United States will not have enough oil refineries

 The US president's first move to confront the exorbitant prices was to urge the Organization of Petroleum Exporting Countries "OPEC" to increase global oil supplies, and he succeeded to some extent. Biden also tried to embarrass companies exploring for shale oil in the United States and attribute the crisis to not restarting their rigs, but he did not achieve similar success in this direction. Then, US administration officials began to address the decline in the capacity of the refining system in America, which is the biggest and longest-term obstacle to curbing fuel prices, as its exorbitant prices pushed inflation to its highest levels in decades.

Crude oil refineries for gasoline, diesel and jet fuel around the world have been shut down during the pandemic, and plans to build new facilities have been put on hold. However, the closures were particularly severe in the United States, where some old facilities were irreparably damaged due to breakdowns and hurricanes, while others were referred to the production of renewable diesel. Over the past three years, refineries in the country have closed, or plans to shut down, to write off about 2 million barrels of daily refining capacity, leaving gasoline production unable to supply an estimated 30 million vehicles.

unfortunate miscalculation:

Biden administration officials met with top executives at the nation's largest fuel companies when gasoline prices topped $1.32 per liter in June. People familiar with the matter said that administration officials' comments revealed an unfortunate, and possibly deliberate, misunderstanding of the refining industry. White House officials said in a Zoom session with a refining executive that oil companies should be able to recoup the costs of building a new refinery within a year because they generate very large profit margins.

In an interview with Bloomberg TV on July 7, Biden's economic advisor Heather Bushey dismissed allegations that the president's approach was naive, saying the US president was using all available means to counter high gasoline prices. But to officials who have worked in the US refining sector for a long time, the idea of ​​oil companies investing billions of dollars in a new refinery based on the huge profits they make in a few months seemed laughable.

On June 23, Chevron CEO Mike Wirth reviewed the economics, supply logistics, and constraints of the United States refining sector during a separate closed-door session in Washington with Energy Secretary Jennifer Granholm and other officials. The meeting ended with everyone agreeing on one point, which is that the crisis of lack of refining capacity will continue; It may even get worse.

The facilities are worn out:

The United States has not built an integrated oil refinery since 1977. The cost of designing and building a maze of pipelines, tanks, and distillation columns is $10 billion, and an integrated refinery takes nearly ten years to build. ExxonMobil and Valero Energy are in the process of implementing some expansions, but together they will barely make up for the losses of building one refinery. The sharp decline in fuel demand due to the epidemic at the same time led to the announcement of the closure or change of products of at least six refineries to serve other purposes, including the Houston refinery of “Lionel Basil Industries”, which can produce about 16.8 million liters of gasoline per day. , which is scheduled to close no later than next year.

“In my personal opinion, there will never be another new refinery built” in the United States, Wirth said in an interview with Bloomberg TV in June. In a political environment in which governments around the world say: 'Don't be intimidated by these products'.

To see how difficult Biden could have been in solving the refining capacity shortage, consider that he once tried to help save an oil refinery and failed.

That refinery in Philadelphia, not far from Biden's hometown, accounted for nearly a third of refining capacity in the northeastern United States. But after running it for more than a century, it's starting to fall apart. Factors such as obsolete equipment, more costly ecosystems and weak demand, have taken their toll. Supporters of salvaging the refinery appealed to Biden, then-Vice President, to help save it from shutdown but their efforts were in vain. The refinery was eventually shut down by a series of malfunctions and explosions and is now dismantled. Plans are also in place to transform its site into an e-commerce and life sciences business hub.

global scarcity:

The lack of refining capacity in the United States under normal circumstances would have meant reliance on imports or a drawdown of stocks. But the rest of the world is also suffering. Sanctions against Russia, as well as China's efforts to limit its oil exports, have exacerbated tight global supplies. Gasoline stocks in the United States fell to their lowest seasonal level in six years, while distillate reserves fell to their lowest level in 17 years.

The past few weeks have seen pressures ease somewhat with the national average price falling to $1.23 a liter as of July 11, down 7% from an all-time high of $1.33 a liter on June 13. But it is a drop that does not match the significant drop in oil prices, as the fuel industry is suffering under the weight of scarce resources. Refining currently accounts for 26% of the cost of a liter of gasoline, up from 14% previously, according to the US Energy Information Administration.

One powerful storm in the Gulf of Mexico could halt production at some of the largest refineries for weeks. “My guess is, if a strong hurricane hit in the middle of summer it would push the price over $1.45” per liter, said Patrick DeHaan, head of oil analytics at GasBuddy, which tracks gasoline prices.

US fuel producers reap the benefits of higher gasoline prices. Marathon Petroleum, Valero Energy and Philips 66, the three largest independent refineries, as well as Exxon and Chevron, are expected to generate a record $10.4 billion in the three months to June 30 from refined products. During the second quarter of this year, the American "Exxon" refineries will achieve profits that exceed the profits of the aforementioned nine refineries combined.

Limited options:

It is not enough for fuel producers to change their mind about shutting down their refineries. About a third of the shutdowns in recent years have been because owners have converted refineries to produce renewable diesel. This process will allow them to meet some environmental requirements while claiming a tax deduction of 26 cents on every liter they produce.

Refining capacity increases in Asia and the Middle East may ease global import scarcity, but they will also increase US dependence on foreign supplies at a time of supply chain uncertainty.

Biden currently appears constrained by limited options to reduce gasoline prices quickly, as the US President planned to visit Saudi Arabia this month in order to urge