The Changing U.S. Refining Landscape

By Robert Auers and John Auers

Last Friday, September 7, John Auers presented at the Federal Reserve Bank of Dallas’ Energy and the Economy Conference here in Dallas, TX.  The title of the presentation was “The changing U.S. Refining Landscape”, and it focused on the most important industry changes of the past 30 years and how these affect the outlook for the industry looking forward.  The presentation slides are reproduced below.

The presentation begins by showing the U.S.’s dominance in global refining.  This dominance emerged as the U.S. shifted from a primarily a “cost-center” model in the early 1980s, to a “profit-center” model today.  The deregulation of energy markets in the early 1980s first forced the closure of many uncompetitive U.S. plants, greatly reducing U.S. refining capacity.  But, by the late 1990s, the new, more efficient, U.S. refining industry began adding capacity again at the remaining (typically larger) facilities, allowing the U.S. refining capacity to grow by roughly 20% over the last 20 years.  Slide 6 details some of the specific advantages and challenges facing U.S. refiners.  Slide 7 goes on to show major regional capacity changes since 2005.  Of note, the U.S. has increased refining capacity by 1.2 MMBPD over that time period while other developed regions (Europe, Australia, Japan) have faced capacity rationalization.  Latin America, despite growing demand, has faced a small loss of capacity as well.  Slide 8 notes the effect that this shift has had on U.S. net imports of petroleum products, from the world’s largest importer in 2005, to the world’s largest net exporter in 2017.  As noted in slide 9, most of these exports have gone to Latin America.  Slides 9 and 10 show the shift of the industry from integrated majors to independents.

The remaining portion of the presentation focuses more on the potential challenges and opportunities facing U.S. refiners going forward.  The most important of these issues are the threat of peak demand and a growing dependence on exports.  Regulations have the ability to produce both headwinds and tailwinds for U.S. refiners.  IMO low sulfur bunker rules (taking effect in 2020) are a notable new regulation that will primarily benefit U.S. refiners due to their complexity and ability to process heavy crudes.

TM&C constantly monitors changes and projected changes in pricing and supply and demand across the globe for all petroleum products.  Our projections take into account changing rules and regulations, technological advancements, production and transportation costs, demographics, changes in consumer behavior, and other factors impacting supply and demand.  We include our independent analyses of these impacts in our semiannual Crude and Refined Products Outlook, and this subject is discussed in this publication which was released mid-August.  For more information on this report or on any of our other analyses or consulting capabilities, please send us an email or give us a call at 214-754-0898.