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New Jersey Refinery Becomes Latest Casualty of Collapse in Fuel Demand

Bloomberg logoBloomberg 10/29/2020 Barbara Powell

(Bloomberg) -- PBF Energy Inc.’s Paulsboro refinery in New Jersey has become the latest oil processing facility to fall victim to a Covid-driven collapse in fuel demand, announcing plans to idle operations for the foreseeable future.

The company plans to lay off 250 employees at the 160,000-barrel-a-day plant and halt fuel production as a result of low demand, according to a letter to employees seen by Bloomberg. Paulsboro will continue its lubricant and asphalt operations, the letter said.

“The move was prompted by unanticipated, extended demand destruction for transportation fuels related to Covid-19 policies,” the letter from Chief Executive Officer Tom Nimbley said. On a call with investors Thursday, the executive said PBF is also assessing synergies between its two California refineries among alternatives to further consolidate operations. “There is more that can be achieved. Everything is going to be looked at or put under the microscope.”

The nationwide decline in fuel demand resulting from pandemic-related lockdowns and less travel have already forced the announced shutdown or repurposing of at least six refineries since March. Gasoline demand plunged in the late spring and summer and remains stuck about 8% below the five-year average, according to government data.

“With limited levers left and significant East and West Coast exposure, PBF is one of the independent refiners most vulnerable in a prolonged recovery,” Bloomberg Intelligence analysts Fernando Valle and Brett Gibbs said in a note.

Also See: Exxon to Cut 14,000 From Global Workforce Due to Oil Slump

chart: Yields on PBF bonds have surged as the company struggles © Bloomberg Yields on PBF bonds have surged as the company struggles

PBF’s $725 million in notes due in 2025 have lost more than 40% of their value in October, the worst decline among 82 securities issued by refining and marketing companies, according to data compiled by Bloomberg. The yield investors have demanded to hold the bonds surged to 32%, a level that’s considered distressed. The company’s net debt ballooned this year to $3.1 billion from $1.3 billion. The stock has slumped by 87% over the past year.

The Paulsboro plant’s fuel-making units will be taken out of service and preserved for a possible reopening in the future, according to the company’s letter. Remaining units will be used to produce partially refined intermediate feedstocks that will be sent to PBF’s Delaware City refinery to be turned into products like gasoline and diesel, the company said Thursday during its third-quarter earnings call.

The refinery is the first to be idled in the East Coast since the virus decimated fuel consumption. To date, all of the other idled refineries are located in the western U.S.

Marathon Petroleum Corp., the largest U.S. refiner, will convert its 166,000 barrel-a-day Martinez, California, refinery into a terminal facility and may add a 48,000 barrel-a-day renewable diesel plant as soon as 2022. It is also closing the 26,000 barrel-a-day Gallup refinery in New Mexico and turning its 19,000 barrel-a-day Dickinson, North Dakota, facility into a renewable diesel plant by the end of 2020.Phillips 66 is converting its 120,200 barrel-a-day Rodeo refinery near San Francisco into a renewables plant that will make so-called renewable diesel, as well as gasoline and jet fuel, out of used cooking oil, fats, greases and soybean oils. Its 44,500 barrel-a-day Santa Maria refinery to the south will shut permanently by early 2023.HollyFrontier Corp. is turning its 48,000 barrel-a-day Cheyenne, Wyoming, refinery into a renewable diesel plant by 2022.

(Updates with plans to consolidate operations in seventh paragraph.)

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