Small U.S. Refineries Can Prosper

A story in today’s Chronicle Business section raised the prospect of small, inefficient refineries being forced to close in coming years as more modern fuel-making capacity comes online and demand for gasoline and other oil products comes under pressure from many sides. But that’s not to say all small plants are endangered species.
There will still be a place for small, well-run refineries (think: below 100,000 barrels per day of capacity) that serve niche markets and can manage crude oil costs, analysts said.
“If you know how to hedge forward so you can lock in good margins as you see them for a period of 6 to 12 months, I think you can survive quite well,” said Peter Beutel, industry analyst with Cameron Hanover in New Canaan, CT.
More vulnerable are going to be so-called “simple” refineries — so named because they are limited in the types of crude oil they can process and fuels they produce — in regions like the Gulf Coast, which is served by many refineries that could easily fill in the gap if a small plant closes.
Analysts estimate simple facilities represent about 15 percent of the country’s 17.5 million barrels per day of refining capacity. But only about a third of that capacity is considered to be at immediate risk of closing, one analyst said.
“If it was a very simple refinery, running a purely light, sweet crude slate, making a high gasoline yield, especially if it was a stand-alone refinery, that what makes a refinery most exposed,” said Aileen Jamieson, research manager in Wood Mackenzie’s downstream division in Edinburgh, Scotland.
“But the one thing about the U.S. is that it doesn’t have many simple refineries,” she said. “It’s a very complex refining system in America.