Concerns that smaller US Gulf coast oil refineries could shutter are diminishing on resilient global refined products demand, continued profitability and growing exports, according to Louisiana State University's (LSU) Center for Energy Studies.
"All seems relatively calm on the refinery shut-down front," as wide margins and a recovery to pre Covid-19 pandemic era utilization rates have quelled concerns about the economic viability of smaller refineries, researchers at LSU wrote in their 2024 Gulf Coast Energy Outlook released earlier this month.
The Center for Energy Studies expressed concerns in last year's outlook about future refinery shut downs and facilities that would not return to normal operations following the 2021 hurricane season.
As much as 1mn b/d of US refining capacity shuttered during and in the wake of the pandemic, contributing to historically wide refining margins last year.
But no new shut down announcements have been made, LSU said in the 2024 outlook. LyondellBasell even announced earlier this year that it would delay a plan to shutter its 264,000 b/d Houston refinery, postponing the closure to 2025.
Allayed concerns of facility closures are largely due to continued refining profitability driven by ongoing geopolitical tensions, such as sanctions on Russian products following the war in Ukraine and Opec+ production cuts, that have tightened energy markets and put a floor under near-term profits, a sentiment shared by equity research analysts at Bank of America.
Waning fears of a US economic slowdown have also buttressed refining profitability, LSU said, while the trend of increased Gulf coast refined product exports is likely to continue.
The lion's share of the US' 17mn b/d in refining capacity is on the US Gulf coast, and the top five facilities in Texas and Louisiana each produce over 500,000 b/d of product when running at full rates. But there also are 18 facilities in the region with maximum capacities under 200,000 b/d, according to Energy Information Administration data, and smaller, less profitable US refineries have risked closure in recent years.
US Gulf coast refiners utilization rates have averaged 91pc this year through 10 November, down from 93pc in the same period last year and in line with 2018 and 2019 levels, before decreased demand in the pandemic years pulled average rates below 90pc.
A return to normal for Gulf coast utilization rates and a shift in gasoline demand relative to diesel and jet fuel, however, has contributed to a recent glut of gasoline stocks in the region and created a headwind for refiner profitability as gasoline margins narrowed. In response, refiners have cut fluid catalytic cracker (FCC) runs in an attempt to reduce stocks and widen margins.
