Oil - Refinery Numbers And Capacity

In 2003, 149 refineries were operating in the United States, a drop from 336 in 1949 and 324 in 1981. (See Table 2.1.) Refinery capacity in 2003 was about 16.8 million barrels per day, below the 1981 peak of 18.6 million barrels. As of 2003 U.S. refineries were operating near full capacity. Utilization rates generally increased from a low of 68.6% in 1981—a period of low demand because

FIGURE 2.3

of economic recession—to a high of 95.6% in 1998. Although capacity fell slightly in the years since 1998, it was still high in 2003.

As Table 2.1 shows, fewer refineries were operating in the United States in the early twenty-first century than in the past, but they were working at near maximum levels. One reason for the drop in the number of U.S. refineries is that the petroleum industry began shutting down older, inefficient refineries and concentrating production in more efficient plants, which tended to be newer and larger.

Consolidation within the industry has also played a role in refinery operation. For example, the merger of Gulf Oil Corporation into Chevron Corporation in 1984 led to the closing of two large refineries, one in Bakersfield, California, and the other in Cincinnati, Ohio. In 1998 Exxon merged with Mobil Oil and BP merged with Amoco. BP Amoco then bought Arco in April 2000 to create the world's largest non-OPEC (Organization of the Petroleum Exporting Countries) oil producer and the third-largest natural gas producer. In the May 2004 article "Effects of Mergers and Market Concentration in the U.S. Petroleum Industry," in GAO Highlights, the General Accounting Office noted that "over 2,600 mergers have occurred in the U.S. petroleum industry since the 1990s." The report said that the majority of the mergers occurred later in that period and took place most frequently among firms involved in oil exploration and production. Industry officials suggest that mergers increase efficiency, reduce costs, and enhance a company's ability to control prices.

Another reason for the drop in the number of U.S. refineries is that some OPEC countries have begun to refine their own oil products to maximize their profits. This strategy, employed particularly by Saudi Arabia, led to a drop in demand for U.S. refineries. As of November 2002 no major refinery manufacturer had plans to begin construction, a process that takes three to five years to complete. The last large refinery built in the United States was completed in 1976, and the last completed refinery of any size began operation in Valdez, Alaska, in 1993. The Annual Energy Outlook 2004, produced by the Energy Information Administration (EIA), stated that financial and legal considerations make it unlikely that new refineries will be built in the United States.