The answer to that question is straightforward. According to data in the May 2022 “Monthly Refinery Report” produced by the U.S. Energy Information Administration, U.S. operable refinery capacity has fallen by about 1 million bpd since the beginning of 2020. Quoted by Zero Hedge, Reuters senior markets analyst John Kemp notes that according to the report, about two-thirds of the loss can be attributed to the shutdown of three U.S. refineries: Philadelphia Energy Solutions in Pennsylvania, which closed its refinery (335,000 bpd) after an explosion and the operator went bankrupt; Marathon in California (161,000 bpd) is converting its Martinez refinery to a biofuels facility, as part of California’s energy transition program; and in Louisiana, Shell closed its Convent refinery (240,000 bpd), as part of its strategy of transitioning to a low-carbon future, and when it also failed to find another buyer.
Kemp points out that even before the Covid pandemic, the likelihood that the transition to more electric vehicles would reduce fuel demand made many refiners reluctant to replace obsolete or damaged equipment, let alone increase capacity. In addition, capacity reductions were accelerated due to pandemic-driven drops in fuel consumption, which created extra financial pressures. The reality is that the industry is struggling to manage these long-term pressures on the refining system, considering the projected increase in alternative-powered vehicles.
