North America Refining 2026: New Pipelines to PADD 5

Shaheen Chohan (00:00):
The US refining market has already gone through a period of capacity right-sizing, with some of that closed capacity having been switched towards renewable fuels. But the big question remains: is there now a need for new additional capacity, or is the current refining system fit for purpose to meet current and expected domestic and export demand for transportation fuels?
Welcome to Navigating the Currents of Change, where we bring together over four decades of trusted, researched data and industry insights. Built for the Answer Age. Let's dive in. My name is Shaheen Chohan, and I lead Global Analytics here at Industrial Info Resources. And to help me unpick some of the trends that we're seeing and put some answers to those questions, I am delighted to be joined by not one, but two of our industry experts: Hillary Stevenson, who is IIR Energy’s Vice President of Energy Intelligence, and Jesus Davis, who is Senior Vice President of Energy Services.
Now, Hillary, what's happening right now with the North American refining capacity and how is that shaping midstream developments?

Hillary Stevenson (01:24):
So I think, like you said at the beginning, Shaheen, the refining industry in North America has been right-sized for demand. Gasoline demand peaked in 2019. And we've seen sort of a rationalization of capacity since that time, even starting a little bit before 2019. So, you know, the question is, do we need more capacity? Well, you know, right now the globe is short products because we have a few little situations going on. But hopefully that will resolve and we'll get back to sort of the status quo.
The truth is, North America has enough refining to make the products that it needs. The question is, are there some opportunistic opportunities to export products to the rest of the world? So can we refine better than other places? And in order to do that, obviously you need crude oil, right? Refineries run on crude oil. And the key has been: how do you get the most advantaged crude oil to the refinery? And that's where some of these midstream developments have come in.

Shaheen Chohan (02:27):
It's good being here with you, Hillary, because normally when we talk about midstream, we always talk about nat gas. But with all the recent developments, you know, there's new opportunities in the liquids markets, whether it's crude oil and refined products. So if we want to kind of just talk about pad five, what's going on in California right now?

Hillary Stevenson (02:39):
Yeah, yeah, I mean, that's where most of the refining has been lost, right? So what's interesting is refining capacity has gone down. We've lost about 900,000 barrels a day of capacity. But the remaining fleet has been working harder. So even though capacity went down 900,000 barrels a day, runs have only come down about 300,000 barrels a day. So we're doing more with less effectively.
But, you know, you sort of run into some issues where you're already running on the donut, you don't have another spare tire that you can put on. So it is running really lean. And so years where we have a lot of maintenance or we have any unplanned issues, that could really tax the system, having, you know, lots of different opportunities to source crude also helps refiners perform better.

Shaheen Chohan (03:28):
So how will PADD 5 in particular help fill that gap? We're seeing greater demand for US exports. The US thankfully, is helping fill some of that gap. But also domestic demand, as you said is still fairly healthy. What’s the role for Padd five?

Jesus Davis (03:53):
So really PADD 5 like Hillary mentioned, there's been a lot of refinery closures and we've seen imports of refined products increase over the past few months, actually the past year or so with some of the issues going on, as Hillary mentioned. But there are some long term solutions that are in place to actually build new pipeline capacity from either the Midwest or the Gulf Coast across the Rockies, over to PADD 5 to help, you know, alleviate some of the issues there with supply.
The main ones we have, you know, the Western Gateway project, P 66 and Kinder Morgan are looking at reversing a couple of lines and then building a new line, basically from Borger back to Arizona, then all the way to California. Then we have ONEOK and their Sunbelt Connector project, and then finally we have HF Sinclair, looking at various projects to move Rocky's production over to the California area. And then in addition, there are a couple of smaller projects, but those are really main projects that are being looked at to move product over.

Shaheen Chohan (04:54):
Now, Jesus, I want to stay with pipelines at the moment. Pipeline permitting. Always been a bit of an issue. Right now, I know we have a very supportive administration that is looking to, I guess, fast track or smooth out some of the bottlenecks in pipeline permitting. Have we seen any progress in that?

Jesus Davis (05:04):
Not as much as we expected. I think with the change of administration, we thought that was going to maybe go a little smoother. There have been some proposals to make changes and defer the process and right now a lot of those are getting held up and pushback from states. And then even on some of the liquid side, some of the projects that we thought were going to move forward, relatively easily, are being held up by some individual states, kind of pushing back on some things.

