One of the enduring weaknesses of the modern US economy is the lack of redundancy. As long as most of the world is operating normally and there are no serious geopolitical disruptions, America’s “just in time” system works fine. But, throw a monkey-wrench into distribution, global exports, freight systems, shipping or elements of production and cracks quickly form in the armor.
This does not mean that the US economy can’t adapt; the pandemic shutdowns were horrifically pointless but they did prove that the system has the ability to function despite deep deficiencies. However, when it comes to the management of vital resources, such as energy resources, it’s clear that some changes need to be made in the near term.
Before the war in Iran a large portion of the public was oblivious to the fact that the US is the largest exporter of oil in the world, and of the foreign oil supplies we do receive, only 8% come from Gulf nation producers. A mere 7% of those supplies travel through the Strait of Hormuz. In other words, the US doesn’t rely on the Gulf for oil. With the new Venezuelan deal and oil flows from the gulf back to 98% of pre-conflict levels, the war is even less of a concern when it comes to US energy.
The problem is, there is a global oil refinery capacity shortage, and the US is not adapting as it should.
Ukrainian drone strikes against Russian refineries have recently forced the Kremlin to cut off all diesel exports to other countries. Russia is the second largest supplier of diesel in the world with 12% of all exports. This loss to global markets is straining already struggling refineries and causing prices to climb. The only country with the ability to increase refining capacity quickly is the US, but it’s not happening.
The last time a full-conversion refinery was built in the US was Marathon’s Garyville, Louisiana plant. It came online in 1977 at about 200,000 b/d and has since been expanded to about 617,000 b/d. Most U.S. capacity growth since the 1970s has come from expanding existing sites, not building new ones.
In five decades, no major infrastructure has been added. This means that as aging plants shut down, or as they are closed down due to state policies, US refining capacity will continue to fall and the ceiling for supply vs demand will get tighter and tighter.
Currently, national demand for distilled products is 8.7 million b/d, and production provides only 9.5 million b/d – That’s an extremely narrow gap at 95%-98%. Unfortunately, this gap has narrowed further due to refinery closures in 2025. The largest drop in U.S. capacity came from the shutdown of the LyondellBasell’s Houston plant (about 264,000 barrels per day) and the Phillips 66’s Los Angeles plant (about 139,000 barrels per day). Together those removed about 400,000 b/d; small expansions elsewhere offset some of that, but not enough.
The Houston plant was built in 1918 and was so old any expansion or updating would have been too costly. Plants in California, on the other hand, have been closing due to crushing regulations. Valero’s Benicia plant (about 145,000 b/d) stopped refining this spring and was taken out of monthly capacity later.
The answer to refinery shrinkage has long been “expansion creep” in existing facilities because it’s faster than building brand new infrastructure, but this is not going to help for much longer. Current facilities are limited in their ability add on more capacity and these measures do not account for abrupt global changes, wars and crisis events.
