Bring Me Some Natural Gas - A Key Driver Behind Today's High Refining Margins

Refining margins today — whether in the U.S. Gulf Coast (USGC), Rotterdam or Singapore — are at record highs. Given current high crude oil prices, gasoline and diesel prices at the pump everywhere are also at unprecedented levels, making refinery profits a major topic of conversation — and not just for politicians. While some of the explanations of refining margins are just political talking points, several others are well-established and accepted, and still others consider factors that are less frequently cited, even by those familiar with energy markets. One such factor is the price of natural gas and how it’s impacting refinery operations and competitiveness around the world. Today’s RBN blog discusses the crucial role natural gas prices play in refinery operating expenses and refining margins, and examines how favorable natural gas prices in the U.S. are providing a substantial competitive advantage for domestic refiners.

Today’s high refinery margins are the result of a confluence of several factors, including:

  • Strained global refining capacity due to demand returning to pre-COVID levels following refinery closures during the pandemic-related demand collapse;
  • The effects of Russia's invasion of Ukraine, which began in February and led to reduced exports of Russian refined and intermediate products to the U.S. and Western Europe;
  • Restrictions on exports of refined products from China; and
  • Record natural gas prices in Europe and Asia due to supply/demand fundamentals exacerbated by Russia’s invasion.

The first three factors are often cited as the direct or indirect causes of today’s high margins and are major contributors. However, often overlooked is how higher natural gas prices in Europe and Asia have dramatically increased the operating costs of refineries in those regions.

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