Episode 146 | Refiners’ Response | American Fuel & Petrochemical Manufacturers
While high inflation is hitting all segments of the economy, high gas prices have been at the leading edge of our financial woes.
Oil and gas producers are typically the top targets when gas prices spike. But in June 2022, President Biden directed his attacks at the refining industry, in a letter saying, “Companies must take immediate actions to increase the supply of gasoline, diesel, and other refined product.”
This accusation led the American Petroleum Institute and the American Fuel & Petrochemical Manufacturers to write a direct response to the president in defense.
My guest, Chet Thomson, is AFPM’s President and CEO. He says daily refined capacity has dropped about 1.1 million barrels per day since 2019, to about 18M barrels today.
He divides this lost capacity into three groups:
- Completely shut down. The largest refinery on the East Coast was Philadelphia Energy Solutions. It produced 340K b/d, but closed for good in 2020.
- Conversions (i.e. renewable diesel). The industry has invested over $15B on these. However, this typically results in about ⅓ the output.
- Temporarily shut down. Limetree Bay Refining in the U.S.V.I. is the only one. It can produce as much as 650K b/d.
Quite frankly, there is no excess capacity, according to Chet, adding that refineries are currently running around 93% capacity. Any downtime is a result of equipment being overworked.
“If you have a unit right now in the country that refine crude oil into petroleum products, you’re working right now,” says Chet.
Oil refineries cost tens of billions of dollars. If policymakers are promising an end to fossil fuels, who would want to build a refinery?
Chet says crude oil prices have always driven the price of gas and diesel, making up between 50-60% of the cost. American refining, even today, says Chet, produces more fuel per day than Americans consume. Increasing reserves of refined fuel can help price, but ultimately it comes down to producing more crude.
“If crude prices come down, gasoline and diesel prices will follow. It’s a market reality and we’re seeing that,” he says.
A week after the president’s letter and response, industry leaders met with Energy Secretary Jennifer Granholm. Chet was there. He recalls the meetings were “productive and professional. We shared our vantage on this and they shared theirs and then we kind of moved on.”
Chet says those meeting underscored what he sees as inconsistent messaging on behalf of the administration. "The investment and resources that are needed to address some of these on the longer term are not consistent with an accelerated transition away from fossil fuels.”
Even still, Chet says the refining industry has spend over $100 billion in efforts to reduce carbon, expand renewable fuels, and make fuel production less energy-intensive. When asked if any funding was appropriated to support these efforts, either in the Inflation Reduction Act or the Infrastructure Investment and Jobs Act (’21), AFPM simply replied, “None.”
“Hopefully we have learned over the last year that refineries are national assets. They’re important to our communities. They’re important for good jobs. And they’re important to supplying the fuels that we need as a country to thrive,” says Chet.
“We don’t call it a ‘transition,’ we call it an ‘evolution.’”
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