Version of Record: https://www.sciencedirect.

com/science/article/pii/S1703494919300714
Manuscript_ffdcc434f2dc7a77d5daf5ca7745d68a

Isabella Ruble, Ph.D.

Senior Researcher
Office of Policy/ORISE
U.S. Department of Energy
1000 Independence Ave SW
Washington, DC
Email: [email protected]
[email protected]
Phone: (202) 287-6440
Mob.: (571) 594-0952

The U.S. crude oil refining industry: recent developments, upcoming challenges and prospects for
exports
Abstract:
In 2018 the U.S. petroleum refining industry is the largest and most advanced in the world. Continuous
consolidations and investments in complex refinery additions have allowed this industry to remain
competitive and the shale oil revolution has contributed to the U.S. becoming a net exporter of refined
petroleum products in 2008. In light of current and forecasted changes in refined petroleum product
demand and worldwide refining capacity additions, the U.S. petroleum refining industry faces new
challenges. This paper provides an in-depth study of this industry, presenting past trends, its current
state and the effects that a changing U.S. crude oil production has on refiners. Furthermore, a scenario
analysis is used to forecast future production levels and the volumes of major refined products available
for exports over the years 2017-2032. The competitiveness of current U.S. gasoline and diesel exports is
evaluated and forecasted gasoline and diesel demand in current export markets is compared to
available export volumes. Major challenges facing refiners by changing market conditions and new
regulatory rules are discussed. Finally, a set of recommendations is provided.

Keywords
Petroleum refining, Gasoline, Diesel, Exports, Refining industry

1. Introduction
The U.S. petroleum refining industry is the largest and most sophisticated of its kind in the world in
2019. Since the lifting of the U.S. Crude Oil Export Ban in December 2015 all international trade
restrictions in this industry have been lifted and the U.S. market is fully integrated in the world market
for refined products. In 2017 global petroleum refining capacity reached 98.7 million barrels per day
(MMBD) and the U.S. accounted for nearly 19% of this (OECD/IEA, 2018). The International Energy
Agency forecasts U.S. domestic capacity to further increase by 0.2 MMBD by 2022 (OECD/IEA, 2017a).

However, with changing regional trends in refined petroleum product demand growth, shifts in refining
capacity additions, and the increased complexity of refineries around the world (Zavaleta et al., 2015),
the U.S. petroleum refining industry faces new challenges. Over the years 2000-2017 global refining
capacity has grown by 17 MMBD, and Asia accounted for 65% of these additions, while the Middle East
accounted for 15% (Gresh et al., 2017). A similar trend is expected through 2023 as world refining
capacity is forecasted to increase by 7.7 MMBD from 2017 levels (OECD/IEA, 2018). The Middle East

© 2019 published by Elsevier. This manuscript is made available under the Elsevier user license
https://www.elsevier.com/open-access/userlicense/1.0/
(with big projects in Kuwait, and Saudi Arabia)1, China, and India account for more than half of all
projected capacity additions from 2017 to 2023. The latter investments are driven by strong economic
growth leading to an increase in the standard of living and an increased demand for transportation fuels
in many non-OECD countries. In addition, new fuel specifications that have come into effect recently in
Asia (Lofting et al., 2018), and China’s desire to become a prominent supplier of refined petroleum
products to South East Asian nations has also spurred capacity increases.

In contrast to forecasted demand increases in Asia, Latin America and Africa, demand is projected to
decrease in the U.S. and Europe2. Fossil-fuels’ share in world primary energy demand stands at 81% in
2016 and according to the World Energy Outlook’s current policy scenario and new policies scenario this
share is expected to decrease only slightly to respectively 79% and 75% by 2040 (OECD/IEA, 2017b). Oil
represents the lion share in fossil fuel demand and total liquids demand is expected to increase from
99.9 MMBD in 2018 to 104.7 MMBD by 2023 (OECD/IEA, 2018). Although the share of refined products
in total liquids demand is expected to remain around 85%, forecasts show an increase in product
demand of 4.8 MMBD between 2017 to 2023 (OECD/IEA, 2018).

U.S. exports of finished petroleum products increased steadily since the onset of the shale oil revolution
in 2005, and in 2008 the U.S. became a net exporter of refined products. U.S. refiners’ output of
gasoline, diesel, jet-fuel kerosene and residual fuel oil accounts for a combined 88% of total production
in 2017 (EIA, 2018a). Gasoline, which on its own accounts for 51% of total refined product output in the
same year is the most important product for refiners on the domestic market and its demand greatly
influences refiners’ profits. Although U.S. demand for gasoline varies with cyclical fluctuations in
economic activity, a long-term historic increasing trend in demand can be observed. However, forecasts
show that this trend is about to be reversed mainly due to greater fuel efficiencies in new cars and the
steadily increasing share of hybrid and electric cars in the U.S. vehicle fleet. While U.S. combined
demand for refined products is forecasted to decline over the coming two decades, this paper forecasts
refinery output volumes to continue their long-run increasing trend. These changes as well as the
observed shifts in major demand and supply centers around the world will require U.S. refiners to adjust
and search for opportunities to expand sales in existing export markets and/or look for new destinations
for their products. This paper’s contribution to the literature is to provide an in-depth analysis of the
U.S. refining industry and to identify the challenges and opportunities it faces. Therefore, the next
section presents a thorough analysis of the U.S. refining sector’s long-run trends, its current state and
recent developments. The evolution of U.S. crude oil production and its importance to refiners is
examined in section 3. Section 4 analyzes U.S. exports of finished petroleum products. Section 5
forecasts future refined product output volumes as well as available export volumes of gasoline, diesel,
jet-fuel and residual fuel oil (RFO) for the years 2017-2032. Section 6 discusses the challenges and
opportunities exporters face in placing additional quantities of gasoline and distillates in light of changes
on both the demand and supply side of the market as well as new regulations and increased
international competition. Section 7 concludes the paper by providing a set of recommendations.

2. The U.S. petroleum refining industry

2.1 Industry development 1985-2017

1
Al-Zour in Kuwait 615 kbd; Jizan Saudi Arabia (400 kbd) (Gresh et al., 2017).

2
There exist some exceptions to this trend: countries with higher economic growth rates such as Turkey for example
are forecasted to see an increase in the demand for refined products over the coming years.

2
The first U.S. oil refinery using atmospheric distillation started its operation in 1862 (API, 2011) soon
thereafter the U.S. automotive industry started its operation in the early 1890s. In 2018 the U.S. has the
world’s largest and most sophisticated refining industry. Since 1985 when the U.S. had 199 refineries,
the industry went through continuous consolidations leading to a drop in the number of refineries by
34% to reach 132 in 2019 (Fig.1). Starting in the 1980s many refineries stopped operating and plant
closures were mainly due to changes in market conditions that made economies of scale and refinery
complexity more important. Contributing factors are changes in regulations, such as price controls, more
stringent fuel specifications, and changes in local input supply or demand conditions (Meyer and Taylor,
2018). Thus exiting refineries typically are smaller, less sophisticated and process less than 50,000
barrels per day (Meyer and Taylor, 2018). For a treatment of the effect of consolidations on refined
product prices see Kendix and Walls (2010). While the most recent newly built crude oil refinery dates
back to 1977 many companies made substantial investments in existing units and in new technologies
that would allow further treatment of crude oil distillation unit output and thus allow to increase total
product output (EIA, 2018b). Investment and innovation has increased production of higher yield
products and allowed to ‘debottleneck’ refineries. In 2019 U.S. crude oil operable distillation capacity
has reached 18.8 MMBD (EIA, 2019a).

