Oil Refineries Decrease - News
MORE Oil Refineries Close in U.S.
Oil refineries
Refining/Downstream
No new oil refineries have been built in the United States in 30
years, although existing refineries have increased capacity. In September and October 2005, Hurricanes Katrina and Rita knocked out refining capacity throughout the Gulf Coast region. The United States experienced a
steep decline in refining capacity between 1981 and the mid-1990s.
Between 1981 and 1989, the number of U.S. refineries fell
from 324 to 204, representing a loss of 3 million bbl/d in operable capacity (from 18.6 million bbl/d to 15.7 million bbl/d), while refining capacity utilization increased from 69 percent to 87 percent. Much of the decline in U.S. refining capacity resulted from the 1981 deregulation (elimination of price controls and allocations), which effectively removed the major prop from underneath many marginally profitable, often smaller, refineries.
Refinery closures have continued since 1989, bringing the total number of operable U.S. refineries to
148 as of January 1, 2005 . In general, refineries that have closed were relatively small and had less favorable economics than other refineries in their market area. Also, in recent years, some smaller, less-economic refineries that needed additional investments for environmental reasons in order to stay in business found closing preferable because they predicted that they could not stay competitive in the long term.
While some refineries have closed, and no new refineries have been built in nearly 30 years, many existing refineries have expanded their capacities. As a result of “capacity creep," whereby existing refineries create additional refining capacity from the same physical structure, capacity per operating refinery increased by 28 percent over the 1990 to 1998 period. Overall, since the mid-1990s, U.S. refinery capacity has increased from 15.0 million bbl/d in 1994 to 17.1 million bbl/d in September 2004. As of November 4, 2005, utilization of operating capacity at U.S. refineries was averaging around 84 percent, down from 91 percent on September 16, 2005 following Hurricanes Katrina and Rita.
Financial Performance, Mergers and Acquisitions
With oil prices in the $60 per barrel range, U.S. oil companies are experiencing strong revenues and profits. Twenty-five major U.S. energy companies reported overall net income (excluding unusual items) of $26.0 billion on revenues of $295.1 billion during the third quarter of 2005. This level of net income represented a 69 percent increase relative to the third quarter of 2004 (see EIA's " Financial News for Major Energy Companies "). Domestic upstream oil and natural gas production operations accounted for $8.5 billion of net income, with domestic refining and marketing operations earning an additional $7.0 billion. Foreign upstream oil and natural gas production operations accounted for $7.6 billion of net income, while foreign refining and marketing operations accounted for $2.0 billion.
Independent oil and natural gas producers, oil field companies and refiner/marketers reported a sharp increase in net income (up 139 percent) during the second quarter of 2005 compared to the second quarter of 2005 (see EIA’s " Financial News for Independent Energy Companies "). This increase in net income was due primarily to large increases in the prices of natural gas and crude oil, and a rise in gross refining margins of 17 percent year-over-year.
On October 13, 2005, the Wall Street Journal (WSJ) reported that Occidental Petroleum Corporation had agreed to acquire Vintage Petroleum Inc. for about $3.5 billion of cash and stock. Other recent acquisitions reported by the Wall Street Journal include:
1) Valero Energy Corp. agreed to acquire Premcor Inc. for $6.9 billion in cash and stock (reported April 25, 2005);
2) ChevronTexaco Corporation agreed to buy Unocal Corporation for about $16.8 billion of cash and stock (April 5, 2005); and
3) Marathon Oil agreed to acquire from Ashland Corporation the 38 percent of the Marathon Ashland Petroleum refining/marketing joint venture that it did not already own (March 19, 2004). Marathon reportedly paid about $3 billion (about $1.1 billion of cash and stock and the assumption of about $1.9 billion in debt) for Ashland's share in the refining/marketing joint venture. In addition to acquiring full ownership of the Marathon Ashland Petroleum assets, Marathon also acquired 61 Valvoline Instant Oil Change outlets and other related assets currently owned by Ashland.