Shaheen Chohan (05:27):
Hillary, you talked about additional inflow of crudes for US refiners. In particular, there's that new or an additional Canadian pipeline project that's clearly got a lot of attention, right? It's the Prairie Connector, the Bridger pipeline set of pipes that are bringing more Canadian crude down into the US. What is your view on that particular project?

Jesus Davis (06:00):
I mean, that project honestly makes a lot of sense. It's kind of like a keystone light that a lot of people are referring to. It's actually reusing some of the old pipe that's been sitting there since the Keystone XL project was proposed and then ultimately canceled. That one, it's really a combination of several different projects that are going to be linked together.
So the Prairie Connector is being proposed by South Bow, which used to be a part of TC Energy. That's the Canadian portion of that project. And then once we get to the Canadian border, the Bridger pipeline would be the next piece to bring that product down to, I believe, Guernsey, Wyoming, and then ultimately get on some existing pipeline infrastructure to get down to Cushing.
But on that project so recently, seeing that there's the state of Montana starting to push back on that so that was new, a recent development. So they're kind of pushing back on a permit that had been approved a while ago. And now there's a little bit of resistance there. So now it's kind of a wait and see and see if that project moves forward. That was one of the out of all the Canadian projects that seemed like one of the more favorable or easier projects to get done. But now we're starting to see, you know, just like usual in this industry, it's never just as easy as it seems.
And also on the Canadian projects, there are a couple of big projects that are taking place right now. We're all pretty familiar with the TMX project that actually is at nearly full capacity right now. They're actually looking at expanding that even more. Right now they're looking at adding what they call a DRA or drag reducing agents to increase capacity by about 10%.
But then there's another more significant project we're looking to add, actually, more pipe. And I think it's 11 new stations to the pipeline itself to increase capacity by another, I think it's 200,000 barrels. So that's pretty significant. And then in addition to that project, there are two other really significant projects. The West Coast pipeline. I think it's a being sponsored by TMX and Pembina, and that's very significant. It's another million barrels of capacity that could be added.
And then the Northern Shield energy corridor. This is kind of Canada's response to that, where they're looking to take that Alberta crude and process it in Ontario and refine it themselves. So, yeah, so they're looking at, you know, trying to keep some of that production in-house as well. I mean, I think that's a 500,000 barrel pipeline. And both of those really wouldn't be online until 2029, 2030 at the earliest.

Hillary Stevenson (08:42):
But Canadian production is expected to grow to fill that pipe space. So we'll definitely, they'll definitely want one or many of those projects.

Jesus Davis (08:50):
Yeah. If we see one of these move forward, that's definitely going to spur quite a amount of investment in the upstream side in the oil sands too. Because there's been a lot of projects that have been waiting for, you know, extra capacity to get out. So if one of these big pipes move forward, that is going to be a big boom to the overall Canadian oil sands market on the on the upstream side.

Hillary Stevenson (09:08):
Yeah, and even if the Canadian refiners don't take it or the American refiners don't take it, there are plenty of refiners across the world that really want that distillate, sort of like heavy barrel coming out of Canada.

Shaheen Chohan (09:10):
Now, Hillary, Jesus touched on where all of that crude is going to be going. Clearly, there are takers already in the refining system. Can you just talk a little bit about the specific destination for that Canadian pipe crude?

Hillary Stevenson (09:26):
Yeah, absolutely. So I think as designed, the pipeline will move crude from Alberta down into the Rockies region, Guernsey. I don't think that there's going to be an opportunity to get off or to inject crude there. So that will sort of keep those nice rocky streams, you know, unperturbed by the Canadian barrel. So it'll come down from Canada, hit Guernsey, go over to Cushing. In the Cushing market there's about 2 million barrels a day of directly connected refining capacity off of Cushing. You know, Cushing is the pipeline crossroads of the world. So there's a lot of opportunity to move crude around the mid-continent there.
But the bigger opportunity is along the Gulf Coast. So South Bow already has a pipeline called Market Link, which was originally part of the Keystone XL segment that moves crude from Cushing to the Gulf Coast. Along the Gulf Coast you have, you know, from the Houston, Beaumont, Port Arthur, Louisiana corridor, you have 7 million barrels of refining capacity. And those refineries are really best suited to consume that Canadian crude. Of course, they'll have some competitive crude types down there. They're on the water so they can import anything that they want. But you know, obviously pipeline barrels that you can term up is a little bit more advantageous for a refiner.

Shaheen Chohan (10:53):
So the Canadian crude that's coming down, that's great because there's a locked and ready market for that. But how will those Canadian barrels compete I guess with other sources? And you know, some of these sources may come from, I guess, newer market opportunities, right?