Thousand 20000 250 Number

Barrels of
18000
per Refineries
Day 16000 200
14000
12000 150
10000
8000 100
6000
4000 50
2000
0 0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

U. S. Operating Crude Oil Distillation Capacity U.S. Number of Operating Refineries

Fig. 1: U.S. number of operating refineries and refinery operating capacity

Source: author’s calculations, data retrieved from eia.gov, July 2019

Utilization rates
Refinery utilization rates are driven by domestic and international liquids demand, whereby in the U.S.
the demand for gasoline plays the most important role. U.S. gasoline demand fluctuates strongly in line
with economic activity and co-determines refinery utilization rates which have fluctuated within a range
of 85% to nearly 96% over the years 1985-2017 (Fig. 2). U.S. utilization rates are high by international
comparison as the worldwide long-run average is hovering around 80%. Regional differences are big and
the Middle East and Asia consistently show utilization rates above the world average while rates in Latin
America and Africa typically fall well below world averages (Lofting et al., 2018). After reaching a high of
95.6%, in 1998 U.S. utilization rates hovered slightly above 90% until 2005. With the onset of the global

3
financial crisis and the drop in gasoline demand, U.S. refinery utilization rates fell to a low of 82.9% in
2009. These developments also led to firm closures and further consolidations (Andrews et al., 2010).
From 2010 to 2017 average annual refinery utilization rates ranged from 86.2% and 91% showing a fairly
stable increasing trend (Fig. 2).

Percent 120

100

80

60

40

20

0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Fig. 2: U.S. percent utilization of refinery operable capacity 1985-2017
Source: author’s calculations, data retrieved from eia.gov, April 2018

2.2 Current state

The U.S. refining industry is mature, capital intensive, very competitive but highly regulated. In 2017
industry revenue is estimated at $ 517.8 billion with households, industry and exports contributing
respectively 38.9%, 17.7%, and 15.6% to the total (IBIS, 2017). Industry key drivers include the price of
crude oil, the price of refined products, the rate of economic growth in the domestic economy, globally,
in big oil consuming countries and in major export markets. Further factors of importance are vehicle
miles travelled, various regulations, such as for example the Renewable Fuel Standard that determines
the amount of ethanol blended into gasoline and thereby reduces gasoline demand, the penetration
rate of hybrid or electrical vehicles, changing market conditions due to changes in input availability, or
policies affecting demand and/or supply in major U.S. export markets (examples include: changes in
crude oil production, or the phasing out of diesel powered cars in Europe).

The industry is exposed to high margin volatility largely determined by the spread in crude oil and
refined product prices, particularly the price of gasoline. Moreover, the spread between different types
of crude oil is also important. U.S. refineries benefit from a number of advantages compared to their
major competitors. These advantages include the complexity of its refineries, the rapid implementation
of new technologies, low capital and operating costs, low energy costs (due to low natural gas prices)
and access to a skilled workforce.

The refining sector is composed of a wide variety of firms ranging from vertically integrated
multinational oil companies, that are involved in upstream, midstream and downstream operations and
benefit from economies of scale, to independent refiners (that may also own pipelines) and small
refineries (Difiglio, 2011). Independent refiners are generally not involved in upstream oil and gas
exploration or production. As of January 2019 the U.S. refining industry is composed of 54 companies.

4
Table 1: U.S. top ten refining companies and market shares, 2019*
Major Companies Market Capacity Barrels per
share Calendar Day
(percent)
1 Marathon Petroleum Corp. 16 3,024,715
2 Valero Energy Corp 12 2,181,300
3 Exxon Mobil Corp. 9 1,732,124
4 Philipps 66 Company 9 1,668,300
5 Chevron Corp. 5 925,431
6 PBF Energy Co LLC 5 865,000
7 Royal Dutch Shell Group 4 829,545
8 PDV America Inc. 4 754,765
9 BP PLC 4 678,500
10 Koch Industries Inc 3 640,000
Source: EIA, 2019b.
* Calculations are based on U.S. Total operable atmospheric crude oil distillation capacity as of January
1, 2019 of 18,802,435 barrels per calendar day

The simple concentration ratio (CR) for the four biggest firms shows that they hold a combined market
share of 46% whereas the top ten companies hold a combined market share of 71%. The Herfindahl
Hirschman Index3 (HHI) is more informative than the simple CR as it allows to measure the extent to
which firms are able to raise the price above cost. It takes into account the number of players in a
market as well as their relative sizes (Viscusi et al. 2005). The Department of Justice, and the Federal
Trade Commission classify markets with an HHI of less than 1500 as not concentrated4 (DOJ, 2010). Thus
the U.S. petroleum refining industry, which in 2019 has a HHI of around 600 is considered competitive
and has a low price-cost margin.

2.3 Industry geographic organization in Petroleum Administration for Defense Districts (PADDs)
The U.S. refining industry is organized geographically in Petroleum Administration for Defense Districts
(PADDs) that were created during World War II to ration gasoline. The Defense Production Act of 1950
adopted the five established PADDs which regroup the 50 States and the District of Columbia (Fig.3).5
The PADDs are connected through a network of crude oil and refined product pipelines that allow for
inter-PADD trade (Andrews et al., 2010). Table 2 displays the capacities and utilization rates of U.S.
refineries by PADD.

3
HHI= (100s1)2 + (100s2)2+…+(100sn)2; the HHI is equal to 10,000 in the case of a monopoly and decreases with
the number of sellers while it increases with more inequality between a given number of players (see Viscusi et al.
2005 for a full treatment).

4“Based on their experience, the Agencies generally classify markets into three types:
Unconcentrated Markets: HHI below 1500; Moderately Concentrated Markets: HHI between 1500 and 2500; Highly
Concentrated Markets: HHI above 2500”

5
“PADD 1 is further divided into sub-PADDs, with PADD 1A as New England, PADD 1B the Central Atlantic
States, and PADD 1C comprising the Lower Atlantic States. There are two additional PADDs (PADDs VI and VII)
that encompass U.S. Territories” EIA, 2018 available at https://www.eia.gov/todayinenergy/detail.php?id=4890

5
Fig. 3: Petroleum Administration for Defense Districts
Source: Energy Information Administration/Petroleum Supply Monthly, March 2017.

Table 2: U.S. refineries, capacity and utilization rates in 2017

Operable Crude Operating Crude

Number of Oil Distillation Oil Distillation Percentage
Petroleum Operating Capacity Capacity of total Refinery
Administration for Refineries (Idle (Thousand Barrels (Thousand Barrels refining utilization rate
Defense Districts refineries) per Day) per Day) capacity (Percentage)
1. East Coast 8 (1) 1206 1187 7% 88.8
2. Midwest 26 (1) 3939 3873 21% 93.7
3. Gulf Coast 57 (1) 9758 9528 53% 90.9
4. Rocky Mountain 16 693 673 4% 89.5
5. West Coast 30 (1) 2904 2799 16% 88.8
Total U.S. 137 18460 18060 100%
Source: data retrieved from www.eia.gov, April 2018

Each of the Petroleum Administration for Defense Districts (PADD) has its particularities in terms of
capacity, the classification of its refineries, access to various inputs, fuels and imports, and its
connectivity to other regions.
• PADD 1 has a total of 8 operating refineries with a combined distillation capacity of 1.2 Million
barrels per day accounting for only 6% of national refining capacity (Table 2). Although PADD 1

6
 includes many small independent refiners, major players such as Philadelphia Energy Solutions,
Philipps 66 Company and Monroe Energy LLC hold the bulk of crude oil distillation capacity (EIA,
2019b).
• PADD 2 accounts for 21% of U.S. refining capacity with 26 refineries. Many of the majors such as
BP Products North America Inc., WRB Refining LP, Exxon Mobil Refining and Supply, are present
in this market benefitting from economies of scale and vertical integration. PADD 2 uses mainly
heavy Canadian crude and the share might increase along with an increasing Western Canadian
Select-West Texas Intermediate (WCS-WTI) spread. PADD 2’s average utilization rate of 93% is
the highest in the U.S. in 2017 (EIA, 2019b).
• PADD 3 accounts for a bit more than half (53 %) of total U.S. refining capacity and has the
largest number of refineries. The refining capacity and major hubs are mainly located on the
Gulf Coast of Texas and Louisiana. Refineries in this area account not only for the around 85% of
total PADD 3 capacity, but these are also the biggest and most sophisticated refineries in the
U.S., and thus benefit from economies of scale (EIA, 2019b).
• PADD 4 is the smallest refining market in the U.S. accounting for only 4% of refining capacity and
16 refineries (Table 2) with comparatively low conversion factors (EIA, 2019b).
• PADD 5 has 30 refineries and a capacity share of 16%. PADD 5’s market is not very connected to
the major tight oil regions that experienced a substantial boom in recent years. Inner PADD 5
heavy oil production is slowly declining and replaced by domestic crude, without major changes
in the crude slate. The three major players in this market are Chevron USA Inc., Tesoro Refining
and Marketing Company, BP West Coast Products LLC (EIA, 2019b).

