US refiners are unlikely to spend large amounts to process more domestic crude oil

Refineries must be configured differently for light US crude

It can be expensive and time-consuming to change refinery configuration.

The margins and yields of refineries can be affected by using different types of crude.

By Arathy S. Somasekhar

Analysts and industry sources said that U.S. refiners do not plan to invest heavily to process more crude oil domestically and less oil imported from Canada and Mexico. This is a major obstacle to President Trump’s plan to increase oil production.

Trump's pledge of unleashing U.S. production and lowering prices for consumers focused on increasing domestic drilling. Trump's tariff threats, however, have reduced imports of crude oil from Canada and Mexico. These imports account for about a quarter the amount of oil that U.S. refiners use, even though he ultimately decided to exempt imports.

The switch to domestic crude is not easy because of the uncertainty over the future of trade policy.

The U.S. produces mostly light shale oil, which requires a refinery configuration that is different from the heavier, denser Canadian and Mexican crude. More than 70% U.S. processing capacities are configured to run heavy grades. Changing the setup is a long and expensive process.

For this article, we spoke with ten sources in the industry, including executives, analysts and refinery staff. All but one of them agreed that these investments were unlikely.

One refinery source who refused to be identified said that all companies will explore the option of increasing incremental light crude processing capability. They also added that it would take several years and cost millions of dollars.

Barbara Harrison, Chevron’s vice president for crude supply and trade, said that "nobody makes these investment decisions on the basis of very short-term fluctuations in the market." She also said that Chevron, the sixth largest refiner in the United States by capacity, was satisfied with its current refinery processing capability.

These investments don't happen over night, construction does not occur, and the permits do not appear overnight. She said that you should make sure that your investment aligns with the long-term fundamentals of the market.

Some U.S. refineries are already closing down due to the lower demand for gasoline, as a result of electric vehicles and increased competition with refineries from other countries.

Phillips 66, an independent refiner, forecasted in January that the global gasoline demand for 2025 will rise by 0.8% and by 0.2% in America. The No. The No.

LyondellBasell Industries began to permanently close its 263,776 barrels per day Houston oil refinery in the first half of this year.

The Energy Information Administration predicted in March that U.S. crude oil net imports would fall by 20 percent in 2025, to 1.9 millions bpd. This will be the lowest level since 1971. It attributed this to increased U.S. production, and lower refinery demands.

Despite Trump's plans, U.S. crude oil production is expected to plateau at the end of the decade, which will disincentivize refiners from building or modifying units.

John Auers is the managing director of Refined Fuels Analytics. He said, "Our opinion is that light shale production in the U.S. peaks sometime in the early 2030s." "We expect that (global heavy crude) production will continue to increase into the 2040s. "I wouldn't recommend that refiners convert."

Big Costs in Time and Money

Auers and industry sources say that increasing the capacity of a refinery to run lighter crudes can take many years and cost hundreds of millions of dollar.

Exxon Mobil, the top U.S. oil company, paid $2 billion for a crude distillation unit capable of producing 250,000 bpd of light Permian oil in its Beaumont, Texas refinery by 2023. The upgrade took 4 years.

The No.2 oil company, Chevron, also completed an upgrade of its refinery at Pasadena in Texas by the end of 2024, to increase the processing capacity for lighter crudes to 125,000 barrels per day, or nearly 15%. Hillary Stevenson is a senior director with market intelligence firm IIR Energy. She said that the cost was approximately $475 million. Chevron refused to comment on its investment.

Refiners are already blending more lighter crude with imported heavy crude. This is because shale oil fields in North Dakota’s Bakken basin, and West Texas’ Permian Basin and New Mexico’s Permian Basin have produced an influx of lighter crude.

Multiple sources have said that they are close to the limit of how much crude oil they can mix.

In February, amid tariff threats, some independent refiners, including top refiner Marathon Petroleum, and HF Sinclair said that they could potentially reduce their production.

Switch to lighter crude

There are lighter alternatives available, but they may have an impact on refinery yield and utilization.

The lighter crude produced tends to yield more petrochemical feedstock, naphtha, and less diesel and jet fuel. This could force operators reduce their overall crude production.

Gary Simmons, Valero's Chief Operating Officer, said that limiting heavy feedstocks would affect the production and rate of clean products. This was true for both our assets and industry-wide.

Sources in the industry said that if tariffs reduce supplies of Mexican or Canadian crude oil, refiners will be more inclined to switch to other suppliers, such as Colombia.

Stevenson, IIR, said that companies would need some certainty about policy and regulations in place to make large investments.

She added that "four years is not long enough" to make such a large investment and capital expenditure. This was in reference to the term of a U.S. president. (Reporting and editing by Peter Henderson in Houston, Simon Webb and Margueritachoy.)

(source: Reuters)