Can the US refining industry handle a hiccup?

Can the US refining industry handle a hiccup?

US refining capacity is in decline. In 1981, the US had 324 refineries, but by 2019 the Energy Information Administration reported that tally had dwindled to just 135. 

No new oil refineries have been built in the US in more than 40 years, although some existing refineries have increased their capacity.

Despite the steady declines, the US has the largest refining capacity in the world that currently stands at 15.8 million barrels per day (bpd ) — out of a total global refining capacity of about 100 million bpd. 

However, that market share is also in retreat, with the US portion of the global total falling from 23 percent in 2005 to 16 percent lately. One of the reasons for this trend is the weakness in US refinery earnings amid intense regulatory and environmental pressure.

The decline of the sector can be traced back to 1981 and the deregulation of refineries which eliminated price controls and removed historical government support for many marginally profitable and smaller facilities.

The Clean Air Act of 1990 forced more refiners under after failing to implement a number of costly measures to reduce their impact on the environment.

In recent years, some smaller, less efficient refineries have needed additional investments for environmental reasons and in order to stay in business. Some concluded that the required investment would not justify the expected returns and so elected to shutter.

Last week a massive fire at the Philadelphia Energy Solutions Inc. oil refinery in Pennsylvania resulted in the complete destruction of its alkylation unit. Alkylates are a key part of the gasoline manufacturing process and the timing of the fire coming into the high demand summer season is not good.

Last week gasoline demand in the US reached a record high.

While the impact of the outage is not yet fully clear, it could hinder the supply of gasoline from the US east coast’s largest refinery and is a reminder of how such isolated incidents can disrupt the market.

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq

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