2.4 Refined product inter-PADD trade

The supply of refined products is dominated by PADD 3 while major refined product consumption areas
by PADD are, in order of importance, the PADD 1 (31%), PADD 2 (27%), the PADD 3 (21%), the PADD 5
(17%), and the PADD 4 (4%) (Fig. 4).
Table 3 shows that inter-PADD trade of refined products (mostly gasoline) is dominated by shipments
from PADD III to PADD I and to some extent still to PADD II. The latter have however dropped
dramatically in recent years as gasoline production in PADD II caught up with demand.

7
 Thousand 3000000
Barrels
2500000

2000000

1500000

1000000

500000

0
East Coast (PADD 1) Mid-West (PADD 2) Gulf Coast (PADD 3) Rocky Mountains West Coast (PADD 5)
(PADD 4)

Demand Supply - Refinery & Blender Net Production

Fig. 4: Refined product demand and supply by PADD 2016

Source: author’s calculations, data retrieved from eia.gov, November 2017

Table 3: U.S. petroleum product inter-PADD trade in 2016 (million barrels annually)
Total
PADD From 1 From 2 From 3 From 4 From 5 receipts
To 1 -- 27 953 0 0 980
To 2 159 -- 239 86 0 484
To 3 0 239 -- 69 0 308
To 4 0 76 0 0 0 76
To 5 0 0 60 22 -- 82
Total
shipments 159 342 1252 177 0
Source: www.eia.gov, September 2017

3. U.S. crude oil production and consumption

3.1 U.S. field production of crude oil
U.S. field production of crude oil gradually increased from nearly 174 MBD in 1900 to a first peak of 9.6
MMBD in 1970 (Fig. 5). Fluctuations in oil production in the 1970s were followed by a gradual decline in
conventional oil production starting in the mid-1980s until 2008 when output reached a low of 5 MMBD.
The onset of the shale oil revolution brought a reversal to this trend and the U.S. is now the world’s
biggest crude oil producer with nearly 11 MMBD in 2018 (EIA, 2019c). The EIA’s 2018 Annual Energy
Outlook further forecasts domestic crude production to reach close to 12 MMBD by 2032 while net
imports will decline to 5.45 MMBD (EIA, 2018c).

8
 Thousand 14000
Barrels
per 12000
Day
10000

8000

6000

4000

2000

0
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Fig. 5: U.S. crude oil field production 1900-2032
Source: data retrieved from EIA 2018. Available at:
https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm
Accessed in July 2018

The exploration and production (E&P) of tight oil is different from E&P of conventional reservoirs as it
allows the industry to adjust production volumes more swiftly to changes in the price of oil. Hence the
larger the share of tight oil in total U.S. oil production, the more elastic supply will be in reaction to
changes in the price of crude oil. In 2019 tight oil accounts for 59% of total U.S. crude oil production
(Table 4).

Table 4: U.S. crude oil field production, imports and exports, 2018
Thousand
Crude oil Barrels per Day Thousand Barrels
Refiner & Blender net input 16,962 6,191,008
U.S. Total production 10,957 3,999,609
- Tight oil 6,436 2,349,286
- Conventional 4,521 1,650,262
Imports 7,757 2,831,274
Exports 2,002 730,882
Net Imports 5,755 2,100,575
Source: data retrieved from www.eia.gov, (EIA, 2019c)

3.2 Technical background

About 85% of refiner and blender net input is crude oil. Other components include: fuel ethanol (5%),
motor gasoline blending components (3%), hydrocarbon gas liquids (3%) and other liquids (4%). Total
U.S. refinery input (including these components) reached 7 billion barrels or 19.2 MMBD in 2017 (EIA,
2018d). The quality of crude oil is generally assessed based on two criteria. Its density as measured by

9
the American Petroleum Institute (API) gravity formula6 resulting in light versus heavy crude7, and its
sulfur content usually described as sweet versus sour crude. For example, through the process of simple
distillation light sweet crudes will yield a higher share of lighter, higher value products such as gasoline,
diesel or jet fuel. To reach a similar result with heavier crudes requires further refining processes. In
general, this would make the same output from a heavy crude more costly and require a high price
differential between light sweet and heavy sour crude oil to offset higher processing costs. Similarly,
crudes with very high sulfur content affect both processing and output quality negatively (API, 2011).

Refineries are not homogenous and are characterized by different configurations and a range of
processes that will determine the type of crude oil inputs that can be used. According to Nelson’s
Complexity Index refineries are categorized as simple, complex or deep conversion.8 The technological
complexity of refineries is a function of capital investment and refineries that possess complex
secondary units can process any type of crude oil whereas simpler refineries are limited to sweet crudes
that are less sulfurous and less corrosive.

3.3 The U.S. crude oil export ban

U.S. oil trade restrictions exist since the early twentieth century. Examples include the 1920 Jones Act,
President Eisenhower’s restrictions on the import of crude oil that were imposed in the 1960s, the 1973
Emergency Petroleum Allocation Act (EPAA), the 1975 Energy Policy and Conservation Act, and the 1975
crude oil export ban that was enacted in response to the first oil price shock (Colgan and Van de Graaf,
2017). The lifting of the crude oil export ban in December 2015 allowed for a fuller integration of the
U.S. oil sector into the global market.
In 2010 the shale oil boom in combination with the oil export ban led to a fragmentation of the domestic
market for crude oil (Borenstein and Kellogg, 2014; Kaminski, 2014; Kilian, 2016). Shale oil, a light sweet
crude was abundantly available in the Cushing, Oklahoma hub, however, transportation constraints
prevented it from travelling to refineries on the East Coast that could have absorbed additional
quantities (Kilian, 2016). The supply glut in Cushing was exacerbated by a growing supply of Canadian
crudes and to some extent by the relative scarcity of crude in the global market, and by 2011 the Brent-
WTI spread increased with Brent selling at a premium of $20 per barrel at times (Colgan and Van de
Graaf, 2017). Similarly, transportation constraints also led to a spread between WTI and Louisiana Light
Sweet (LLS) in the years 2010-2013. For a full discussion of the factors leading to the lifting of the U.S.
crude oil export ban see Colgan and Van de Graaf (2017).

3.4 Refiner and blender crude oil input volumes and imports
U.S. refiner and blender net input of crude oil shows an overall increase from 15.1 MMBD in 2000 to
almost 17 MMBD in 2018 with the exception of a brief decline in input during the years of the great
recession, particularly in 2009. Increased U.S. field production however led to a gradual decrease in
crude oil net imports from 10.1 MMBD in 2005 to 5.8 MMBD in 2018 (Table 4). Table 5 displays the top

6
The API gravity formula was developed by Porter (1965). It is an arbitrary scale expressing the gravity or density
of liquid petroleum products. The measuring scale is calibrated in terms of degrees API; it is calculated as follows:
Degrees API = (141.5 / (specific gravity) - 131.5
7
The higher the API gravity, the lighter the compound. Light crudes generally exceed 38 degrees API and heavy
crudes are commonly labeled as all crudes with an API gravity of 22 degrees or below. Intermediate crudes fall in
the range of 22 degrees to 38 degrees API gravity.
8
“Simple: composed of Crude Distillation Column, Vacuum Distillation Column and Reforming.
Complex: the addition of conversion units such as cracking processes (i.e. Fluid Catalytic Crackers, Hydrocrackers)
to a simple scheme, resulting in a complex configuration. Deep Conversion: the addition of conversion units such as
Cokers to simple or complex configurations.” (API, 2011)

10
12 crude oil exporters to the U.S.; Canada is leading the list with around 3.2 MMBD and is followed by
Saudi Arabia, Venezuela, Mexico and Iraq. Together these top five exporters account for nearly 79% of
U.S. imports, while the top ten exporters provide 93% of total U.S. crude oil imports (Table 5).

