With The Last Large Refinery Built in 1977, How Will The Refinery Model Work In The U.S.? Will Distributed Refining be the new norm?
The war on fossil fuels has been ongoing for years. What cannot be legislated will be regulated. The regulatory agencies have shut down the ability to deliver gasoline and diesel to the consumers by slow-walking approvals and denying permits altogether.
Chevron CEO Mike Writh publicly stated that he does not expect another oil refinery to be built in the U.S. ever again. Under the current administration’s oversight, I would agree with him.
The last large capacity refinery was built in 1977 in Garyville, Louisiana, and subsequently has been updated to have a capacity of 578,000 bpd.
The newest refinery in the U.S. is the Targa Resources 35,000 bpd and is in the smaller refinery category. *Source EIA.
The number of refineries in the U.S. has been declining yearly from 254 in 1982 to 125 in 2021. The chart below shows the steady decline. What it does not represent is the number of large refineries vs. the small refineries.
Since 1977 only the smaller-sized refineries have been approved, with two more coming online this year. The rules are not the same and even have some regulatory language that the administration could take advantage of to quickly lower the pain at the pump.
The Clean Air Act (CAA) under the EPA mandates that transportation fuel sold or introduced into commerce in the United States contain minimum volumes of blending renewable fuels. These biofuels are more expensive and can cause the smaller refineries to be priced out of the market. There are exclusions to the CAA that would allow for the refineries to provide supporting documentation that they are financially disproportionately impacted to get waivers and produce without the costly bio-additives.
By granting these exemptions to the smaller refineries, they could offer lower prices to the consumers as it would be a pricing mechanism outside the typical supply chain pricing mechanics. While this sounds great on paper, it is not being allowed to be implemented. In April this year, the latest exemptions were denied by the EPS.
Although, In North Dakota, there is some hope for the small refinery model to move forward. The Davis Refinery is in the process of building in the Bakken oil field. The CEO of Meridian Energy Group, William Prentice disagrees. “I tend to agree that there will probably never be another large refinery again built in the United States”. “There has been a lot of large refineries being shut down”.
The Bottom Line
Legislation through regulation can go both ways. The new “Distributed Refinery” model could be quickly implemented if the administration wanted to lower gasoline prices. Unfortunately, though, The EPA recently denied an estimated 40 waivers in smaller refineries.
With a stroke of the pen, these regulations could impact the production of 1.8 million b/d of much-needed refined products. The daily output of U.S. refineries is 17.94 million b/d, and the additional refineries' production increases would be a significant percentage.
There are two major solutions to the United States energy crisis, and both involve waivers to regulations.
When people ask me, “What can we do to get cheaper gasoline?”. My response is “Hand President Biden a pen”.
As always, check with your CPA if alternative investments are good for your portfolio
Take the assessment and see if it is right for you HERE.
Please reach out to our team at any time for answers to your questions. Jay R. Young, CEO, King Operating
ForbesBooks Author of "The Upside of Investing in Oil and Gas"