Is U.S. Refinery Expansion Realistic?

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

The Trump administration said it could tap as much as $150 million to help with refinery expansions. The issue is there's not much more they can do even with federal support.

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Refineries Running Near Peak Levels

Amid already high utilization, plans from Washington to tap emergency funds to expand the nation's refining sector do not seem to be accelerating capital projects, according to Industrial Info Resources data.

The U.S. Energy Information Administration (EIA), part of the U.S. Department of Energy, reported that U.S. refiners processed 16.7 million barrels per day (bpd) of crude oil into products over the seven-day period ending October 30. That's up 199,000 bpd from the prior week and brings refinery capacity utilization to 94.5%.

"U.S. crude outages averaged near 400,000 bpd for week ending October 30, the lowest weekly value in at least 10 years," said Hillary Stevenson, vice president of energy intelligence at Industrial Info Resources. "We are seeing extremely low outages for a time we would normally expect to be in full-swing fall turnaround season."

There were just more than 1 million bpd offline for the same period last year, she added.

Refiners have been running near full-tilt for much of the year. U.S refineries increase production during the summer to keep pace with travel demand, but this year has seen another strain at the global level due to conflict in the Middle East, which has limited waterborne trade in commodities.

At home, however, high run rates aren't doing much to keep supplies in check. The EIA found inventories for gasoline and distillates, a refined product category that includes diesel, are on the decline. Gasoline inventories for the week ending October 30 were 2% below the five-year average, while distillates were 13% below the five-year average.

The White House, however, wants more. Before Republicans were trounced in the midterm elections on November 3, Energy Secretary Chris Wright said that U.S. President Donald Trump would use the Defense Production Act to provide up to $150 million to expand domestic production of refined petroleum products.

"These Defense Production Act funds will be used strategically and in partnership with private industry to rapidly bolster America's existing energy infrastructure," he said.

Enacted in response to the Korean War, the Defense Production Act (DPA) gives the president a wide berth in working to strengthen the production of goods for the sake of national security. Data from Industrial Info show refineries already added some 22,000 bpd to throughput capacity this year without federal support.

And $150 million isn't a lot of money. The Canton Refinery in Ohio, operated by Marathon Petroleum, currently has $83 million worth of active projects, all tied to unit turnarounds, according to Industrial Info Resources data. Technically, relying on the DPA would mean the funds would have to be used for national defense purposes, not the private sector, though the administration could use the conflict in Iran as cover.

Industrial Info Resources offers more information on the Canton Refinery in its Global Market Intelligence (GMI) Petroleum Refining Plant Database, where readers can find details--including construction schedules, investment values and necessary equipment--in plant profile.

By the Numbers

• 600,000 bpd: Year-over-year dip in U.S. refinery outages to the end of October
• 10-year low: U.S. crude outages to the end of October

Delek says Thanks, but No Thanks

In October, U.S. Vice President JD Vance said a refinery in Tyler, Texas, operated by Delek U.S. Holdings, would be expanded using DPA funds, but the company denied that in its earnings call from last week.

Subscribers can learn more about the Tyler refinery in a detailed plant profile.

Chief Executive Officer Avigal Soreq made it "very, very clear" that the Tyler Refinery would stay at its current capacity of 75,000 bpd.

"We're obviously very thankful for the administration for helping rural refineries in the U.S," he said. "We are obviously very thankful for the administration of understanding that small jobs in those areas are extremely important and the affordability is extremely important. But from a materiality standpoint, it doesn't meet our threshold at all."

Tyler is one of four operational refineries controlled by Delek U.S. Holdings. Subscribers can consult a full list of plant profiles.

Meanwhile, with run-rates already high, there's not much more the administration can do for the sector in the short term. Industrial Info Resources is tracking several capacity expansion projects, but those targeted for completion by next year would offset only about half of what was lost by the April closure of the Valero Energy's Benicia Refinery in California.

Federal data actually point to a slight decline in refinery utilization. The EIA expects utilization to average 94% this year and 93% for 2027, a consequence of maintenance deferrals from 2026 to 2027, Stevenson said. Meanwhile, commodity prices have been in a free-fall since midterm elections as the Trump administration signals a pause in continued strikes on Iran.

"U.S. refinery utilization in 2027 may end up more flat or higher year-on-year if Valero is able to partially restart the former Houston Refinery it recently purchased from Lyondell or if strong margins support maintenance deferrals," she said Monday. "All eyes are on the fall 2027 season."

Valero in October said it would hand over $320.5 million to take over the Houston Refinery from LyondellBasell Industries and partially restart the plant by year-end 2027. Data from Industrial Info show the plant can process 217,000 bpd; subscribers can learn more from a plant profile.

The price for Brent crude oil, the global benchmark, was trading at around $95 per barrel early Monday. Brent is down nearly 10% since the November 3 election. That, in turn, is lowering the burden on consumers, which polling showed was a major factor in the Republican loss last week.

Key Takeaways

• Drawing on the Defense Production Act would limit refinery spending to national security needs
• U.S. refineries were running at near-peak capacity for much of the year

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news, and analysis on the industrial process, manufacturing, and energy-related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified, and verified plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).