Table 5: Top 12 countries of U.S. crude oil imports in 2016

Country Thousand
Barrels per
Day
1 Canada 3,227
2 Saudi Arabia 1,099
3 Venezuela 741
4 Mexico 582
5 Colombia 442
6 Iraq 419
7 Ecuador 237
8 Kuwait 209
9 Nigeria 207
10 Angola 159
11 Brazil 145
12 Chad 67
Source: Energy Information Administration, US crude oil imports 2016, released October 31, 2017

In 2017 U.S. crude oil imports account for an average of 50% of refinery total crude oil inputs. Figure 6
shows that the relevance of crude imports varies across PADDs. In PADD 1 imports account for 88% of
total crude oil input with substantial shares coming from Nigeria (34%) and Canada (30%), and minor
supplies coming from Saudi Arabia (13%), Brazil (7%), Columbia (6%), and Iraq (4%) (Fig. 7). East coast
refineries are predominantly configured to process light and sweet crude oil inputs. PADD 2 imports
account for 65% of total crude input and are almost exclusively from Canada (98%) (Fig. 7). The bulk of
Midwestern refineries is configured to process heavy crude oil. West Coast (PADD 5) refineries rely on
imports for 52% of crude oil inputs coming predominantly from 4 countries: Saudi Arabia (30%), Canada
(20%), Ecuador (20%) and Columbia (11%) (Fig. 7).

11
 Thousand 10,000
Barrels 9,000
per 8,000
Day
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
PADD 1 East PADD 2 Mid PADD 3 Gulf PADD 4 Rocky PADD 5 West
Coast West Coast Mountains Coast

Total Crude Oil input Net Imports

Fig. 6: Refinery total crude oil input and net imports by PADD in 2017
Source: author’s calculations, data retrieved from eia.gov, April 2018

100%

80%

60%

40%

20%

0%
PADD 1 PADD 2 PADD 3 PADD 4 PADD 5

Algeria Angola Iraq Nigeria Saudi Arabia

Venezuela Brazil Canada Columbia U.K.
Ecuador Kuwait Ghana Mexico Lybia
U.A.E. Russia

Fig. 7: U.S. imports of processing crude by source of origin for PADD 1 through 5 in March 2017
Source: author’s calculations, data retrieved from www.eia.gov, April 2018

3.5 U.S. finished petroleum product supply and demand

In 2017 U.S. net production of finished petroleum products amounted to 19.7 million barrels per day
while U.S. consumption9 reached 17 million barrels per day. Finished gasoline and distillates account for
a combined 74% of U.S. refiner and blender net production10 (Fig. 8). Gasoline, diesel, jet fuel and RFO
account for the largest shares of products consumed in the domestic market with respectively 54% (10

9
Consumption was approximated: total refiner and blender production – exports + imports

12
MMBD), 23% (or 5.1 MMBD), 9% (or 1.8 MMBD) and 2% (0.5 MMBD) of total refined product
consumption in 2017 (Fig. 8). U.S. production of finished petroleum products in 2017 exceeds or is equal
to domestic consumption for all products with the exception of petrochemical feedstocks (Fig. 8).

12000
Thousand
Barrels 10000
per
8000
Day
6000

4000

2000

Residual Fuel Oil

Petrochemical Feedstocks

Lubricants

Special Naphthas
Gasoline

Distillate Fuel Oil

Kerosene Type Jet Fuel

Asphalt and Road Oil

Still Gas

Waxes

Miscellaneous Products
Petroleum Coke

Refiner & Blender Net Production Refined Product Consumption

Fig. 8: U.S. production and consumption of finished petroleum products in 2017

Source: author’s calculations, data retrieved from www.eia.gov, April 2018

The U.S. transportation sector relies on petroleum products for 92% of its total energy consumption and
is dominated by gasoline accounting for 60%11 of this total. Around 90% of gasoline sold in the U.S. is
consumed by light duty vehicles (EIA, 2018f).

Despite the occurrence of economic downturns which led to minor fluctuations, U.S. finished petroleum
product output shows a steady increasing trend over the past three decades (Fig. 9). Domestic demand
for refined products however, shows stronger cyclical fluctuations than product output. For example,
demand was strongly affected by the 2008 recession when a drop in vehicle miles travelled, as well as in
new vehicle purchases, could be observed. Demand picked up again starting in 2011 without reaching
pre-2008 levels until the end of 2016 (Fig. 9). The sluggish demand recovery is also partly due to
increased vehicle fleet efficiency which improved by 5% from 2006 to 2016. Refineries have responded
to domestic demand fluctuations by adjusting their utilization rates and the quantities of imports or
exports.

11
Gasoline includes aviation gasoline and motor gasoline, which includes fuel ethanol. Estimates from the Annual
Energy Outlook 2017, Reference case, Table 37, January 2017.

13
 Thousand 25000
Barrels
per
Day 20000

15000

10000

5000

0
1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017
U.S. Refinery and Blender Net Production of Finished Petroleum Products
U.S. Consumption of Finished Petroleum Products

Fig. 9: U.S. finished petroleum products consumption vs. total net production 1985-2017
Source: data retrieved from eia.gov, April 2018

4. U.S. exports of finished petroleum products

After three decades U.S. trade in finished petroleum products experienced a strong reversal in the
second half of the last decade. The U.S. shale oil production boom allowed U.S. production of finished
petroleum products to continue its long-run increasing trend while at the same time domestic
consumption of these products experienced a sharp drop. Hence, U.S. exports of finished petroleum
products increased steadily starting in 2005 to reach over 3.3 MMBD in 2017. Over the same period
imports decreased and in 2008 the U.S. transitioned from net importer to net exporter of finished
petroleum products (Fig. 10).

14
 3500
Thousand
Barrels
3000
per
Day
2500

2000

1500

1000

500

0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
U.S. Exports of Finished Petroleum Products U.S. Imports of Finished Petroleum Products

Fig. 10: U.S. exports & imports of finished petroleum products 1985-2017
Source: data retrieved from eia.gov, April 2018

4.1 Major product categories and export destinations

In 2017 net exports of total finished petroleum products reached over 3 MMBD and net exports of
gasoline and diesel accounted for respectively 27% and 46% of this total while heavy fuel oil and jet fuel
accounted for respectively 4% and 1% (Fig. 11).

Thousand 3,500
Barrels 3,000
per
Day 2,500

2,000
1,500

1,000
500
0
Finished Petroleum Gasoline Distillate Fuel Oil Kerosene Type Jet Residual Fuel Oil
Products Fuel

Finished Petroleum Products Gasoline Distillate Fuel Oil Kerosene Type Jet Fuel Residual Fuel Oil

Fig. 11: U.S. net exports of total finished petroleum products and gasoline, distillate fuel oil, kerosene
type jet fuel and residual fuel oil in 2017
Source: data retrieved from www.eia.gov, April 2018

U.S. refiner’s prime export markets are located in Latin America, Europe and Asia, but figure 12 shows
that U.S. exports reach countries in four continents.

