Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can you discuss the current market dynamics for diesel and jet fuel margins given the recent pullback?
A: (Gary K. Simmons - Executive VP & COO) Diesel demand is trending about 2% higher than last year, and jet fuel demand is up year-over-year. Despite the market reacting sharply to geopolitical events, such as drone attacks in Russia, the physical diesel markets haven't experienced significant disruptions, suggesting that diesel margins are currently weaker than they should be. European and Singapore margins are negative, indicating a potential rebound in diesel margins soon.
Q: With the SAF project advancing, what are the expected economic benefits once it becomes operational?
A: (Eric Fisher - SVP of Product Supply, Trading & Wholesale) The SAF project at Port Arthur is progressing well, with start-up expected in Q4 2024. The project should benefit from various state and federal tax credits and strong sales interest. The economics are expected to meet our project return thresholds, supported by credits like 45Z, BTC, and PTC, and strong demand in markets like Europe.
Q: How sustainable is the current level of shareholder payouts given the strong balance sheet and cash flow?
A: (Homer Bhullar - VP of IR & Finance) With a strong balance sheet and no intention to build more cash, the payout ratio was 74% in Q1. While the long-term target is 40-50%, this can be considered a floor during periods of strong fundamentals. Excess cash flow will likely continue to be directed towards buybacks.
Q: What impact do you foresee from the TMX pipeline starting up, particularly regarding crude differentials and refining dynamics?
A: (Gary K. Simmons - Executive VP & COO) The TMX pipeline will rebalance crude types across markets but won't significantly impact global differentials. It may lead to narrower differentials until OPEC production ramps up later in the year. The pipeline will allow for blending that mimics traditional heavy crudes like Arabian Heavy, facilitating continued operation of coking capacities on the West Coast.
Q: What are the expectations for refining margins and product supply dynamics in Asia, particularly with recent margin declines?
A: (Gary K. Simmons - Executive VP & COO) Negative refining margins in Singapore and Europe suggest that the market has reached a floor, necessitating a rebound. The need for refining capacity to run indicates that margins should start to improve soon.
Q: Can you provide insights into the renewable diesel market dynamics, especially considering the current low margins and future outlook?
A: (Gary K. Simmons - Executive VP & COO) The renewable diesel market may remain challenging in 2024 due to new capacity entering a market with fixed obligations. However, the long-term outlook remains positive, driven by increasing legislative support for low carbon fuels and expanding mandates, which should improve demand and margins post-2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
