Decline in U.S. Refining Capacity Amid Uncertain Demand
The landscape of U.S. refining is evolving, marked by a reduction in operating capacity as refiners respond to a fluctuating market for gasoline and diesel. According to a recent report by the Energy Information Administration (EIA), the refining fleet in the United States—boasting the largest capacity in the world—saw a contraction of 43,000 barrels a day, settling at 18.3 million barrels a day as of January 1, 2024.
A Shift from Expansion to Contraction
The U.S. refining capacity has experienced a rollercoaster of changes over the past five years, swinging between periods of growth and decline. The COVID-19 pandemic drastically slashed fuel demand in 2020, leading to significant refinery closures that pushed the national capacity below the 18 million barrels-a-day threshold for the first time since 2014. However, the subsequent years saw major companies like ExxonMobil, Valero Energy, and Marathon Petroleum undertake ambitious expansion projects, driving the capacity back up toward pre-pandemic levels. Now, as the market sentiment shifts once again, the industry is witnessing another contraction phase.
Major Refinery Closures
Since the beginning of 2024, there have been impactful closures shaping the refining landscape. LyondellBasell Industries’ Houston refinery, with an operating capacity of 264,000 barrels a day, has permanently ceased operations. Phillips 66 is set to follow suit, closing its 139,000 barrel-a-day facility in Los Angeles by year-end. Valero’s 145,000 barrel-a-day Benicia refinery in California is also slated for shutdown in early 2026. These closures illustrate a prolonged challenge for smaller refineries that are increasingly uncompetitive within an evolving market.
Returning to Pandemic Levels
The impending closures, particularly those in California, suggest that the U.S. refining capacity could revert to troubling pandemic lows, hovering around 17.8 million barrels a day. The movement away from smaller, less efficient facilities underscores a significant trend in the industry—refiners are desperate to streamline operations and cut costs as they grapple with a volatile market landscape.
The Rise of Mega Refineries
While smaller refineries face abandonment, massive plants, particularly on the Gulf Coast, are expanding their capacities. Notably, Motiva’s refinery in Port Arthur, Texas, has surged to an operating capacity of 641,000 barrels a day in 2024, claiming the title of largest refinery in the nation, surpassing Marathon’s Galveston Bay plant at 631,000 barrels a day. This shift highlights a trend where larger refiners with more advanced capabilities are gaining a competitive edge over their smaller counterparts.
Continuing Expansion in Texas
Motiva, owned by Saudi Aramco, is relentlessly pushing its Texas plant’s capacity higher, achieving processing levels of up to 651,000 barrels of oil a day in December. This consistent expansion reflects a strategic prioritization on the Gulf Coast, where larger, more complex facilities dominate the market and remain less susceptible to the financial pressures faced by smaller refineries.
Industry Outlook
As the U.S. refining sector navigates these turbulent waters, the future remains uncertain. The closures of smaller plants signal a tightening market but may also allow larger facilities to thrive. The industry’s adaptive strategies will be pivotal in determining its trajectory in the coming years, particularly as demand forecasts continue to shift. Keeping an eye on these developments will be crucial for stakeholders, policymakers, and consumers alike.