15
 Thousand 1200 25%
Barrels
per 1000
20%
Day
800
15%
600
10%
400

5%
200

0 0%

Turkey

Norway
Canda

India

Panama

Colombia

Costa Rica

Jamaica
Brazil
Mexico

Netherlands

Ecuador

Honduras
Morocco

Bahama Islands
Virgin Islands
Gibraltar

El Salvador
Japan

Singapore

Chile

Peru

United Kingdom
France

Spain

Belgium
China

Korea
Guatemala

Venezuela

Argentina

Aruba
Dominican Republic
Fig. 12: U.S. exports of finished petroleum products by destination, 201712
Source: data retrieved from www.eia.gov, April 2018

Gasoline
Mexico is the number one destination for U.S. gasoline exports, accounting for 52% of the total,
corresponding to 421,000 barrels per day in 2017. With just a few exceptions, remaining gasoline
exports are shipped to other destinations in Latin America (Fig. 13).

Thousand 450 60%

Barrels 400
50%
per 350
Day 300 40%
250
30%
200
150 20%
100
10%
50
0 0%
Costa Rica
Brazil
Mexico

Ecuador

Honduras

Netherlands

Virgin Islands
Chile
Guatemala

Colombia
Panama
Canada

Venezuela

Argentina

Nicaragua
Dominican Republic
El Salvador

Togo
Bahama Islands
Peru

Fig. 13: U.S. exports of finished motor gasoline by destination country in 2017
Source: data retrieved from www.eia.gov, April 2018

12
Positive values for exports to countries that account for less than 1% of total U.S. finished petroleum products
have been omitted in this graph.

16
Distillate fuel oil
Major U.S. export markets for distillate fuel oil are located in Latin America and Europe accounting for
respectively around 65% and 24% of total exports (Fig. 14). Mexico is the number 1 destination for U.S.
distillate fuel oil, accounting for 16% of exports or 250,000 barrels per day in 2017. Other important
markets in the Americas are Brazil, Chile, Peru, Colombia, Argentina, Ecuador, Panama, Guatemala and
Costa Rica. Major export destinations in Europe include the Netherlands, France, Belgium and Spain (Fig.
14). In comparison to gasoline exports, U.S. distillate fuel oil export destinations are much more
diversified. This reduces producers’ risks of high exposure to sudden changes in demand in primary
export markets.

Thousand 300 20%

Barrels 18%
per 250
16%
Day 14%
200
12%
150 10%
8%
100
6%
4%
50
2%
0 0%
Panama

Costa Rica

Canada

Colombia

Saint Lucia

Jamaica
Malaysia
Brazil
Mexico

Netherlands

Ecuador

Gibraltar

Virgin Islands

Bahama Islands
Morocco

Honduras

El Salvador

Puerto Rico
Chile

Peru
France

United Kingdom

Singapore

Spain

Belgium
Uruguay

Paraguay
Guatemala

Argentina

Venezuela

Dominican Republic

Fig. 14: Top 25 destinations13 for U.S. distillate exports in 2017

Source: data retrieved from www.eia.gov, April 2018

Kerosene-type jet fuel

Canada and Mexico are the most important export destinations for jet fuel. U.S. Jet fuel exports to
Canada continuously increased since 2008 and reached 38,000 barrels per day in 2017 while imports
only amounted to 20,000 barrels per day. Mexico is the second most important export market for jet
fuel with over 40,000 barrels per day delivered in 2017 (Fig. 15); this represents 19% of total U.S.
kerosene exports. Other important destinations include several countries in the Americas, Europe as
well as West Africa and Israel.

13
U.S. export destinations for distillate fuel that accounted for less than 1% of total exports were omitted in this
graph.

17
 Thousand 45 25%
Barrels 40
per 35 20%
Day 30
15%
25
20
10%
15
10 5%
5
0 0%

Morocco

Antigua and Barbados

Honduras
Chile

France

Iceland

Finland
Denmark
Canada
Panama

Costa Rica

Guatemala

Jamaica

Colombia

South Africa
Dominican Republic
Brazil

Israel

Senegal
Mexico

Netherlands

Togo
Cayman Islands

Bahama Islands
Curacao
El Salvador

United Arab Emirates

Peru

United Kingdom

Uruguay
Argentina
Aruba

Virgin Islands
Fig. 15: U.S. exports of kerosene type jet fuel by destination country in 2017
Source: data retrieved from www.eia.gov, April 2018

Residual fuel oil

Singapore was the number 1 destination for U.S. exports of RFO in 2017 and, with over 75,000 barrels
per day it accounted for 26% of total U.S. RFO exports. The second and third most important export
markets were Canada and Mexico accounting for respectively 38,000 and 37,000 barrels per day and a
share of 13% of total U.S. RFO exports each.

Thousand 80 30%
Barrels 70
25%
per 60
Day 20%
50
40 15%
30
10%
20
5%
10
0 0%
Mexico

Ecuador

Netherlands

Honduras

Morocco
Canada

Panama

Jamaica

China

Aruba
Guatemala

Bermuda

Malta

Venezuela
Brazil
Bahama Islands

Virgin Islands

Gibraltar

Egypt
Singapore

Lebanon

United Kingdom

Fig. 16: U.S. exports of residual fuel oil by destination in 2017

Source: data retrieved from www.eia.gov, April 2018

18
5. Scenario analysis
5.1 Forecasting production of refined petroleum products 2017-2032
In order to forecast potential future output levels of finished petroleum products for the years 2017-
2032 a scenario analysis was developed. This forecasting exercise will allow us to determine export
volumes that need to find markets in light of the forecasted decline in gasoline demand in the U.S.
market. A baseline scenario (BS), scenario 1 (S1) and scenario 2 (S2) were constructed by extrapolation
of historic growth rates of refiner and blender net production of finished petroleum products. The
historic average annual growth rates for three different time periods are provided in table 6.

Table 6: Historic average annual growth rates of refiner and blender net production
Years Average annual Scenario
growth rate14
1985-2017 1.2% Baseline (BS)
2000-2017 1% Scenario 1 (S1)
2010-2017 1.4% Scenario 2 (S2)

Hence, based on these assumptions the production of finished petroleum products in the BS, S1 and S2
over the years 2017-2032 increases at respectively 1, 2%, 1% and 1.4%. All three scenarios lead to
substantial increases in U.S. refiner and blender net production volumes. By 2032 production of finished
petroleum products in BS, S1, and S2 will reach respectively 22.9, 23.5 and 24.2 MMBD.

30000

25000
Thousand Barrels per Day

20000

15000

10000

5000

0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Baseline Scenario 1 Scenario 2

Fig. 17: U.S. refiner & blender forecasted net production of total finished petroleum products 2017-
2032
Source: author’s calculations, base year data retrieved from www.eia.gov

14
Average annual growth rate = [1/(n-1)] ln (end-year value/first-year value)

19
5.2 Gasoline, diesel, jet-fuel and RFO production forecasts through 2032
Based on forecasted output levels of total finished petroleum products presented in figure 17, U.S.
refiner and blender net production of gasoline, diesel, jet fuel and RFO through 2032 has been
calculated. The base year for these forecasts is 2017 and it is assumed that the four fuels will continue
accounting for their respective 2017 shares in total refined petroleum product as follows: gasoline 51%,
diesel 26%, jet-fuel 9% and RFO 2%.

Forecasted gasoline and diesel production reaches respectively 5.9 MMBD and 2.1 MMBD by 2032
(Fig.18). Net production of jet fuel and RFO is forecasted to amount to respectively 2.1 MMBD and 0.457
MMBD by 2032 (Fig. 18).

