinery capacity was still reeling from the damage caused by Hurricanes Rita and Katrina during the latter half of 2005. The Gulf Coast suffered significant capacity losses, but over the course of 2006, most hurricane-affected capacity recovered. Yet, as the 2007 driving season approached, significant refinery outages once again limited production.

As shown in Figure 1, both planned and unplanned refinery outages were high in early 2007, but unplanned outages were exceptionally high relative to 2002-2005, averaging over 480 thousand barrels per day, which was more than 2 to 3 times levels expected in a more normal year (based on Industrial Information Resources, Inc. data base). More than half of the unplanned capacity lost during January-May 2007 was associated with BP's Texas City refinery and Valero's McKee refinery. The McKee refinery was offline from February through late spring 2007. BP's refinery suffered a tragic explosion in 2005 before the hurricanes, but additional damage after the hurricanes was discovered that required keeping about half of the 417 thousand-barrel-per-day refinery capacity offline. While BP indicated that the refinery potentially would return to full service sometime in early 2008, it remains partially off line to date, although indications are that BP plans on beginning the restart process for this off-line portion of the refinery soon.

Figure 2 shows refinery outages during January through May for Petroleum Administration for Defense Districts (PADDs) 1-3 combined, essentially the area east of the Rocky Mountains. The figure shows outages both for crude unit distillation capacity and for fluid catalytic cracking or FCC capacity. The FCC unit is a primary gasoline-producing unit in refineries. As such, when it is out of service, gasoline production from a refinery is significantly reduced, if not stopped entirely. The converse is not always true. Some refineries planning crude distillation unit outages are able to bring in feedstock for the FCC unit, which allows them to continue to produce most, if not all, of their usual gasoline volumes for some time. A refinery's ability to keep the FCC unit running depends on its access to FCC feedstock and its equipment to handle outside deliveries and storage to run in this manner.

Based on earlier EIA analysis,¹ the higher FCC and distillation outages in PADDs 1-3 in 2007 would be expected to have reduced gasoline production by about 120-150 thousand barrels per day during January through May 2007, compared to 2005, i.e., compared to pre-hurricane levels.

In PADD 5 (West Coast), distillation outages were much higher in 2007 than outages seen since 2002. However, FCC outages were not exceptionally high. Much of the crude distillation outage volume can be attributed to a fire that preceded a planned outage at the Chevron Richmond refinery's 240 thousand barrel-per-day distillation unit. Based on a commercial outage report,² the duration of the actual outage was more than double the planned outage period, and accounted for about half of the total capacity offline January through May, 2007 in the West Coast region.

What about 2008? Right now, the situation looks promising. Availability of refinery capacity for 2008 may be significantly improved over 2007. Given lower planned outages scheduled for this spring season, and assuming the return of unplanned outages to more typical levels, including the return of BP's Texas City refinery to full operation, gasoline production could increase from 100 to 200 thousand barrels per day over last year's level. The uncertainty behind the timing of the return of BP's Texas City refinery, and the recent tragedy at Alon's 67 thousand-barrel-per-day Big Spring refinery are a reminder of the seriousness of this business and of how quickly incidents can turn the supply situation around. Nevertheless, the likelihood of improved production availability over 2007 levels seems relatively high to EIA. At least some of the "lost" 2007 capacity appears likely to be "found."

Residential Heating Oil Prices Jump Higher
Residential heating oil prices increased markedly during the period ending February 18, 2008, the 20th week of the survey this season. The average residential heating oil price set a new all-time nominal high record with a gain of 9.1 cents last week to reach 339.6 cents per gallon, which was an increase of 94.7 cents from the 20th reporting period last year ending February 12, 2007. Wholesale heating oil prices rose by 8.3 cents to reach 274.2 cents per gallon, which was an increase of 92.6 cents compared to last year.

The average residential propane price decreased slightly, by 0.3 cent, reaching 254.9 cents per gallon. This was an increase of 52.9 cents compared to the 202.0 cents per gallon average for the same period last year. Wholesale propane prices increased by 3.2 cents, from 144.3 to 147.5 cents per gallon. This was an increase of 38.3 cents from the February 12, 2007 price of 109.2 cents per gallon.

Gulf Coast Diesel at Highest Level in History
The U.S. average retail price for regular gasoline jumped 8.2 cents to 304.2 cents per gallon as of February 18, 2008. This was the highest price since January 14, and was 74.6 cents higher than price a year ago. On a regional basis, prices rose throughout the country compared to the previous report. Prices on the East Coast increased 6.9 cents to 304.6 cents per gallon. This was the highest price since January 21 and 80.2 cents per gallon above last year. The Midwest price soared 10.4 cents to 304.6 cents per gallon, 76.1 cents per gallon more than last year. The Gulf Coast price remained the lowest on a regional basis, increasing by 9.0 cents to 294.1 cents per gallon, 81.0 cents per gallon above the price a year ago. The Rocky Mountain price increased the least of any region, up by 2.4 cents to 295.9 cents per gallon, 77.3 cents higher than the previous year. Prices on the West Coast remained the highest on a regional basis as the price increased by 7.7 cents per gallon to 313.7 cents per gallon, 54.1 cents higher than the price last year. The average price for regular grade in California moved up by 8.3 cents to 319.1 cents per gallon, 48.1 cents above the price a year ago.

Unlike last week when, on a national basis, the retail diesel fuel price was unchanged, this week the national average price climbed by 11.6 cents to 339.6 cents per gallon. This was the highest price since December 3, 2007 and was 90.5 cents per gallon higher than a year ago. Prices increased in all regions of the country. On the East Coast, prices were up by 12.0 cents to 344.4 cents per gallon. This was 96.5 cents per gallon higher than the price a year ago. In the Midwest, the price increased by 11.6 cents to 336.5 cents per gallon. The price in the Gulf Coast area increased the most of any region, up by 12.8 cents to 336.7 cents per gallon. This was the highest price ever in that region and was 94.9 cents above the level a year ago. The price in the Rocky Mountains was the lowest of any region last week, moving up by 8.6 cents, to 335.0 cents per gallon, 83.3 cents above the price a year ago. On the West Coast, the average price increased by 10.7 cents to 345.4 cents per gallon, 67.0 cents higher than the price a year ago. The price in California grew by 11.8 cents to 351.1 cents per gallon, 61.0 cents more than a year earlier.

Propane Inventories Resume Seasonal Decline
Following a one week slowdown, primary supplies of propane resumed their sharp seasonal decline last week that measured 2.8 million barrels, lowering inventories to an estimated 34.0 million barrels as of February 15, 2008. Nevertheless, total propane inventories remain a modest 0.7 million barrels below the same period last year based on weekly data, the narrowest year-over-year difference seen so far this heating season. Regional activity showed a gain in East Coast inventories of 0.2 million barrels, but declines in all the other regions that totaled 1.2 million barrels in the Midwest, 1.4 million barrels in the Gulf Coast, and 0.4 million barrels in the combined Rocky Mountain/West Coast region. Propylene non-fuel use inventories fell last week by 0.2 million barrels and accounted for a slightly higher 7.0 percent share of total propane/propylene inventories, compared with 6.9 percent share from the prior week.

Registration Now Open for EIA Energy Conference on April 7-8
Registration is now open for an energy conference that EIA is holding in Washington, DC on April 7-8.  To see the exciting agenda planned and to register for the free conference, please go to: http://www.eia.doe.gov/eia_conference_2008.html.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.