A major fire was reported on Monday at Chevron‘s (NYSE:CVX) refining facility in Richmond, California. While the extent of the damage is not known, the mishap could result in lower refining throughput for the company at a time when oil majors are depending on rising downstream margins to counter the impact of drop in energy prices. Some preliminary reports suggest that the accident could hamper the operations at the refinery for months.  According to the company, the fire has been contained but not fully extinguished.
We have a $115 price estimate for Chevron, which is at a 5% premium to its current market price.
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The Richmond facility has a capacity of 245,000 barrels per day (b/d)  and contributes significantly to Chevron’s overall refining input in the U.S., which stood at 928,000 b/d in the last quarter.  According to reports, the fire started at the refinery’s only crude unit. Damage to a refinery’s crude distillation unit can take months to repair and can severely limit operations. Crude distillation units break down crude into feedstock for all other units in a refinery. According to the plant manager, some of the units in the facility continued to operate despite the fire. Lower throughput could dampen Chevron’s downstream earnings in the U.S., which contributed about 11% of its overall earnings in the last quarter.
A prolonged loss of production at the Richmond refinery could raise the price of refined products in the West coast.  In particular, the price of gasoline in California could go up as the state mandates high cleanliness standards. Experts say that Chevron may find it difficult to replace the loss of output, which could impact its marketing operations over the next couple of months if the damage to the facility results in a prolonged shutdown.
- Richmond refinery fire could affect gasoline prices: analysts (mercurynews.com)