Thousand 25000
11654
Barrels
per Day 10038
20000

15000
5882
5117

10000

5000

0
2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

Gasoline (51%) Diesel (26%)

Kerosene Type Jet Fuel (9%) Residual Fuel Oil (2%)
Fig. 18: U.S. production forecasts for gasoline, diesel, jet fuel and residual fuel oil 2017-2032
Source: author’s calculation – base year data retrieved from www.eia.gov

5.3 U.S. demand for gasoline, diesel, jet-fuel and RFO through 2032
U.S. forecasted demand for the four major refined product categories under consideration reaches a
peak in 2018 after which it is expected to decline throughout the year 2032. This decline is primarily
driven by a steady drop in gasoline demand (Fig. 19). U.S. domestic production of RFO exceeds demand.
In 2017 about 2/3 of RFO consumed in the U.S. is used in the bunker sector while the remaining share is
used by industry and for power production. The use of natural gas in industry and the power sector is
expected to further increase in the coming years, gradually reducing demand for RFO.

20
 16000 9316
Thousand 7098
Barrels
per 14000 1679
Day
12000
3849 2038
10000

3470
8000

6000

4000

2000

0
2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032
Motor Gasoline Diesel Jet Fuel Residual Fuel Oil
Fig. 19: U.S. forecasted demand for gasoline, diesel, jet fuel, and residual fuel oil 2017-2032
Source: data retrieved from EIA, 2018. AEO, Accessed February 2018. Available at:
https://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_a.htm

5.4 Refined product export forecasts through 2032

Assuming that U.S. producers entirely satisfy U.S. demand for the selected four fuels over the years
2017-2032 the volumes available for exports have been calculated (Fig. 20). The forecast shows that
quantities available for export of gasoline, diesel, jet fuel and RFO will increase from respectively 0.9
MMBD, 1.2 MMBD, 0.2 MMBD and 0.065 MMBD in 2017 to 4.7 MMBD, 2.1 MMBD, 0.08 MMBD, and
0.12 MMBD in 2032. The technical complexity of the U.S. refining industry make exports of high end
products such as gasoline and distillates the more profitable than exports of lower end products such as
RFO which can more easily be produced by simple refineries.

21
 Thousand 8000
Barrels
per Day 7000

6000

5000

4000

3000

2000

1000

0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Gasoline Diesel Jet fuel Residual fuel oil

Fig. 20: U.S. refinery product volumes of gasoline, diesel, jet fuel and residual fuel oil available for
exports 2017-2032
Source: author’s calculations based on estimates and base year data retrieved from EIA, 2018.

6. Results & Discussion

6.1 Competitiveness of U.S. exports
The forecasts in the previous section show that over the years 2017-2032 U.S. refiners will produce
increasingly larger quantities of gasoline and diesel for exports. These exports could be directed to
markets where U.S. refiners already have a strong presence, provided that demand growth in these
markets is sufficiently strong, and/or alternatively, refiners can seek to develop sales in markets in which
they currently either have a weak or no presence at all. The choice of export destinations for additional
volumes of refined products will depend on local market conditions and shipping costs. The remainder
of this section provides an analysis of the competitiveness of U.S. gasoline and diesel exports to a
selection of export destinations and a brief characterization of current and potential export markets.

To determine the competitiveness of U.S. gasoline and diesel exports the delivered price to various
worldwide destinations is calculated and compared to Cost Insurance Freight (CIF) prices. To estimate
the shipping costs for unleaded regular gasoline and for diesel we consider a clean tanker transporting
38,000 metric tons (MT) (or 321,100 barrels) of product and density conversion factors of 8.45 bbl/MT
and 7.45 bbl/MT for gasoline and diesel respectively. The estimated shipping costs are calculated based
on World Scale (WS)15 shipping rates for June 5th 2018 (Platts, 2018), take into account the distance
travelled and include the transportation costs as well as port fees and unloading or loading charges as
well as any other handling dues when applicable. Using forecasted 2018 U.S. Gulf Coast FOB prices16 for
unleaded regular gasoline and diesel that average respectively $76.75 and $73.08 per barrel, table 7
presents the shipping cost as well as the delivered price of gasoline and diesel in US dollars per barrel at
various worldwide destinations. Table 8 shows forecasted Cost Insurance and Freight (CIF) prices at

15
New Worldwide Tanker Nominal Freight Scale “Worldscale” as revised effective 1st January 2016. Worldscale
Association (London) Limited and Worldscale Association (NYC) Inc. Copyright reserved. Printed and bound in
Great Britain by: Polestar Wheatons Ltd, Exeter.
16
These prices were retrieved from the IHS Data browser available at: www.ihs.com

22
various major trading hubs and potential export destinations around the world. The comparison of the
estimated delivered prices to CIF prices shows that U.S. exports to North West Europe, the
Mediterranean, Latin America and Asia are profitable (Tables 7&8).

Table 7: US Gulf Coast delivered price of unleaded gasoline and diesel at select worldwide
destinations (dollars per barrel)
Delivered price of Delivered price of
From Houston to: gasoline diesel
Salina Cruz (Mexico-West coast) 78.39 74.95
Coatzacoalcos (Mexico-East
coast) 77.26 73.66
North Brazil 78.56 75.14
Brazil 79.14 75.79
Argentina 79.70 76.42
Peru 79.19 75.85
Puerto La Cruz (Venezuela) 77.95 74.45
Ecuador 78.88 75.5
Chile 79.82 76.56
Antwerp (Belgium) 79.37 76.06
Rotterdam (Netherlands) 79.34 76.02
United Kingdom 78.02 74.52
Mediterranean 78.13 74.64
Lagos (Nigeria) 79.52 76.48
Cap Limboh (Cameroun) 79.75 76.48
Abidjan (Ivory Coast) 79.51 76.22
Fujairah via Suez (UAE) 80.75 77.62
Singapore via Cape 81.99 79.03
Singapore via Suez 81.66 78.65
Japan & South Korea 80.02 76.79
Source: author’s calculations

Table 8: Estimated 2018 CIF prices at major worldwide trading points

Premium
Unleaded
Gasoline Diesel
North West Europe 81.18 85.23
Mediterranean 81.42 85.64
Japan C&F 82.83 86.21
Singapore 83.40 82.82
Arab Gulf 83.39 81.64
23
 Mexico East Coast 84 84.42
Source: IHS Data Browser, www.ihs.com

6.2 Future challenges and opportunities

6.2.1 U.S. export availability vs. net import demand in major current export markets
Projections of gasoline demand growth in current U.S. export markets show that U.S. refiners cannot
depend on these destinations alone to place forecasted available export volumes (Table 9). For diesel
the situation is better, as forecasted demand exceeds the volumes of available U.S. exports in current
export markets through 2025. Typically, refineries have some ability to shift production between
gasoline and distillates. However, the percentage share for distillate production of 35% (for diesel and
jet-fuel combined) assumed in this study represents the maximum possible. Hence product output
variations within high value products would solely be possible by increasing the share of gasoline while
reducing distillate output. However, the opposite would be required in order to place larger amounts of
product (Table 9). Furthermore, in 2032 volumes of U.S. gasoline and diesel available for exports largely
exceed forecasted demand in current markets.

Table 9: Gasoline and diesel net import demand vs. U.S. export volumes available through 2032
(Thousand Barrels per Day)
2017 2025 2032*
Gasoline Diesel Gasoline Diesel Gasoline Diesel
Latin Americaa 888 891 876 821 945 976
b
Caribbean 58 64 71 98 85 127
North & West
Africac 312 167 371 223 472 264
Europed 0 855 0 802 0 449
Total 1258 1977 1318 1944 1502 1814
U.S. export
availability 856 1168 2876 1563 4656 2093
Excess demand 402 808 -1558 381 -3154 -279

Source: author’s calculations based on data retrieved from IHS; available at www.ihs.com; accessed in
June 2018
* Author’s estimates
a
Select Latin American countries: Mexico, Brazil, Chile, Ecuador, Colombia, Peru, Venezuela, Argentina,
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama.
b
Select Caribbean countries: Cuba, Dominican Republic, Jamaica, Puerto Rico, Trinidad and Tobago and
others
c
Africa: Morocco, Nigeria, Togo, Cameroon
d
Europe: EU28

