REFINERY MARGIN TRACKER: European margins rise as natural gas prices fall

Strong points

Rising LNG flows in Europe weaken natural gas prices

Exports of clean products from ARA to USAC increase due to better economy

European margins rose as increased natural gas supply reduced the region’s record prices, reducing the cost of operating many fuel-dependent plants, boosting margins and increasing exports of refined products from the region. region, according to an analysis by S&P Global Platts shown Jan. 18.

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About 80% of all European refineries depend on natural gas to power their plants, with refineries located in major oil refining centers like Amsterdam-Rotterdam-Antwerp in northwestern Europe getting virtually all their electricity from gas natural.

They were paralyzed by the record price of natural gas in Europe. However, the increase in LNG imports is contributing to lower prices.

“European demand elasticity has finally emerged as global LNG buyers find opportunities to burn cheaper fuels or temporarily reduce industrial production. This has been key in allowing TTF to achieve a premium over to JKM last month, triggering the current surge in LNG deliveries to Europe,” Platts Analytics said in a research note.

ARA refining margins for Urals and WTI MEH increased for the week ended Jan. 14, according to margin data from Platts Analytics, with Urals coking margins averaging $7.76 /b against $7.52/ba the previous week.

Regional refinery variable costs, which include refinery electricity expenses, fell to $1.55/bbl for the week ended Jan. 14 from $1.86/bbl the previous week.

ARA crack spreads for WTI MEH also improved, averaging $7.72/bbl for the week ended January 14, from $6.81/bbl the previous week. The quality of lighter, sweeter crude for WTI MEH reduces the amount of energy needed to process the crude, with variable costs dropping to $1.14/bbl for the week ended Jan. 14, from $1.40/bbl the previous week.

According to valuation data from Platts, Europe’s leading natural gas benchmark, the Dutch TTF contract, which averaged a record high of $31.14/MMBtu in the fourth quarter of 2021, fell, averaging 27 $.78/MMBtu so far in Q1 2022.

In Asia, the price of JKM, which serves as a benchmark for LNG prices in the major LNG markets of Japan and Korea, averaged $34.89/MMBtu in the fourth quarter of 2021. It fell in the first quarter of 2022 and averages $26.06/MMBtu for the quarter to date.

As North West European LNG prices remain above the JKM price, increasing supply in Europe, concerns remain. European importers face a shortage of LNG slots in the region, keeping a floor below the TTF price. Stored European gas also fell to 47.6% of capacity, from more than 60% in the same period in 2021, while unplanned shutdowns at the Troll field in the North Sea were extended, officials said. market sources.

The price gap for LNG cargoes from the U.S. Gulf Coast, which were priced by Platts at a $2.58/MMBtu discount to TTF in Q4 2021, widened to a Average rebate of $2.95/MMBtu so far in Q1 2022, according to Platts price assessments.

No more demand for switching from gas to fuel

European margins were also supported by the increase in demand caused by the switch from fuel to petroleum, as more refiners use the fuel created in their plants as a source of energy.

Platts Analytics estimates that in January the switch from gas to oil will add 500,000 bpd to demand in the global market, with European refiners accounting for around 150,000 bpd.

While USAC Ural crack spreads averaged $10.20/bbl for the week ended Jan. 14, according to Platts Analytics, removing the cost of RINs due to the USAC Renewable Fuels Standard. ‘Environmental Protection Agency margin fell to $6.53/bbl, below that of the Northwest. Europe Margins of the Urals.

USAC natural gas prices due to colder than normal weather are also eating into margins, averaging $2.01/bbl for the week ended Jan. 14, from $1.54/bbl the previous week.

As margins between USAC and Northwestern Europe narrow, exports of gasoline and diesel from Northwestern Europe increase. According to commodity tracker Kpler, clean product exports from Europe to USAC are expected to average 517,000 bpd for the week ending January 21, up 203,000 bpd from the week. previous.

US Atlantic Coast Refining Margin Averages ($/bbl)

US Gulf Coast refining margin averages ($/bbl)

US Midwest refining margin averages ($/bbl)

US West Coast Refining Margin Averages ($/bbl)

Average refining margins in Singapore ($/b)

Average ARA refining margins ($/b)

Average refining margins in Italy ($/b)