Hillary Stevenson (11:09):
Yeah. So, you know, there's currently maybe a lack of imports of medium. So like Canadian barrel is nice medium or heavy sour. And that's why the Gulf Coast refiners have been optimized to run. So if you think about other medium sours, of course you have Middle East barrels, which are kind of jammed up right now. And then you have maybe some new opportunities coming out of Venezuela. We've definitely seen imports of Venezuela take up because there was sanctions and now there's not or there's some regulations that are easing there.
In terms of quality, the Venezuela barrel is very similar to the Canadian barrel. It's a little higher acid. So you think about a refinery that can sort of corrode your materials if you're not really well suited for that. And it has a little bit different distillate cut point. So it's just, you know, kind of apples and oranges. Your refinery can be optimized to run one or the other, but they're really sort of similar in terms of quality.

Shaheen Chohan (12:00):
And do you think Hillary, existing refiners are already, as you said, calibrated to accept Venezuelan crude onto their product slate? Do you think other refiners may consider that? And would they actually have to, you know, invest to be able to accommodate it?

Hillary Stevenson (12:19):
Yeah, it's interesting. You know, when you look at our project database, it's sort of a battle of two streams and a stream, sort of chosen carefully for quality streams as well. So there's some refineries along the Gulf Coast that are investing in being able to process more light, sweet crude coming out of the Permian because it's right there. There's all these pipelines that have direct access down to the Gulf Coast from the Permian.
And then you have refiners that traditionally did run those heavy import barrels, either from Canada, South America, the Middle East. And Citgo used to be owned by PDVSA. So Citgo has a nice refinery in Louisiana. Certainly we've seen some Venezuela going to there. Citgo also has a refinery in Corpus Christi on the coast that could take some Venezuelan barrels. So there's really a split in investment. Some refiners are investing in running more heavy crude. Some refineries are investing in running more light crude.

Shaheen Chohan (13:19):
Reality check though, Jesus. A lot of pent up potential in the Venezuelan market. What's the reality of lifting production levels in the near term?

Jesus Davis (13:26):
So we have seen production levels increase incrementally, maybe 2 or 300,000 barrels, since earlier this year. I think we're at maybe 1.1, 1.2 million barrels of Venezuelan exports total, but to really see export levels increase significantly, there will have to be an enormous amount of money invested in Venezuela. We're seeing estimates of, you know, $100 to $200 billion of upgrades needed to be able to increase those volumes. So it will take a little bit of time before we see that.

Shaheen Chohan (13:58):
Hillary, the US refining systems clearly running at super high levels of utilization, right? Really to help offset or fill the gap, I think primarily from the loss of Middle East fuels hitting the marketplace. Units must be running super high at the moment, right? What is the outlook for the back end of this year, and certainly into the first part of next year associated with maintenance?

Hillary Stevenson (14:24):
So utilization is high in 2026 partly because we're kind of having a down year for maintenance. 2025 was pretty big. 2026 is pretty low. And we're even seeing some projects that have been pushed from fall 2026 into 2027 to take advantage of these really high margins that refiners are seeing right now. For 2027, we're seeing a lot more crude unit outages and a lot more FCC outages than we saw in 2026. So that'll probably mean lower runs and it's kind of split. We had seen a shift of everyone trying to do work in the spring and then sort of a slack off in the fall, but we’re seeing sort of a equal level of spring and fall maintenance. Maybe people are thinking that some of these high margins may bleed over into the spring, and so have sort of cast out a fall date for the immediate.

Shaheen Chohan (15:26):
The US has obviously filled this gap, as we've just touched on, in terms of fulfilling some of the export market loss from Middle East barrels hitting the market. Clearly, that must be a very important component for US refiners, the export market, right? But also the crude producers as well. Are you seeing a sort of a tip or a shift or a swing in certain types of project geared towards export ability of end product?

Hillary Stevenson (16:05):
So all of the refining projects that have been announced now, we track a lot of refinery projects that get announced. Every year there's one that comes up, and then every year there's one that gets canceled. You know, I think that there's a sort of theme in investments right now where it's America First. So the projects are: We're going to consume American crude, we're going to supply American products.
The Brownsville Refinery, I think is the key example there. The America's first refining. That is proposing that one that would be proposed for Brownsville, Texas, which is an interesting location because it's on the coast at the bottom of America, which is close to the production. But I don't think that they have a pipeline. Is that right?