6.2.2 Regional trends in current and potential export markets

Mexico, Brazil, Europe, North Africa and West Africa

Mexico
Mexico and Brazil are the major U.S. refined petroleum product export markets in Latin America. U.S.
energy exports to Mexico reached $25.8 billion in 2017 of which $23.2 billion were petroleum products.
This makes Mexico the second most important energy export market for the U.S. Mexican demand

24
growth for gasoline and diesel is forecasted to remain strong, driven by economic and population
growth. Mexico has made great progress in implementing many of the goals formulated in its 2013
Energy Sector Reform. However, for structural and political reasons implementation in the refining
sector has lagged behind. This market presents a good opportunity for U.S. refiners to place additional
volumes of product. The proximity and sophistication of U.S. refiners and their strong presence in this
market are big advantages compared to potential competitors.
Mexican gasoline demand is growing at 1.4% (CAGR) between 2017 and 2025 and at 0.9% (CAGR)
through 2040; while the demand for diesel is growing at 1.5% through 2040 (IHS, 2018a). Gasoline
demand amounted to 796,100 barrels per day in 2017 of which 71% were satisfied with imports and
forecasts show an increase in demand to nearly 965,000 b/d by 2035 (IHS, 2018a). Similarly, diesel
demand stood at 365,500 b/d in 2017 (Pemex, 2018) and is forecasted to reach 477,800 b/d in 2035
(IHS, 2018a). Mexico’s import dependence for diesel neared 65% in 2017 and the U.S. provided nearly all
of it. While import dependence is expected to decrease slightly for both fuels, the imbalance between
domestic production and demand will remain important and Mexico will require imports in the amount
of 530,000 b/d and 176,400 b/d for gasoline and diesel respectively in 2035.

Brazil
Brazil is the third largest energy producer in the Americas and while the country is self-sufficient in
crude oil supplies, it relies on gasoline and diesel imports for respectively 40% and 20% of domestic
consumption. Diesel is the most important refined product in Brazil accounting for over half of total oil
product consumption (Soares et al. 2017). In 2017, 70% of imported diesel and 27% of imported gasoline
came from U.S. refineries. Forecasts show that import demand for both fuels will remain strong over the
coming decades. To cover domestic demand Brazil will need to increase its imports of gasoline from
88,500 b/d in 2017 to 178,200 b/d in 2035 (IHS, 2018b). The import demand for diesel while remaining
important will slightly decrease from 272,500 b/d in 2017 to 206,800 b/d in 2035 (IHS, 2018b).

Europe
Europe is traditionally long on gasoline and short on distillates. It is the world’s third largest region in
terms of refined petroleum product demand and its five biggest economies account for around 56% of
demand in 2017 (IHS, 2018c). European demand for distillates is expected to peak around 2020-2022
and enter a period of gradual long-run decline after that17, which will decrease import demand (IHS,
2018c). The near-future peak is due mainly to the IMO MARPOL VI regulation which presents an
opportunity for U.S. refiners as it will require Europe to increase its diesel imports in the coming years.
The decline in the reliance on diesel in the long run, driven by the phasing out of diesel powered
vehicles, will however require U.S. exporters to eventually direct potential additional volumes of
product to other markets.
Gasoline demand will remain strong through 2032, as governments continue to gradually remove
incentives for diesel powered cars. Gasoline demand will gradually decline starting in the mid-2020s
(IHS, 2018c).

North and West Africa

U.S. refiners currently provide relatively small quantities of gasoline and diesel to Morocco and some
West African Nations such as Nigeria, Togo and Cameroon. In 2017 Morocco does not possess a single
working refinery and imports all its refined petroleum products. In Nigeria where gasoline accounts for
73% of oil product consumption, 94% of gasoline consumed in 2017 was imported. Nigeria’s Dangote

17
Distillate demand is expected to decrease in the five big EU economies while it remains strong in eastern
European countries where economic growth will be relatively stronger.

25
Refinery which is expected to be completed in 2019 and will have a name plate capacity of 650,000
barrels per day aims to eliminate Nigeria’s import needs (Vanguard, 2017). Nevertheless, in Morocco
and West Africa refined product demand growth is forecasted to remain substantial through 2035 (IHS,
2018d) and hence provides an excellent opportunity for U.S. refiners to place additional export volumes.

De-carbonization policies
De-carbonization policies around the world are at the forefront of the public policy agenda.

MARPOL ANNEX VI regulations

On January 1st 2020 the International Maritime Organization’s MARPOL ANNEX VI regulation will come
into effect and require the global shipping industry to comply with a sulfur cap of 0.5% instead of 3.5%
as is currently the case. To comply with this new requirement shipping companies can switch to fuels
that have a lower sulfur content than RFO (such as low sulfur fuel oil or diesel), switch to Liquefied
Natural Gas (LNG), or use scrubbers (OECD/IEA, 2017b). In 2016 worldwide crude oil based fuel used by
shippers reached 3.9 million barrels per day of which about 70% is RFO while gasoil accounts for 30%
and the International Transport Forum expects a reversal of these percentages by 2020 (Platts, 2016;
OECD/IEA, 2017b). While the overall crude oil based fuel demand in shipping is expected to stay
constant, the drop in demand for RFO will change product trade flows of RFO and other distillates as
well as the price spread between RFO and low-sulfur products, which is expected to increase. Most
regions in the world with the exception of Asia and the Middle-East will become importers of low sulfur
(0.5%) fuel blends (Platts, 2016). MARPOL ANNEX VI will adversely affect major RFO exporters, such as
for example Russia, Venezuela and Malaysia, while it works to the advantage of technologically
advanced refineries in the U.S. and elsewhere in the world (Platts, 2016). The implementation of
MARPOL ANNEX VI is challenging for both shippers and refiners, who faced with uncertainty about
implementation and enforcement, delayed necessary investments. There are concerted international
efforts through the MARPOL ANNEX VI Marine Environment Protection Committee to ensure and
harmonize enforcement on open seas, and to foster the supply of sufficient quantities of compliant
bunker fuels. Although at the time of writing IMO MARPOL ANNEX VI regulations are scheduled to come
into effect on January 1st 2020, and enforcement of the high sulfur carriage ban will start on March 1st
2020 challenges remain. For example, it was noted that ‘fuel oil non availability’ could lead to
operational constraints and could be a justification for non-compliance. Furthermore, in the medium-
run LNG use as bunker fuel is expected to increase substantially and this can be another challenge
refiners have to face.

Electric Vehicles (EVs)

Oil companies predict that EVs will account for 10%-20% of the vehicle fleet while car producers forecast
a much higher percent range of 30%-40% (WRA, 2018). To date, EVs still cost more than Internal
Combustion Engine cars. Insufficient recharging infrastructure and the need for frequent recharging are
major hurdles for fast deployment (WRA, 2018). Hybrid fuels can be used for a larger variety of vehicles
and can be distributed through existing infrastructure. Although hybrid vehicles still require a share of
refined petroleum products they do represent another threat to refiners (WRA, 2018).

Overcoming challenges
To overcome some of the challenges highlighted through this analysis U.S. refiners can aim at increasing
their exports to Latin America and West Africa where vehicle ownership rates are still low and where
economic growth and transport fuel demand are forecasted to remain strong through 2035. Another
option for refiners is to increase the share of capacity devoted to petrochemicals from currently about
30% to 50%. Also, companies that possesses various assets along the downstream supply chain can

26
leverage these in the transition to other fuels or possibly EVs (WRA, 2018). A sufficiently large Brent-WTI
spread which is anticipated to average $5 in 2019 also works to the advantage of U.S. refiners (EIA,
2018f). Lastly, the newly imposed Iran oil export embargo will make fewer quantities of lighter
feedstocks available to countries around the world, leading to incremental benefits for complex
refineries.

