US Gulf Coast Refining Outlook Remains Bright for Coming Years, RBN Analysis Concludes

The need for refining capacity in the U.S. Gulf Coast region is expected to grow by 400,000 b/d over the next two decades, while other regions of the country will most likely see the need to reduce capacity or see it remain flat, according to an analysis by RBN Energy released Friday.

The analysis by RBN’s Refined Fuels Analytics practice notes that the Gulf Coast (PADD 3) “remains a globally dominant refining region” and that its access to global export markets “allows regional refiners to weather today’s turbulence and even thrive despite domestic demand declines.”

The RBN analysis notes that while the region saw LyondellBasell shut its 263,776 b/d Houston refinery in March, further significant facility shutdowns are not anticipated in coming years.

Similarly, the region is also unlikely to see any large expansion projects like the 2023 expansion that added 250,000 b/d of capacity to ExxonMobil’s Beaumont, Texas, refinery. Still the RBN team said “smaller ‘capacity creep’ and upgrading projects could lead to net increases in overall regional capacity” as economic conditions for refiners in the region remain favorable.

Complex refineries in the region are also poised to be boosted if the future includes access to increased supplies of “advantageous” heavy crude from Venezuela, the analysis said.

“The rate of demand growth in potential export markets will be particularly important for Gulf Coast refiners and will ultimately determine the level of capacity creep which will make economic sense,” according to RBN.

Of the remaining regions in the country, RBN expects the coming decades to bring little change to capacity in the Rocky Mountains region (PADD 4) while the East and West coasts (PADDs 1 and 5) and the Midwest (PADD 2) are likely to see capacity decrease.

The largest decline is expected in PADD 5, with RBN forecasting the region seeing capacity loss of 850,000 b/d. The analysis notes the region has recently seen several refinery closures, with more than 400,000 b/d of capacity idled since 2020, with more soon to come as Valero moves ahead with plans to close its 150,000 b/d Benicia, Calif., refinery by April.

Additional closures could come as companies move ahead with plans for new pipelines to supply the region, RBN said.

PADD 2 is expected to see capacity shrink by 250,000 b/d in coming years.

PADD 2 refineries, however, could receive some support from a reversal of the Laurel Pipeline, which would allow for products to be shipped to Philadelphia, and the proposed Western Gateway Pipeline to California markets, RBN said.

“While these projects will improve prospects for PADD 2 refiners by opening up new markets, some refining capacity rationalization still appears likely long term, with smaller, less-competitive, gasoline-focused refineries that rely on light crudes considered most at risk,” the RBN analysis said.

PADD 1 has seen refinery capacity shrink over the last 15 years, though no new closures are currently on the horizon, RBN noted, with the previous closures as well as continued capacity declines in Europe providing support for plants currently operating on the East Coast. But “in-region demand declines, potential energy transition policies and high regional costs make the further rationalization of refining capacity highly likely,” the analysis said.

Reporting by Steve Cronin, scronin@opisnet.com ; Editing by Michael Kelly, mkelly@opisnet.com