Consumption
The United States consumed an average of about 20.6 million bbl/d of oil during the first nine months of 2005, the same amount year-over-year as in 2004. Of this, motor gasoline consumption was 9.1 million bbl/d (or 44 percent of the total), distillate fuel oil consumption was 4.1 million bbl/d (20 percent), jet fuel consumption was 1.6 million bbl/d (8 percent), and residual fuel oil consumption was 0.9 million bbl/d (4 percent). For 2005 as a whole, EIA’s Short-Term Energy Outlook projects that U.S. petroleum demand will decline by 16,000 bbl/d, to an average 20.6 million bbl/d, in response to the combined effects of the hurricanes and high crude oil and product prices. EIA expects motor gasoline, jet fuel, and residual demand all to remain about flat -- at 9.1 million bbl/d, 1.6 million bbl/d, and 0.9 million bbl/d, respectively . EIA expects distillate demand in 2005 to grow by about 1%, to 4.1 million bbl/d. Finally, EIA forecasts demand for "other oils" (natural gas liquids, liquefied refinery gas, other liquids, etc.) to decline by over 4%, to 4.9 million bbl/d, in 2005.
Petroleum Prices
Average retail regular gasoline prices increased sharply after Hurricanes Katrina and Rita. EIA’s latest Short-Term Energy Outlook forecasts gasoline prices (self-serve, regular) to average close to $2.38 per gallon for November 2005, down from $2.72 per gallon in October. The average pump price for the third quarter of 2005 is now expected to be about $2.56 per gallon, up $0.67 per gallon from the third quarter of last year. Hurricane recovery should result in further price decreases by the first quarter of 2006. Annual gasoline prices are projected to average $2.29 per gallon in 2005 and $2.43 per gallon in 2006. Should colder weather prevail, retail gasoline prices are projected to be 10-14 cents per gallon higher, on average, during the winter months. The
"real price" of gasoline (in inflation adjusted 2005 dollars) remains below the 1981 peak.
[Comment & Note: So What ? The Value of the Dollars we pay for that Gas has continually Decreased since 1981 also]
Strategic Petroleum Reserve (SPR)
The U.S. Strategic Petroleum Reserve reached 700 million barrels on August 17, 2005. The Reserve was then used in the aftermath of Hurricane Katrina, with an announced sale of 30 million barrels. In December 1975, the Energy Policy and Conservation Act
(EPCA) was passed, officially establishing the Strategic Petroleum Reserve (SPR) as a reserve of up to 1 billion barrels. To store the reserve oil, the U.S. government acquired several salt caverns along the Gulf of Mexico coastline. The first crude oil was delivered to the SPR in 1977 and stored at the West Hackberry storage site near Lake Charles, LA. Other major storage sites include: Bryan Mound and Big Hill in Texas and Bayou Choctaw in Louisiana. Total storage capacity at the SPR is currently 700 million barrels.
In mid-November 2001, President Bush directed the Department of Energy (DOE) to fill the SPR to its capacity of 700 million barrels to "maximize long-term protection against oil supply disruptions." On August 17, 2005, the SPR reached its goal of 700 million barrels, just two weeks before Hurricane Katrina hit. On August 31, 2005, President George W. Bush authorized the SPR to loan oil to help refineries whose operations had been affected by Hurricane Katrina. In addition, the President announced the sale of 30 million barrels to maintain supplies and calm markets. As of November 14, 2005, the SPR contained around 684 million barrels of oil -- the largest emergency oil stockpile in the world. The SPR has a maximum drawdown capability of 4.3 million bbl/d for 90 days, with oil beginning to arrive in the marketplace 15 days after a presidential decision to initiate a
drawdown. The SPR drawdown rate declines to 3.2 million bbl/d from days 91-120, to 2.2 million bbl/d for days 121-150, and to 1.3 million bbl/d for days 151-180. Prior to Hurricane Katrina, other withdrawals from the SPR occurred in 1985, 1990, 1991, 1996-97, and 2004.
Under EPCA, there is no preset "trigger" for withdrawing oil from the SPR. Instead, the President determines that drawdown is required by "a severe energy supply interruption or by obligations of the United States" under the International Energy Agency. EPCA defines a "severe energy supply interruption" as one which: 1) "is, or is likely to be, of significant scope and duration, and of an emergency nature;" 2) "may cause major adverse impact on national safety or the national economy" (including an oil price spike); and 3) "results, or is likely to result, from an interruption in the supply of imported petroleum products, or from sabotage or an act of God." Should the President decide to order an emergency drawdown of the
SPR, oil would be distributed mainly by competitive sale to the highest bidder(s). This would be accomplished in a 4-step process, including a "Notice of Sale," receipt of bids, selection of bidders, and finally delivery of oil.
Source: USDOE
htp://www.eia.doe.gov/emeu/cabs/Usa/Oil.html