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Always on My Mind - Global Refining Capacity Set to Grow, But U.S. Gains Will Be Negligible

The cost of gasoline has garnered a lot of headlines since the start of 2022, with the blame for elevated prices falling on seemingly everything and everyone, from the Biden administration’s policies on oil exploration to Russia’s invasion of Ukraine, as well as decisions by major U.S. producers and OPEC not to swiftly boost oil production. Another can't-be-ignored culprit is the loss of significant U.S. refining capacity over the last few years, which has limited the ability of refiners to respond to the strong, post-COVID demand recovery by ramping up production. By and large, the refineries still operating have been running flat out. In today’s RBN blog, we look at the state of global refining, where new capacity is likely to be built, and the headwinds to future investment.

About 1 MMb/d of North American refinery capacity reductions (blue-shaded row in Figure 1) have occurred since 2019, with an additional 400 Mb/d planned to be taken offline over the next two years, as we outlined in Already Gone, Part 1. The additional closures will, however, be almost exactly offset by two major U.S. refinery expansions, leading to essentially no net change in U.S. refining capacity through 2024. Following more than two decades of U.S. refining capacity growth, the tides shifted in 2019-20 as the push for the energy transition gathered steam and the pandemic caused a record decline in transportation fuel demand. In addition, negative market trends, competitive challenges (both domestic and international) and changing crude-supply dynamics caused refiners across the U.S. to comb through their assets for possible consolidation, conversion to biofuels production or even total plant closure. Facilities on the East and West coasts felt the most pressure, but even plants operating in previously attractive market environments started to face scrutiny.

Looking forward, North American refining capacity will likely avoid the declines expected in much of the developed world, as North American refiners will continue to benefit from cost-advantaged access to U.S. and Canadian crude oil, low (relative) natural gas and electricity costs, a comparatively friendly regulatory environment, and growing Latin American demand.

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