U.S. refineries along the East Coast and the Midwest are facing their first major test of the winter season since last year's blistering cold set off a string of outages, sending gasoline and diesel prices soaring.
Freezing temperatures have descended upon the U.S. Northeast and Midwest ahead of a potentially historic storm that threatens to dump as much as 24 inches (61 cm) of snow in parts of the I-95 highway corridor running between Boston and Washington this weekend, according to the National Weather Service.
Temperatures are also expected to remain below 20 degrees Fahrenheit (-7 degrees Celsius), about 10 to 15 degrees below normal.
Marathon Petroleum's refinery in Catlettsburg, Kentucky emerged over the long weekend as the first victim of this year's freezing temperatures, shutting down several key units after pipes froze in single-digit temperatures. Workers were struggling to restart the units on Tuesday.
Although most refineries, particularly those in northern climes, are designed to operate throughout the winter, increasingly extreme weather conditions in recent years have tested their resilience. Last February more than a third of the East Coast's capacity was abruptly shut down due to glitches.
"At 30 degrees and 10 inches of snow, we're ok. At 15 degrees, and 10 inches of snow, there could be problems," said one East Coast refinery worker.
Operators are expected to call in additional workers later this week or at the weekend if the storm hits to help apply steam to pipes and gauges to prevent freezing, according to industry sources at the region's refineries.
Some have already applied the lessons learned last year.
At Delta Airlines' refinery outside of Philadelphia, among the hardest hit by the cold last year, workers spent a good portion of the last year identifying and eliminating idle sections of piping within the plant, known as "dead legs," a source familiar with the plant's operations said on Tuesday.
Those segments, which can explode or snap as the residual product in the line expands and contracts, were partly responsible for glitches that shut down much of the plant for nearly two weeks last year, the source said. Its supply of water used for coolant had also frozen.
"It was a big priority," the source said.
Monroe Energy, the subsidiary of Delta that runs the plant, did not respond to requests for comment.
Additional refinery glitches could offer some relief to traders who have voiced fears that a rapidly growing surplus of diesel fuel - swollen by the lack of demand for heating fuel during the warmest fourth quarter on record - coupled with an emerging excess of gasoline could trigger a renewed slump in oil prices.
Gasoline demand, along with healthy margins, have been the one bright spot in the collapse in oil prices. The RBOB crack LRBc1-LCOc1, an indicator of profit margins for refining crude into gasoline, settled at $15.70 per barrel Tuesday, nearly double the $8.65 per barrel a year ago.
Gasoline inventories on the East Coast have risen the past four weeks to 62.9 million barrels, while distillate stocks are at the highest levels in the region for this time of year since 2007, according to the U.S. Energy Information Administration.
"We have plenty of product, so a disruption may not be a bad thing," John Auers, a vice president at Turner Mason, said. "Also, the cold weather is a welcoming thing from a distillate demand standpoint."
Last winter, freezing temperatures caused a spate of refinery problems, particularly on the East Coast.
During four weeks of February, when plants would normally have been running flat out due to robust profit margins and intense winter demand, output dropped 40 percent to 773,000 bpd REFCR-1-EIA, one of the lowest weekly rates ever recorded, according to Energy Information Administration data. It rebounded in March as they recovered.
For the moment, U.S. plants are still running at breakneck rates. The U.S. refinery utilization rate last week was 91.2 percent, among the highest levels ever for this time of year, EIA data shows.
At Phillips 66's 238,000-bpd Bayway refinery in Linden, New Jersey, the largest in the region, they're also bracing for the cold weather and potential storm. Last year it suffered delays in restarting a crude unit after planned work. Severe cold froze lines that fed the system.http://www.reuters.com/article/refinery-operations-winter-idUSL2N1532FX