Coronavirus Crisis Prompts Martinez Refinery to Cut Back, Sell Hydrogen Plants

The Martinez Refining Company facility pictured in August 2018, when it was owned by Shell.  (Justin Sullivan/Getty Images)

PBF Energy, the New Jersey-based company that recently bought Shell's refinery in Martinez, plans to sell two hydrogen plants at the facility for hundreds of millions of dollars.

The sale comes as PBF and other oil companies scramble to cut costs and raise revenue as shelter-at-home orders imposed around the United States have drastically reduced travel and slashed demand for gasoline and other fuels.

"All companies will be looking for ways to survive this 'demand side' shock," said David Hackett, president of Stillwater Associates, a firm that specialized in analyzing the transportation fuels market.

"Some will shut their refineries down while others will be operating at minimum levels through this crisis," Hackett said in an email.

Plummeting demand has driven the average cost of a gallon of gas in California below $3 for first time in close to three years, according to AAA. Nationwide, the average price for a gallon of regular gasoline is $1.93, AAA says, with Wisconsin reporting the lowest prices — just $1.44.

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The dramatic decrease in driving has also had an upside, with Bay Area air quality officials reporting declines in pollution levels.

The state's refineries are taking in and processing less oil, according to the most recent weekly fuels watch report from the California Energy Commission. The agency's snapshot, from the last week of March, shows declines in both the volume of crude coming into California refineries and in their output of gasoline, jet fuel and diesel.

The decline in demand comes at the same time global oil prices have been depressed by a dispute between Saudi Arabia and Russia.

PBF has seen its stock price fall 83% from its 2020 high — from $33.19 in mid-January to $5.76 on Friday — and says its decision to sell the Martinez hydrogen plants is designed to raise capital and reduce debt.

In announcing the sale last week, the company said its refineries are running at 30% of capacity and that it would need to significantly cut spending, including on the newly acquired Martinez refinery.

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PBF plans to sell five hydrogen plants nationwide to Air Products and Chemicals for $530 million.

The company said in a statement the sale is "part of a strategic plan for PBF to navigate current extraordinary and volatile markets" and dubbed its moves as "aggressive steps to increase PBF's flexibility and responsiveness."

Hydrogen plants are used by refineries to help separate sulfur from crude petroleum as they produce gasoline, jet fuel and diesel.

There are three such plants at PBF's Contra Costa County facility, formerly owned and run by Shell, which is now called the Martinez Refining Company. Air Products, a Pennsylvania-based industrial gases company, has owned one of them since 1996.

PBF plans to retain its Martinez refinery employees who work at the plants, according to company spokesman Michael Karlovich.

"They are cross-trained on other refinery assets, which we highly value," Karlovich said. "PBF Energy remains fully committed to the Martinez Refinery and its workforce," he said.

The other three hydrogen plants that are subject of the sale are located in the Los Angeles suburb of Torrance and Delaware. The deal is expected to close during the third quarter of this year, according to Air Products.

After the sale, PBF plans to pay Air Products to continue producing hydrogen for the Martinez refinery.