The United States’ capacity to refine oil into fuel has shrunk significantly during the pandemic because of the closure of refineries. And it may never come back, says the CEO of the second-largest oil company in the U.S.
In a closed-door meeting between Chevron CEO Mike Wirth and U.S. Secretary of Energy Jennifer Granholm in late June, reported by Bloomberg, both agreed that the shortage in refining capacity will persist and probably get even worse, as the country saw at least five refineries close in 2021 alone. These included a Shell facility in Louisiana and others in California, North Dakota, Wyoming and New Mexico. Analysts blame pandemic market conditions for the closures, as lockdowns slowed demand for oil, but also the energy transition, as some energy companies look to decarbonize their portfolios.
“My personal view is there will never be another new refinery built” on U.S. soil, said Wirth. “You’re looking at committing capital 10 years out, that will need decades to offer a return for shareholders, in a policy environment where governments around the world are saying, ‘We don’t want these products.’”
Even the so-called energy capital of the world, Houston, lost a refinery recently. LyondellBasell Industries announced in April it will shut down its refinery in Houston by the end of 2023 and leave the refining business altogether as part of a decarbonization strategy. The chemical company made the decision after unsuccessfully trying to sell the refinery, which will now become the latest in a rash of American refineries that have shut their doors over the last two years.
“While this was a difficult decision, our exit of the refining business advances the company’s decarbonization goals, and the site’s prime location gives us more options for advancing our future strategic objectives, including circularity,” said Ken Lane, interim CEO of LyondellBasell, in a statement.
Green transition advocates have been calling for the closure of fossil fuel infrastructure. But the majority of dirty assets being sold off are continuing to operate, only under different ownership.
A report published by the Environmental Defense Fund (EDF) in May found that many oil majors with net-zero commitments are selling off dirty assets to buyers who don’t have decarbonization commitments. Over the last five years, 155 such deals, worth US$86.4 billion, have moved fossil fuel assets away from net-zero-aligned companies.
“These transactions can make it look as though sellers have cut emissions, when in fact pollution is simply being shifted to companies with lower standards,” said EDF’s Andrew Baxter.
Some think there might also be life yet for LyondellBasell’s Houston facility, which refines 268,000 barrels of crude oil into transportation fuels and other products every day. John Auers, executive vice-president of Dallas-based Turner, Mason & Co, told Reuters that the refinery could still sell and that he expects “there will definitely be people knocking on the door” to buy it and keep it open.
In the meantime, chalk one up for decarbonization.
A version of this story appeared in the summer issue of Corporate Knights magazine.
