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Marathon's Heminger: Readying for Recovery
July 20, 2009

For Gary R. Heminger, there are positive indicators that the refining industry's recovery is underway.

"Motor fuels demand and refining capacity will improve with a recovering economy," said Heminger, Marathon Oil Corp.'s executive vice president and president of the company's refining, marketing, and transportation operations. "In my view, the economy has shown a few signs of an uptick and I hope that this continues to move in a positive direction."

From A Cane Field To A Flagship

Marathon aims to begin satisfying part of this additional demand in December of this year when it unveils the key asset in its refinery network: a much larger and more complex Garyville Refinery up the Mississippi River from New Orleans.

"What was originally a 400-acre sugarcane field is now a bustling city of engineers, welders, carpenters, electricians, pipefitters, and safety professionals, all working in unison to complete what will become Marathon's flagship and one of the nation's most energy-efficient petroleum refineries," said Heminger.

Heminger, who has served in his present capacity since 2005, began his career with Marathon in 1975 while earning a bachelor's degree in accounting. He has held various financial, administrative, marketing, and managerial positions within the company's U.S. and European operations. What may be the most challenging professional role yet for Heminger, who also has a master's degree in business administration, is overseeing the largest refinery expansion in Marathon's history.

The refining industry's recent slump has driven some refiners to delay or even cancel projects to expand or upgrade their facilities. Marathon, however, decided to press on with the Garyville project despite lower demand for petroleum products during the current economic downturn. "Despite the challenges, opportunities abound," said Heminger. "Those refiners that engineer the ability to access and process unconventional energy sources like acidic crude oils and bitumen blends stand to benefit in the years ahead. The key is to assure a return on capital investment through the savings gained in input costs."

In fact, Heminger contends that having the ability to assure performance efficiencies -- related to scale of operation, optimum feedstock inputs, and location advantages -- is particularly essential for a large refiner like Marathon. "Marathon has always prided itself on operating its seven refineries as a single system, rather than as discrete plants," he said. "This has been a longtime performance advantage for us."

Essentially A New Refinery

"Really we are building a brand new, full-conversion refinery, crude unit through coker, which integrates into our existing refinery," Heminger said of the Garyville project, which has supported an approximately 8,000-strong construction workforce. "It will make it the fourth-largest refinery in the U.S."

The last major grassroots refinery built in the United States, Marathon's Garyville Refinery has been in operation since 1976. In December 2006, the company launched a project to add 180,000 barrels per day (b/d) of processing capacity to the 256,000-b/d facility. The nearly $3.4-billion Garyville Major Expansion will enable the refinery to process larger quantities of economically attractive heavy crude oils. In addition, Marathon will be able to produce larger volumes of diesel and other distillates from the expanded facility.

"We are bullish with regard to the long-term distillate market worldwide," said Heminger. "When the economy recovers, distillate and diesel will lead to restocking of our nation and the world. Garyville's position on the river gives us excellent access to domestic and world markets. This will allow us to send the products to the best markets whether it is Europe, Latin America, the Southeast, or the New York harbor."

Squandering A Recovery?

Encouraged as he may be by the potential for the future, Heminger is concerned that certain legislative and policy initiatives from the federal government will halt or even reverse this progress. "The greatest challenge in the coming years will likely come from government intrusion in the marketplace," he said.

Undoubtedly the greatest concern of Heminger and many other refining executives stems from the Waxman-Markey climate change legislation. Formally known as the American Clean Energy and Security Act (H.R. 2454), the legislation would implement a "cap-and-trade" system for trading carbon dioxide emissions from refineries, petrochemical plants, and other industrial facilities. The U.S. House of Representatives narrowly passed the bill, co-sponsored by Democratic congressmen Henry Waxman of California and Edward Markey of Massachusetts, in late June with help from eight Republicans. The Senate has not voted on the measure.

"In approving the Waxman-Markey climate bill, the House has chosen to ignore the legislation's harmful effects on American consumers, businesses, and the economy," Heminger said. "At a time when America is trying to recover from a serious recession, the House has approved legislation that would cost energy users billions of dollars and add new stress to the economy."

Citing independent analyses, Heminger contends that Waxman-Markey's provisions could substantially increase the cost of fuels for consumers and businesses. He pointed to a Heritage Foundation study concluding that the House legislation could cause gasoline prices to jump 74 percent by 2035. "At today's prices that means gasoline would be well over $4 a gallon," he explained. In addition, Heminger fears the legislation could lead to a massive number of job losses. "A recent study by CRA International for the National Black Chamber of Commerce also estimates a net loss of over 2 million jobs," he noted.

Aside from the burden of a cap-and-trade system on the refining industry, Heminger is wary of the effects of pending changes to the federal government's Renewable Fuels Standard (RFS). Thanks to provisions in the Energy Independence and Security Act of 2007 (EISA), the amount of renewable fuels that will need to be produced in the U.S. will quadruple from 9 billion gallons in 2008 to 36 billion gallons in 2022. Moreover, the U.S. Environmental Protection Agency (EPA) has proposed requiring that cellulosic ethanol make up approximately 44 percent of the 36 billion-gallon total renewable fuels requirement (RFS2) by 2022. A process for producing cellulosic ethanol in a manner that makes economic sense has yet to be found.

"To make matters even more challenging, in the future the government is calling for quantities of biofuels that cannot be made with our current technology," noted Heminger. "At the same time, jobbers downstream of the refinery gate are pushing for blending privileges, although they do not have a government-imposed requirement to blend. Meeting the RFS challenge is a complex problem."

More Clarity By December?

When the expanded Garyville Refinery goes onstream in December, Marathon and other refiners may have a somewhat better grasp of what to expect over the next few years if not the next decade. By then, the Senate will have likely voted on Waxman-Markey or deferred action until perhaps the second year of the 111th Congress. If a vote does occur this year, the bill's passage through the upper house is not a sure thing. A number of senators, including key centrist Democrats, have expressed reservations about the legislation's far-reaching implications for the economy. Perhaps the EPA will have approved its RFS2 proposal by then (comments are being accepted until late September), but the question of how to implement the mandates will linger.

Waxman-Markey and RFS2 notwithstanding, Heminger is confident that refineries such as Garyville will be able to seize opportunities that emerge from a rebounding economy. "As we see signs of recovery in some markets," he concluded. "Refiners who have invested for the future, and refiners who know how to insure high levels of mechanical availability, will be well-positioned to produce into an expanding market."

Source: Downstream Today

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