By Arathy Somasekhar
U.S. refiners are usually not planning to make big-ticket investments to course of extra home crude and fewer oil from prime suppliers Canada and Mexico, {industry} sources and analysts stated, an impediment to President Trump’s plan to spice up oil output.
Trump’s pledge to unleash U.S. power manufacturing and decrease costs for shoppers has centered on growing home oil drilling. On the identical time, his tariff threats have lower imports of crude from Canada and Mexico, which account for round 1 / 4 of the oil U.S. refiners course of, despite the fact that in the long run he determined to exempt power imports.
Uncertainty over future commerce coverage might make processing extra home crude extra enticing to U.S. refiners, however the swap shouldn’t be easy.
The U.S. produces primarily gentle shale crude, which ideally requires a special configuration at refineries than denser, heavier Canadian and Mexican crude. Greater than 70% of U.S. processing capability is configured to run heavier grades, and altering the setup generally is a prolonged, costly course of.
Reuters spoke to 10 {industry} sources, together with refinery workers, executives and analysts, for this story, and all however one agreed that refineries had been unlikely to make these massive investments.
The one refinery supply, who declined to be named, stated that every one firms would discover the choice of boosting incremental gentle crude processing capability, including that it could additionally take a few years and price a whole bunch of thousands and thousands.
“No person is making these funding choices based mostly on very short-term market fluctuations,” Barbara Harrison, Chevron’s vp of crude provide and buying and selling, advised Reuters. She added that the sixth-largest U.S. refiner by capability was at present happy with its refinery processing capability.
“These investments don’t occur in a single day, the development does not occur, the allowing does not occur in a single day. So you actually need to verify your funding is aligned with long-term market fundamentals,” she stated.
Slowing gasoline demand as a result of development in electrical autos, mixed with elevated competitors from refineries in different nations, is already main some U.S. refiners to close down, slightly than spend money on reconfiguration.
Unbiased refiner Phillips 66 in January forecast 2025 gasoline demand to rise 0.8% globally, and 0.2% within the U.S. The No. 4 U.S. refiner plans to stop operations at its 139,000 barrel-per-day (bpd) Los Angeles-area plant later in 2025.
LyondellBasell Industries began to completely shutter its 263,776 bpd Houston oil refinery earlier this yr.
U.S. internet crude oil imports will fall by 20% in 2025 to 1.9 million bpd, their lowest since 1971, the Power Data Administration forecast in March, pointing to larger U.S. manufacturing and decrease refinery demand.
Nonetheless, U.S. oil output is predicted to plateau by the top of this decade regardless of Trump’s plans, which is a longer-term disincentive for refiners to construct or modify models.
“Our view is gentle shale oil manufacturing within the U.S. will peak someday within the first half of the 2030s,” stated John Auers, managing director at Refined Fuels Analytics. “In distinction, we anticipate (world) heavy crude manufacturing to proceed to develop into the 2040s. So I would not advise refiners to transform.”
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Growing capability to run lighter crudes at a medium-sized refinery can take years and price as much as a whole bunch of thousands and thousands of {dollars}, Auers and different {industry} sources stated.
High U.S. oil producer Exxon Mobil paid $2 billion so as to add a 250,000-bpd crude distillation unit that runs gentle Permian shale oil at its Beaumont, Texas, refinery in 2023. The improve took 4 years. No.2 oil producer Chevron additionally accomplished a retrofit of its refinery in Pasadena, Texas, on the finish of 2024 to increase the processing capability of lighter crudes by practically 15% to 125,000 bpd. That price about $475 million, stated Hillary Stevenson, a senior director at market intelligence agency IIR Power. Chevron declined to touch upon the funding.
As shale fields in North Dakota’s Bakken basin and the Permian basin in West Texas and New Mexico produced a flood of lighter crude, refiners have already blended extra of it with the imported heavy crude their services had been constructed to deal with.
They’re, nonetheless, near their restrict when it comes to how way more crude they’ll mix, a number of sources stated.
Some impartial refiners with out upstream manufacturing, like prime refiner Marathon Petroleum and HF Sinclair, stated in February amid the tariff threats that they might pivot from heavier crude to lighter alternate options, however warned that it might influence refinery utilization and yield.
Lighter crude tends to supply larger volumes of petrochemical feedstock naphtha and fewer of the extra worthwhile diesel and jet gasoline, and will pressure operators to cut back the quantity of crude they run general.
“There’s a level the place if heavy feedstocks grow to be restricted, it impacts charge and manufacturing of fresh merchandise, definitely from our property, and we would anticipate industry-wide,” Valero Chief Working Officer Gary Simmons stated in February.
If tariffs lower provides of Mexican and Canadian crude, refiners usually tend to flip to different suppliers of comparable oil, reminiscent of Colombia, {industry} sources stated.
“Firms would wish to have some certainty on coverage and long-standing rules to make these massive investments,” stated IIR’s Stevenson.
“4 years shouldn’t be sufficient to make that form of capital expenditure and funding,” she added, referring to the size of a U.S. presidential time period.
(Reporting by Arathy Somasekhar in Houston; modifying by Peter Henderson, Simon Webb and Marguerita Choy)
