Annual Energy Outlook 2022

Refinery closures lower domestic crude oil distillation operating capacity, but refinery utilization rates remain flat over the long term

A number of U.S. refineries have closed over the last two years as a result of pandemic-related demand decreases or conversion to renewable diesel production

Between 2020 and 2021, six U.S. refineries closed, totaling 750,000 barrels per day (b/d) of total capacity:

• The Western Refining refinery in Gallup, New Mexico
• The Tesoro (Marathon) refinery in Martinez, California
• The Dakota Prairie refinery in Dickinson, North Dakota
• The HollyFrontier refinery in Cheyenne, Wyoming
• The Shell refinery in Convent, Louisiana
• Philadelphia Energy Solutions in Philadelphia, Pennsylvania

Some of these closures are related to decreased demand caused by responses to the global pandemic. However, other refineries, such as HollyFrontier in Cheyenne, Wyoming, and the Dakota Prairie refinery in Dickinson, North Dakota, are converting to produce renewable diesel. Cumulatively, these closures have reduced national crude oil distillation operating capacity by approximately 3.5%.

Some future growth in natural gas production will likely coincide with crude oil production growth because crude oil production from low permeability, tight rock formations produces associated-dissolved natural gas (also called associated gas) which, in some areas, is captured and processed.

Refinery utilization rates remain stable over the long run in response to diminished demand

Figure 29.

Despite the recent reduction in refinery capacity, we project that refinery utilization and throughput (the amount of crude oil processed at refineries) will remain relatively flat over the projection period. The refinery utilization rate (represented as a percentage) measures the volume of gross refinery inputs divided by the total operable crude oil distillation capacity. If capacity declines and utilization remains the same, production of petroleum products declines. We project that utilization rates will return to near historical averages in 2022, but it will not be cost-effective for refineries to make up for lost capacity by increasing utilization beyond this point. As a result of lower capacity and stable utilization, we expect total production of refined products to remain below peak levels over the long run.