Jesus Davis (16:51):
That is absolutely correct. So yeah, when that project was announced, had, you know, members of the refining team come and ask, hey, you know, what do you think about this project? And it just doesn't make a lot of sense, like you said, because there's no pipeline there or proposed to be built to support that refinery.
Years ago, there was a project called a Jupiter Pipeline that was proposed, and I think it was put on hold back in 2019 if I recall correctly, and that project has not resurfaced, we've checked to see, you know, if that project's going to move forward to support that refinery. And it's still on hold, as a matter of fact, that office is not there right now. So I'm not really sure.

Hillary Stevenson (17:29):
Gotcha. Yeah. I mean, you know, it's going to take three years to build the refinery. The proposal is a big refinery, 165,000 barrels a day, I think. So three years to build the refinery. How long would the pipeline take to build if we got approved tomorrow with all the permits and all that stuff?

Jesus Davis (17:49):
If it got approved tomorrow, a year, year and a half, maybe two. But like I said, if it was approved, the permits may take a little bit of time. I mean, in Texas, some of the stuff does move a little faster, but still a year minimum. So we're back up to that three years if everything is perfect, if they get the pipe, so.

Hillary Stevenson (18:08):
And then who knows what a refinery margin is going to look like in three years whenever you get this refinery up and running. I think, you know, another example that we're tracking, we're actually tracking a lot of these, like little modular refinery proposals. They are a lot smaller. So, you know, but that means they're faster to be built. And the one that has sort of like risen above the rest, that sort of pre-construction phases is one in Duncan, Oklahoma. Oklahoma has tons of pipelines. Is in the middle of America, has access to a lot of American crudes, has a good distribution network for sending those products out to, you know, different end consumers. So I think that project, smaller projects are more likely than some of these larger projects.

Shaheen Chohan (18:50):
So actually, that's quite interesting. Do you think that the small modular refinery could be the pathway forward? It's low risk? Lower risk?

Hillary Stevenson (19:05):
Yeah lower risk and I think sooner to return on investment. And you know maybe like fit for purpose you know. So I think a lot of times we talk about in the news oh first new refinery in decades. Well that's actually not true. Texas International Terminals with GCC Bunkers built a small refinery down on the Gulf Coast to make marine fuels. Prior to that, Marathon built a refinery in the Bakken to run Bakken crude. They've since converted it to renewable diesel.
But, you know, I think these sort of like niche markets where you have supply and demand and a quick timeline are easier wins than a huge project, sort of at the end of America with no pipeline connection.

Shaheen Chohan (19:40):
Hillary, I'd like to come back and just find out a little bit more about that statement I made at the beginning of the discussion about reducing capacity and right sizing. Now, we did see a number of years where we saw refineries and individual units shutter and closed, but not all of that capacity actually left the market, right? Some of it converted. Could you share a little insight on some of the big keynote developments and projects? But also, do you also see this as a potential consideration for some refineries going forward?

Hillary Stevenson (20:16):
I mean, I think there is a big trend, it was very in vogue to close your refinery and convert it to renewable fuels, particularly in California, where you just have some sort of stacking regulations that help make that profitable. So you have Martinez closed, you have Rodeo that closed and converted. What's interesting is that the two newest refinery closures in California have not announced plans to convert to renewable feedstocks.
So I think we saw a big rush of capacity in 2023, 2024 of renewable diesel or sustainable aviation fuel. And that has sort of flattened out over 2024, 2025 and maybe into 2026. There's been some regulatory changes that are influencing the sort of pause on the rush to new developments.
But in terms of like how it works with refining, it's interesting. We talked about Dickinson and North Dakota converted to renewable fuels. There's been some refiners that run their conventional crude also have a renewable diesel unit or a Co processing unit, but we've actually seen two of those convert back to conventional feed. So I think the economics of renewable fuel production is sort of in flux, which is keeping some of those investments sort of on hold.

Shaheen Chohan (21:43):
That brings us to the end of our discussion. And all it really leaves me to do now is say a few big thank you’s. Firstly to you both Hillary and Jesus. Thanks for sharing your insights and perspectives today. I really enjoyed the discussion. Thank you.

Shaheen Chohan (22:00):
If any of you who've joined us have any further questions about any of the topics that we've discussed today, then please do reach out to myself, Jesus or Hillary via the contact details you can see here. And then finally, just a very big thanks to all of you who've taken time out to join us. I hope we have helped you all better navigate some of the currents of change that we're seeing. Welcome to the Answer Age.