Oil Refining Capacity

According to a report issued by the Energy Information Administration (EIA) in January 2005, there were 13 years of decline in the U.S. refining industry in the 1980s from a peak in 1981 of 18.6 million barrels per day, due to deregulation and a fall in demand for petroleum. Between 1996 and 2003, however, an extra 1.4 million barrels per day of distillation capacity was added, culminating in 16.8 million barrels per day by the end of 2003, when total world crude oil distillation capacity was 82.0 million barrels per day.

With the elimination of price controls and allocations in 1981, many marginally profitable oil refineries closed between 1981 and the mid-1990s. Capacity fell from 18.6 million bbl/d to 15.7 million bbl/d and 120 U.S. refineries closed between 1981 and 1989, leaving 204. Refining capacity utilization increased from 69% to 87%. By 2003 there were 149 refineries left. Some of the more recent closures were of smaller oil refineries that felt that they could not compete because of the amount of additional investments required for environmental reasons.

US Refining Capacity Photo courtesy of EIA

No new refineries have been built for nearly 30 years, and new ones are unlikely for financial, environmental, and legal considerations (unless President Bush and his government intervene by supplying sites, easing rules and offering corporate subsidies). Nevertheless, capacity per operating refinery increased by 28% between 1990 and 1998 and before Hurricane Katrina utilization of operating capacity at U.S. refineries was typically over 90%. U.S. refinery capacity increased from 15.0 million bbl/d in 1994 to 16.9 million bbl/d in September 2004. Expansion is considered likely to continue, mostly on the Gulf Coast, and the forecast for 2025 is between 21.4 and 22.5 million barrels per day.

New and extended refineries are and will be increasingly efficient both for economic and regulatory reasons, producing a higher quality and cleaner product with less waste, whilst using crude oil which is likely to decline in quality. Worldwide refining capacity is likely to grow by about 60 percent from 82.0 million barrels per day at the end of 2003 to more than 131 million barrels per day by 2025.

The overall net income of 24 major U.S. energy companies during the second quarter of 2004 was $16.7 billion on revenues of $213 billion, 67% more income than in the same quarter in 2003. Domestic refining and marketing operations earned $6.3 billion, and foreign operations $1.3 billion. Independent energy companies enjoyed a net income increase of 75% over the same period. There was a rise in gross refining margins of 49% year-over-year. There have been several mergers in recent years. Refining and marketing are considered relatively low in profitability, however, and some major companies divested themselves of the business to smaller companies or shut down refineries.

On average, the USA used about 20.4 million bbl/d of oil during the first ten months of 2004, compared to 20.0 million bbl/d in 2003, of which motor gasoline consumption accounted for 44%. This was expected to increase by 1.4% to 280,000 bbl/d in 2005.

The EIA also has a page for a daily report of Hurricane Impacts on the U.S. Oil and Natural Gas Markets. At the time of writing, over 3.0 million barrels per day of refining capacity was currently offline.

This article relates to a news wire in the October 04 Environmental Roundup.

Index of topics in this series.

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