Nigeria, others record lower refinery earnings

Global refinery earnings were lower in second-quarter of 2016 compared with the same period last year and are converging among different locations globally, according to the U.S. Energy Information Administration.

The agency said in a statement at the weekend, that the price difference between crude oil and petroleum products contributed to declining profits for some refiners compared with 2015.

Back home, the Nigerian National Petroleum Corporation (NNPC)’s report for the month of June 2016, showed that Nigeria’s three refineries produced 133,991MT of finished petroleum products out of 225,770MT of crude processed at a combined capacity utilisation of 12.40 per cent compared to 16.03 per cent combined capacity utilization achieved in the month of May 2016.

The NNPC said that the adverse performance was due to crude pipeline vandalism in the Niger Delta region coupled with on-going refineries revamp.

It noted that the three refineries continue to operate at minimal capacity.

For North American refiners, which EIA said for years were consistently more profitable than other refiners—were less profitable than European refiners for the second consecutive quarter,

It added that changes in North American and European crude oil price differentials are likely contributing to the convergence in profits.

EIA stated: “Recently released second-quarter statements from 27 companies show that 21 experienced a year-over-year decline in 2016 in refining profits, as measured by earnings per barrel processed.

“The decline in earnings was commensurate with the decline in crack spreads in the second quarter. In addition to changes in crack spreads, which serve as an indicator of refinery profits, earnings per barrel account for other costs, such as transportation costs and other operating expenses. Also, each refiner uses different crude oil blends and produces different yields of refined products, which will show differences among refiners in their per barrel earnings.

Analysing the group of companies by primary refining region shows refinery earnings converging over the past year.

“The group of North American refiners consist of 14 companies with operations mainly in the United States and Canada, while seven companies constitute the European group and six the Global group, so-named because its companies’ operations are geographically diversified and affected by crude oil and petroleum product prices in many regions of the world. Companies in North America and Europe, on the other hand, may be more subject to differences in local markets.

In the European market, refiners may be achieving increased efficiency through consolidating operations. The European companies in this analysis reduced distillation capacity 248,000 barrels per day in 2015, the fourth consecutive year of reductions. In addition, the crude oil market in Europe is comparatively looser than in North America, as Russian, Iranian, and Iraqi crude oil production has increased. Some refiners may be receiving lower costs for crude oil than other refiners as oil producers compete to maintain market share, which increases refinery profits. For example, the discount of Mediterranean Urals—a Russian crude oil many inland European refiners process—averaged greater than $2.00/b for most of 2016, which may have contributed to higher profits in recent quarters,” it added.