Marathon warns natgas rally may hurt profits, shares fall

Marathon Petroleum Corp signaled that a sustained rally in natural gas prices could take a toll on earnings, sending the largest U.S. refiner's shares down 4%.

The warning comes after U.S. natural gas prices soared more than 60% in the third quarter -- translating into higher costs since natgas is used to power refining operations -- as sky-rocketing global rates keep demand for U.S. liquefied natural gas exports elevated. 

"For every $1 change in natural gas prices, we anticipate there is an approximate $360 million impact to annual EBITDA to our R&M (Refining and Marketing) segment," Chief Financial Officer Maryann Mannen said. "Based on current prices, we estimate that in the fourth quarter, higher natural gas prices have the potential to impact our business by an incremental $0.30 per barrel."

Marathon said there was still some uncertainty around supply-demand dynamics heading into the fourth quarter, but lower inventories and strong holiday travel could be supportive.

 "Looking at next year, if global product inventories remain tight and demand continues to recover, we would expect the refining sector to rebound in 2022," Chief Executive Officer Michael Hennigan said.

 Total throughput, or amount of crude processed, rose to 2.8 MMbpd in the third quarter from 2.5 MMbpd in the year-ago period. The refiner expects fourth quarter total refinery throughput to be 2.79 bpd.

The company also said it is pursuing strategic alternatives, which could include a sale of its 68,000 bpd Kenai, Alaska refinery. Marathon posted an adjusted profit of 73 cents per share, beating analysts' average estimate of 71 cents per share, according to Refinitiv IBES. However, rivals Valero and Phillips 66 beat quarterly earnings expectations by a larger margin, and that could weigh on Marathon's shares, brokerage Credit Suisse wrote in a note. 

Reporting by Sahil Shaw in Bengaluru; Editing by Arpan Varghese 

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