August 10, 2022

US oil refining capacity drops in 2021 for second year

(Reuters) Capacity at U.S. oil refiners fell in 2021 for the second straight year, the latest government data showed, as plant shutdowns continued to reduce their ability to produce gasoline and diesel .

Pump prices are nearing $5 a gallon nationwide as rising demand for automotive fuels is met with the loss of approximately 1 million barrels of processing capacity over the past three years, largely partly due to the closure of factories that were unprofitable when fuel demand collapsed at the height of COVID. -19 pandemic.

Figures from the US Energy Information Administration showed a capacity drop of 125,790 barrels per day (bpd) last year on top of the 800,000 bpd drop in 2020.

Skyrocketing gasoline prices could soon reduce demand for fuel as drivers cut back on trips, an economist at the Dallas Federal Reserve said. The national average for a gallon of regular unleaded was $4,968 on Tuesday, up 62% from a year ago.

Although current prices at the pump are not historically high in inflation-adjusted terms, they may be “closer to consumers’ pain threshold than inflation-adjusted prices suggest,” wrote Garrett Golding. , senior economist at the Dallas Fed. “And if prices go up, expect consumers to respond by reducing their fuel consumption and overall spending sooner rather than later.”

U.S. refining capacity has fallen 5.4%, or 1.03 million bpd to 17.9 million bpd since peaking in 2019 at 18.98 million bpd. Capacity in 2021 fell 4.5% to 18.13 million bpd.

U.S. refiner profit margins are up sharply despite rising oil and gas costs as demand for gasoline, diesel and jet fuel soars. Analysts say demand could continue to rise with low unemployment in the United States and pent-up travel demand.

CLOSING OF A FACTORY

The most significant factor in the latest decline in refining capacity was the closure of the 255,600 bpd refinery at Alliance, Louisiana, following extensive damage from Hurricane Ida this year. last. This was only partially offset by capacity expansions at other refineries, the EIA said.

With declining capacity, fuel demand is on the rise thanks to the global recovery from the COVID-19 pandemic. In addition, changes in market flows due to the Russian invasion of Ukraine have put further pressure on US refiners. The country’s factories are operating at around 94% of their operating capacity, the highest since September 2019.

The high level of capacity utilization and relatively low storage levels have experts worried about potential fuel shortages given this year’s forecast for a much above-average hurricane season. About half of the country’s refining capacity is on the US Gulf Coast, where storms often make landfall.

Domestic capacity could shrink further in the event of an early shutdown of the 263,776 barrel per day (bpd) LyondellBasell Industries refinery in Houston.

Lyondell announced in April that it would permanently close the refinery at the end of 2023. Sources close to plant operations told Reuters the refinery would also close permanently if a large production unit closed before December 2023 and could not not be quickly put back into service.

Six refineries, representing closed capacity, have closed permanently since the start of the pandemic in 2020, two of which have converted to renewable diesel production.

Another refinery, Shell Plc’s Convent Refinery in Louisiana, is under consideration for conversion to renewable diesel production.

Phillips 66 converts the Alliance Refinery into a refined fuels terminal.