As Unprecedented Water Shortage Looms, Corpus Christi Refineries Face New Surcharges, Cost Hikes
Oil refineries and chemical companies that are heavy water users in the key Texas energy hub of Corpus Christi could soon pay new water surcharges after the City Council approved measures aimed at curtailing water consumption in anticipation of a historic water emergency starting in September.
The surcharge represents another wrinkle for U.S. Gulf Coast refineries, which are already facing severe global product strain ahead of the start of the Atlantic hurricane season in June. The five-year drought in South Texas with no end in sight also casts doubt over the viability of of the largest U.S. crude export hub with a population of half a million.
Most analysts, however, do not expect refinery production to be significantly affected — at least for now. This is because companies have for years prepared to maximize every available gallon of recycled and reclaimed wastewater and dig underground with the hope of finding new sources, or just pay the surcharge.
On Tuesday, the Corpus Christi City Council implemented baseline, curtailment and allocation levels for all users at the start of its projected Level 1 Water Emergency — when the city reaches 180 days from when total water supply is not
enough to meet demand.
Each individual user’s baseline is determined by previous averages, and its allocation level equals its baseline reduced by a 25% curtailment.
The City Council is also expected to pass new surcharge structures next week that would apply to all users that exceed their allocation or baseline levels during the water emergency, as the city is planning to use surcharges in discouraging consumption rather than turning off supply.
All users would pay $4/gal per 1,000 gal above their individual allocation level up to the baseline, and $8/gal per 1,000 gal for any volume above the baseline level.
The City Council currently projects curtailment from large-volume users like oil refiners and chemical companies at 7.5 million gal per day. That would be equivalent to total surcharges of about $110 million per year for all large-volume users, assuming they continued to consume their baseline levels.
Corpus Christi is home to the three oil refineries owned by Valero Energy, privately held Flint Hills Resources and Citgo with a combined 900,000 b/d of crude distillation capacity, or about 5% of all U.S. refining capacity. In addition, about half a dozen petrochemical plants are also tapping into the city’s water supply.
John Deal, managing director of capital markets at the Post Oak Group, a Houston-based investment bank, said a temporary surcharge alone is unlikely to significantly increase national fuel prices. However, a serious water shortage at Corpus Christi could push production down and prices up, he said.
“It’s not an immediate refinery-shutdown event, but a real regional supply risk for late 2026 if drought persists. It could support higher crack spreads and refined-product prices, especially if it overlaps with hurricanes, outages, strong summer demand, or already-low inventories,” Deal said.
Recycle, Reclaim, Reuse Wastewater
Water is a crucial ingredient in petroleum refineries for processing units like crackers and cokers, and it’s estimated that on average gasoline production consumes 0.6-0.7 gallon of water per gallon of gasoline. A large amount of water is also needed to cool down and heat up units and for boilers to produce steam used in refining.
Bob Paulison, executive director of industry group Coastal Bend Industry Association, whose members include Citgo and Valero, said the refining industry has been preparing for the drought for years and companies are partnering with
the city to balance their water demand and the needs of the entire system.
“We are optimistic we will be able to manage the potential curtailment scenarios without significantly disrupting our operations,” said Jake Reint, a Flint Hills Resources spokesman.
FHR is investing to reuse wastewater from a city treatment plant, and it is working to install temporary filtration equipment near the plant that would allow FHR to treat and recover 70% of the processed effluent, freeing up as much as 1.5 million gal of water per day, Reint said.
A Valero spokeswoman referred to the company’s 30-year agreement with the City Council to supply up to 8 millions gal per day of reclaimed water from another city treatment plant for Valero’s operations, reducing demand on public potable
water supplies.
Under the agreement, Valero will pay the city for recycled water as well as chemicals, electricity and certain treatment processes, and the company will also pay its proportional share of operation and maintenance costs of the plant.
Gulf Coast Growth Ventures, a joint venture between ExxonMobil and Saudi Aramco’s SABIC that makes plastics and polymers, will continue to mitigate potential impacts and explore alternative water sources that do not draw on those currently used for consumption, said Kelly Davila, an ExxonMobil spokeswoman.
GCGV already recycles and reuses its water on average three to four times, petrochemical industry sources say. GCGV is by far the single-largest water user of Corpus Christi, followed by Valero, Occidental Chemical and Flint Hills, according to city data.
“The City of Corpus Christi and the region understand the importance of industry as partners to the overall economic importance of the region.” said Robert Gonzales, a City of Corpus Christi spokesman. “This drought that is facing the city and the region is unprecedented.”
The city also implemented restrictions and water-saving measures on car washing and other daily activities. While there is talk of building a desalination plant that would produce up to 150 million gal per day, it is not expected to be online until 2028-2029 at the earliest.
Corpus Christi City Manager Peter Zanoni said at the latest weekly water briefing Friday that there was an improvement in some reservoirs, and he said most residential customers have already cut usage to below allocation levels.
However, conservation alone by industrial users without more steady rainfall to mitigate the prolonged drought is unlikely to postpone the water emergency set to start in several months.
“It is difficult for them (refineries) to find quick and easy ways to reduce the amount of water that they need because they already recycle a lot,” Paulison said.
Reporting by Frank Tang, ftang@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
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