Expanding Oil Refineries Key to Keeping Gas Prices Low

Gas prices have gone down, but oil refinery expansion is an important step to meeting demand.

In this Nov. 21, 2007 file photo, Shell Oil Company's Deer Park refinery and petrochemical facility is shown in the background as vehicles travel along Highway 225 in Deer Park, Texas. The Gulf oil spill may have people ready to quit petroleum cold turkey, but it's not that easy. Oil is everywhere. It permeates our daily lives in ways we never think about. It's in carpeting, furniture, computers and clothing. It's in the most personal of products like toothpaste, shaving cream, lipstick and vitamin capsules. Petrochemicals are the glue of our modern lives and even in glue, too.

Gregg Laskoski is a senior petroleum analyst for GasBuddy.com.

It's easy to overlook mundane data when reliable sources like the New York Post, late night TV hosts, and our Facebook "friends" all have the answers to explain what's going on with gas prices.

One indisputable fact that has contributed to the decline of U.S. gasoline prices is that there's more of it. U.S. refinery output levels in early April were around 83 percent of capacity and for a while East Coast and West Coast refineries were operating at 78 percent and 77 percent, respectively. Compare that to the past few weeks when the nation's refineries have been running at better than 92 percent capacity, and you'll see that has contributed to sharp reductions in the price at the pump. 

Despite claims by some that petroleum is the "fuel of the past," Big Oil knows gasoline is not disappearing any time soon. That's why several refineries are in the midst of major expansion projects. The expectation they share is that they are building for growth in regional, national, and international demand for their gasoline and other petroleum products.  

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The Motiva Enterprises Port Arthur, Texas refinery expansion (a joint venture between Shell Oil and Saudi Aramco) is nearing completion of a five-year, $10 billion expansion project begun in 2007. When completed, the expansion will bring the refinery from 238,000 barrels per day (preconstruction) to 600,000 barrels per day of refining capacity, the largest in the United States. Problems with a crude distillation unit there have shut it down and the facility may now be several months away from full production.

At the BP refinery in Whiting, Ind., a major Midwest hub, BP is nearing completion of a $4 billion expansion project expected to be completed in 2013. That project includes a new coker, crude distillation unit, a gas oil hydrotreater, and modernization of its wastewater treatment and sulfur recovery facilities.

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The BP facility has capacity of 413,000 barrels per day, and it's aim is to increase the refinery's capability for gasoline and diesel production by about 1.7 million gallons (or 40,000 barrels) of gasoline and diesel per day. BP also says it's expanding its Toledo, Ohio refinery. It plans to increase from 160,000 barrels per day to approximately 170,000 barrels per day of heavy oil and bitumen by 2021.

On a smaller scale, Marathon is planning expansion of its Detroit refinery after it buys out homeowners to make way for expansion from 106,000 to 120,000 barrels per day. 

Of course, more expansion is needed, particularly on both of our nation's coasts. California experienced $4 gasoline for a prolonged period while the rest of the nation was well below that threshold due in no small part to tight supplies caused by shutdowns at its aging facilities. The East Coast also is overly dependent on too few refineries. For now at least, it appears that serious discussion of energy infrastructure additions will remain that, a topic of discussion we  continue to postpone.    

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