7. Conclusion
Changes in the demand for refined products are affecting the industry worldwide. The U.S. refining
sector is the most complex of its kind in the world in 2019 and, vis-à-vis its competitors, it benefits from
a series of advantages, ranging from low capital and operating costs to a highly skilled labor force and
low energy costs. The decreasing U.S. crude oil import dependency, tighter fuel specifications in some
existing and new export markets, and the new IMO MARPOL VI specifications as well as a recovering
crude oil price, all work to the advantage of U.S. refiners. However, based on the assumptions in this
study export dependency of U.S. refiners is increasing through 2032. Furthermore, forecasted available
export volumes of gasoline and eventually diesel fuel will exceed demand in current U.S. export
markets. Unless product demand growth reveals itself to be higher than forecasted, exporters will have
to look for new export markets where they will face increasing competition from Middle Eastern,
Russian, Indian and Chinese refiners. Lastly, geopolitical factors and the looming U.S. trade war are
important factors that could influence the industry’s success in the future.

Acknowledgement

This research was supported in part by the Department of Energy (DOE) Office of Policy (OP)
administered by the Oak Ridge Institute for Science and Education (ORISE) for the DOE. ORISE is
managed by Oak Ridge Associated Universities (ORAU) under DOE contract number DE-SC0014664. All
opinions expressed in this paper are the author's and do not necessarily reflect the policies and views of
DOE, ORAU, or ORISE.

References

Andrews, A., Pirog, R., Sherlock, M.F., 2010. The U.S. Oil Refining Industry: Background in Changing
Markets and Fuel Policies, Congressional Research Service.

API, 2011. American Petroleum Institute. Outsourcing US Refining? The Case for a Strong Domestic
Refining Industry. Wood Mackenzie, June. https://www.api.org/~/media/files/oil-and-natural-
gas/refining/api_case_for_us_refining_summary.pdf

Borenstein, S., Kellogg, R., 2014. The Incidence of an Oil Glut: Who Benefits from Cheap Crude Oil in the
Midwest? Energy J. 35 (1) 15-33.

Colgan, J.D., Van de Graaf, T., 2017. A crude reversal: The political economy of the United States crude
oil export policy. Energy Res. Soc. Sci. 24, 30–35. https://doi.org/10.1016/j.erss.2016.12.012

Difiglio, C., 2011. Small Refinery Exemption Study - An Investigation into Disproportionate Economic
Hardship. U.S. Department of Energy, Washington, DC.

27
DOJ, 2010. U.S. Department of Justice – Horizontal Merger Guidelines. August 19th. Available
at: https://www.justice.gov/atr/horizontal-merger-guidelines-08192010#5c Accessed in
July 2019.

EIA, 2018a. U.S. Energy Information Administration. U.S. Crude Oil Supply and Disposition,
available at: https://www.eia.gov/dnav/pet/pet_sum_crdsnd_k_m.htm Accessed in April.

EIA, 2018b. U.S. Energy Information Administration. Data available at:

https://www.eia.gov/tools/faqs/faq.php?id=29&t=6

EIA, 2018c. U.S. Energy Information Administration. Annual Energy Outlook 2018. Available
at: https://www.eia.gov/outlooks/aeo/ Accessed in July.

EIA, 2018d. U.S. Energy Information Administration. Today in Energy, January 3rd,
available at: https://www.eia.gov/todayinenergy/detail.php?id=34372 Accessed in January.

EIA, 2018f. U.S. Energy Information Administration. EIA raises Brent crude oil price forecast
by $7 per barrel in 2018 but expects prices to gradually decline through 2019. This week in
Petroleum, May 9, available at:
https://www.eia.gov/petroleum/weekly/archive/2018/180509/includes/analysis_print.php
Accessed in May.

EIA, 2019a. U.S. Energy Information Administration. Number and Capacity of U.S. Petroleum
Refineries. Data available at:
https://www.eia.gov/dnav/pet/pet_pnp_cap1_a_(na)_8D0_BpCD_a.htm Accessed in July.

EIA, 2019b. U.S. Energy Information Administration. U.S. Energy Refinery Capacity Data,
available at: https://www.eia.gov/petroleum/refinerycapacity/

EIA, 2019c. U.S. Energy Information Administration. Data available at:

https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_m_cur.htm

Gresh, P., Royall, J.M., Yu, A., 2017. Refining 2018 Outlook Integrated
Oils & Refining. North America Equity Research, December, 1-106. December.

IHS, 2018a. Downstream Market Profile – Mexico. Available at www.ihs.com, accessed in June.

IHS, 2018b. Downstream Market Profile – Brazil. Available at www.ihs.com, accessed in June.

IHS, 2018c. Downstream Market Profile – Europe. Available at www.ihs.com, accessed in June.

IHS, 2018d. Downstream Market Profile – Morocco. Available at www.ihs.com, accessed in

June.

IBIS, 2017. IBISWorld Industry Report 32411 – Petroleum Refining in the U.S. Fueled up: Improving
global economic conditions will sustain demand for petroleum products - Petroleum Refining in the
US. March.

28
Kaminski, V., 2014. The microstructure of the North American oil market. Energy Econ. 46, 51-60.

Kendix, M., Walls W.D., 2010. Oil industry consolidation and refined product prices: Evidence from U.S.
wholesale gasoline terminals. Energy Policy. 38, 3498-3507

Kilian, L., 2016. The impact of the shale oil revolution on U.S. oil and gasoline prices. Rev. Environ. Econ.
Policy. https://doi.org/10.1093/reep/rew001

Lofting, M., Malek, C.F., Arun, D., Dsouza, J.A., 2018. EU Oils: Refining ‘Silver Age’, J.P. Morgan Cazenove,
Europe Equity Research, March 05, 20-33.

Meyer, D.W., Taylor, C.T., 2018. The Determinants of Plant Exit: The Evolution of the U.S. Refining
Industry. J. Ind. Compet. Trade 1–20. https://doi.org/10.1007/s10842-018-0273-8

OECD/IEA, 2016. Mexico Energy Outlook World Energy Outlook Special Report.

OECD/IEA, 2017a. International Energy Agency. Market Report Series. Oil 2017: Analysis and Forecasts
to 2022. 1-147. www.iea.org/oilmarketreport/

OECD/IEA, 2017b. International Energy Agency. World Energy Outlook 2017. 1-782. www.iea.org/weo/

OECD/IEA, 2018. International Energy Agency. Market Report Series. Oil 2018 – Analysis and Forecasts
to 2023. 1-138. www.iea.org

PLATTS, 2016. The IMO’s 2020 Global Sulfur Cap – What a 2020 Sulfur-Constrained World
Means for Shipping Lines, Refineries and Bunker Suppliers. Available
at: https://www.platts.com/IM.Platts.Content/InsightAnalysis/IndustrySolutionPapers/SR-IMO-
2020-Global-sulfur-cap-102016.pdf Accessed in February 2018.

PLATTS, 2018. CLEAN TANKERWIRE. June 5, available at: www.platts.com Accessed in June 2018.

Soares Moreira Cesar Borba, B., Lucena, A.F.P., Cunha, B.S.L., Szklo, A., Schaeffer, R., 2017. Diesel
imports dependence in Brazil: A demand decomposition analysis. Energy Strateg. Rev. 18, 63–72.
https://doi.org/10.1016/j.esr.2017.09.006

Vanguard, 2017. Dangote Refinery, Africa’s Biggest Refinery Takes Shape. October 15th.
Available at:
https://www.vanguardngr.com/2017/10/dangote-refinery-africas-biggest-refinery-takes- shape/
Accessed: December 2017.

Viscusi, K.W., Harrington, J.E.J., Vernon, J.M., 2005. Economics of Regulation and Antitrust, Fourth. ed.
MIT Press, Cambridge, Massachusetts; London, England.

WRA, 2018. World Refining Association. Exclusive Report: EVs and Refining - Friends or Foe?
July.

29
Zavaleta, A., Walls, W.D., Rusco, F.W., 2015. Refining for export and the convergence of petroleum
product prices. Energy Econ. (47) 206-2014 https://doi.org/10.1016/j.eneco.2014.11.007

30