US Refinery Closures Impact Activity

Refinery closures across the U.S. in 2020 have impacted breakbulk demand, but longer-term changes may drive new activity, according to the Energy Information Administration.

The EIA reports that refinery capacity in the U.S. dropped from 19 million barrels per calendar day (b/cd) at the start of 2020 to just 18.1 million b/cd at the start of 2021, a 4.5 percent drop and marking the lowest annual capacity figure for the year-start since 2015.

“Typically, we don’t see capacity close and then reopen in the same operating mode, so we think it’s safe to say that the refineries that have closed are probably shuttered for good,” Chris Higginbotham of EIA told Breakbulk.


Refinery Bumbers Down

The EIA predicts that U.S. refining capacity “will not expand significantly during 2021,” and notes that as well as the sharp drop in overall refining capacity, the total number of refineries either operating or idle in the U.S. has also shrunk, with only 129 facilities online at the beginning of 2021 compared to 135 operable refineries listed at the beginning of 2020.

Covid was cited as a leading cause for shutdowns with the U.S. refining sector responding to "a substantial decrease in demand" for motor fuels and refined petroleum products in 2020. A major refinery incident at the Philadelphia Energy Solutions (PES) facility in 2019 also continued to have repercussions on capacity. The fire and explosion at the 335,000 barrels per day refinery left the facility damaged and permanently closed as of 2021. 

Once the largest refineries by capacity on the U.S. East Coast, the shutdown of the PES plant is a blow for petroleum product supply chains in the Central Atlantic and part of a shift that has seen downward pressure on refinery margins and made market conditions more challenging for refinery operators.

Over the longer-term, the EIA predicts that capacity will recover slightly but the nature of demand remains highly uncertain as the key markets for many products are also shifting.

“Our 2021 Annual Energy Outlook Reference Case projects a four- to five-year recovery in refinery throughput that only declines slightly throughout the projection. The Reference case includes current policies and regulations, and there are a number of side cases that show how the model responds to changes in key input variables compared to the reference case,” Higginbotham noted.


Conversion Opportunities

For breakbulk operators serving the downstream sector, the outlook for newbuild refinery projects is unlikely to rebound strongly however a shift to new fuel types may still drive growth as refinery operators upgrade or refocus production. 

“In addition to challenging market conditions, increasing market interest in renewable diesel production and pre-existing plans to scale down or reconfigure petroleum refineries all contributed to the closing of a handful of refineries in 2020,” said Julie Harris, petroleum expert at the EIA.

The shift to cleaner renewable fuels is of growing interest for many U.S. refinery operators and while this is driving the shutdown of some traditional facilities it is also leading to conversion or retrofit projects in other locations. For project cargo this can mean both an uptick in demand for handling decommissioned components as well as demand for transport and installation of new components. 

“We are seeing some of the capacity closures converted to renewable diesel,” Higginbotham said. “Whether or not this continues into the long-term for the United States is almost certainly dependent, in large part, on the success of these initial facility transitions, the ability for renewable diesel to define/penetrate a broader market, and domestic and international demand for liquid fuels.”

As the energy transition gathers pace, the EIA forecasts that U.S. liquid fuels consumption will finally to 2019 levels by 2022.

“Longer term, the Annual Energy Outlook Reference Case shows slight increases in biofuel production through the projection period and slight decreases in motor gasoline and ultra-low sulfur diesel fuel production through about 2040,” Higginbotham added, noting that “those changes aren’t very large.”


Port Investments

While the outlook for refinery production remains tepid, the EIA projects that the U.S. will remain a net exporter of crude oil and petroleum products through 2050, with a significant proportion of activity via Gulf ports. 

Major infrastructure investment at ports such Port Houston, Port of Corpus Christi and Port Arthur will widen ship channels and create major opportunities for breakbulk carriers over the next five years as construction ramps up and major new export facilities come online.

“The need for improved coastal navigation infrastructure in Texas has never been higher,” said Sean Strawbridge, CEO of the Port of Corpus Christi. “The administration and the U.S Army Corps of Engineers know this to be the case, and the Port of Corpus Christi continues to collaborate with the Federal government to ensure our national security and economic prosperity.”

The American Association of Port Authorities has urged Congress to increase investment in ports, building on the initial U$17 billion proposed by the Biden administration for upgrade work on inland waterways, coastal ports, land ports of entry, and ferries.

“Now is the time for significant and sustained federal investment in a stronger and more resilient port infrastructure,” said Chris Connor, AAPA president. “The consequences of decades-long under-investment in maritime infrastructure are playing out in real time.”