Oil refiners have added capacity. That should reduce the risk of sticker shock at the gas pump.
Oil refiners have added capacity. That should reduce the risk of sticker shock at the gas pump.
You may recall that last year, while we were paying some of the highest prices ever at the gas pump, Marketplace (among others) pointed out that part of the problem was refining capacity. Namely, that there wasn’t enough of it.
When this economy finally started pulling itself out of the worst of the pandemic recession, refiners simply couldn’t turn enough crude oil into gasoline, diesel and jet fuel to meet demand when it started to surge.
But the shortage of capacity seems to be fading in the rearview mirror.
The Chevron refinery in the Los Angeles suburb of El Segundo is a sprawling complex of heavy equipment and tanks that spans a thousand acres pretty much right next to the beach.
“We are one of the largest refineries on the West Coast. We have a rated capacity of 290,000 barrels per day,” said Jeff Wilson, corporate affairs manager at Chevron. When the pandemic hit, they were suddenly refining a whole lot less than that, he said.
“We had to reconfigure this plant quickly. All of a sudden, people weren’t flying. Jet fuel demand just collapsed,” Wilson said.
Many of us weren’t driving much either.
“But at the same time, the refineries needed to continue to run,” he said.
Chevron’s refinery here bounced back as demand came back. But since 2020, a half dozen other refineries in the United States have shut down. And at the start of last year, refining capacity hit an 8 year low.
That’s when everybody started traveling again, said Tracy Shuchart, founder of Hilltower Resource Advisors.
“You had all this demand hit the market that wasn’t really prepared for,” Shuchart said.
Since then, refiners have added capacity at existing facilities and profits are growing, which is attracting more investment to the industry.
That’ll make a difference to consumers, said Bob McNally, president of Rapidan Energy Group.
“Energy is not something like, you know, movie tickets, or Chipotle or something, it’s not a want-to-have. It’s a must-have,” McNally said.
And, he said, all that added capacity could help shield against price spikes down the road.
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