Skip to comments.Ownership of U.S. petroleum refineries has changed significantly since 2000
Posted on 01/30/2014 5:18:22 AM PST by thackney
U.S. refining capacity increased since 2000 as capacity additions outpaced the loss of capacity from three major refinery closures. Yet the number of refineries and companies both declined over the same period, as the concentration of refining capacity among the top five companies increased from 38% in 2000 to 44% in 2013.
Ownership of U.S. refinery capacity changed substantially in recent years, notwithstanding relatively slow changes in refinery capacity and the number of companies involved in the refining sector. An examination of company-level information and transactional data since 2000 shows both consolidation and dispersion. Almost 40% of large refiners (i.e., those with at least 1% of total U.S. capacity) in 2000 had exited the industry by mid-year 2013. Many refining companies changed substantially between 2000 and mid-year 2013. Some key themes are:
Specialization. Several large oil and gas producers with refining operations, including Marathon Oil Corporation and ConocoPhillips, transferred their refining assets to stand-alone refining companies.
Refocus away from refining. Some companies demonstrated a lessened commitment to refining. BP and Chevron reduced their refining capacity (by 23% and 10%, respectively), but stopped well short of exiting refining. Total, Exxon Mobil, and Access Industries had slight reductions in U.S. refining capacity (5%, 3%, and 2%, respectively).
Refocus on refining. Other companies had noticeable increases in capacity. Valero and the joint ventures Motiva (Shell and Saudi Refining) and Deer Park (Shell and Mexico's PMI Norteamerica) increased refining capacity by 277%, 23%, and 20%, respectively. Valero grew through acquiring companies and assets, while Motiva grew through investing in its assets, chiefly the expansion of the Port Arthur, Texas refinery, which is now the largest refinery in the United States.
Vertical integration. Delta Air Lines, which owned no refining assets, purchased a refinery from ConocoPhillips and now produces jet fuel for its aircraft along with other petroleum products that it does not consume.
Historically, integrated companies divested refining assets because their profitability was volatile and relatively low, particularly when compared with oil and gas exploration and production. Purchasers were willing to acquire the divested refining assets at discounted prices. Other companies viewed the potential profitability of the refining sector more favorably, leading them to acquire other companies or assets.
The ownership of refineries today reflects multiple changes since 2000. For example, in January 2000 Tosco (5th-largest U.S. refiner), Conoco (10th-largest U.S. refiner), and Phillips (17th-largest U.S. refiner) were all separate companies, and Suncor had no U.S. refining operations.
Subsequently, Phillips acquired Tosco in 2001, merged with Conoco in 2002 (becoming ConocoPhillips), sold its Denver refinery to Suncor (whereby it entered U.S. refining) in 2003, spun off two of its refineries to create WRB Refining in 2006, sold its metro Philadelphia refinery to Delta Air Lines (whereby Delta entered U.S. refining) in April 2012, and subsequently spun off all of its remaining refineries (except a small Alaska refinery), creating Phillips 66 in May 2012 (see chart below). These and other transactions are noted in EIA's recently updated Genealogy of Major Refiners.
full Genealogy of Major U.S. Refiners with notes and sources
Forgot to mention government regulation which makes it too expensive for smaller companies.
Pretty tough to make that claim when several small indepent refineries are still in operation.
Nice graphics. Boils it down nicely.
The operable word is “small”. Here’s why that matters.
If you really want to meet some prognosticators, look to oil refiners. To start with, crude oil around the world varies tremendously in the percentages of its nine major fractions. (simple chart).
The two biggest fractions, from the perspective of the market, are Petrol and Fuel Oil. Fuel oil consumption is absolutely dependent on future weather, that is, a cold winter means they need to produce more home heating oil *instead* of gasoline.
Likewise, gasoline prices are very interactive with the economy, that is, an economic slump lowers consumption; but rising gasoline prices puts downward pressure on the economy.
Now, here’s the zinger. Refineries have to *retool* for different petroleum fractions. Which is both very expensive and time consuming.
Needless to say, while refineries can guess what the future holds, guessing wrong ends up with them producing a product that nobody needs, and sinking its price. While they can put a little extra in storage, that is expensive as well.
So what big refineries can do is to make long, large contracts, to stabilize their market. This is already done in the crude oil markets, which is why crude oil is cheaper in the US, because we buy a lot of it, ahead of time, for a fixed price.
When you see variations in crude oil, you are looking at the spot market, where little countries who cannot afford big contracts at fixed prices have to shop. So they end up paying more.
Little refineries are in the same fix. They can’t make as much money refining the two big fractions, so they concentrate on refining other fractions. But the risk in doing so is greater, and unexpected costs can be ruinous.
Little refineries due the same. They are often (not always) situated for a local supply of oil and design for that oil.
I've done refinery design work in the past. While they can process some oil outside their design parameters, it usually is done less efficiently (meaning more costly). A small amout of out-of-spec oil can be blended in with a majority in-spec without great upset. If it is bought relatively cheaply, the economics still work on the original design.
Most folks don't understand the great varation in oil and the associated varation in cost of raw oil as well as associated varation in cost of refining.
Has there been an increase or a decrease in small, independent refineries?
I don’t know the answer to that, and it would depend on the time frame you consider.
There have been a few small ones in the works and I know of one or two small refineries brought back to life in the past 5~8 years.
I see your chart and mine (Post 10) simply as Agenda 21 in the works. Cut down on the number of people at the top so that government, which will be the United Nations, bureaucrats can easily deal with them.
I thought this article was appropriate for the question:
Teapots boiling in Texas as shale spurs refining revival
Near the only four-way stoplight in Nixon, Texas, smoke rises off a pilot flare at the Blue Dolphin Energy Co. refinery that had sat cold for two decades.
The employee parking lot is full, tanker trucks line up to unload crude and the silver distillation tower thrums. None of that was happening two years ago, when Blue Dolphin reopened the 10,000-barrel-a-day plant. Smaller refineries are known as teapots because of their size.
The reason for the resurrection is illustrated across the street the Screaming Eagle 1H Well. Its one of thousands in South Texas, making the Eagle Ford shale formation among the worlds fastest-growing oil patches. Blue Dolphin, Valero Energy Corp., Kinder Morgan Inc. and others are trying to capitalize on the biggest boom in U.S. history by building new crude-processing equipment, reviving mothballed plants and opening new refineries.
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