Key Takeaways
The Trump Administration is looking for ways to expand refining capacity in the United States to meet demand and lower consumer prices.
In addition to the first large new refinery in decades to be built in Brownsville, TX, the administration is looking to reopen shuttered refineries in the U.S. Virgin Islands and other locales.
Oil prices have dropped significantly, but Ukrainian attacks on Russian refineries and a Chinese ban on fuel exports following the Iran conflict, along with reduced fuel shipments through the Strait of Hormuz, have kept fuel prices high.
Distillates have become especially high-priced relative to oil prices due to constrained refinery production, even as U.S. refineries run at full capacity to meet demand for gasoline and distillate.
Estimates indicate that global refining capacity is 5 million barrels short of where it should be, owing to ongoing hostilities in the Middle East and Ukraine/Russia.
The Trump Administration is hoping to speed the reopening of refineries to help alleviate pain at the pump and transportation costs associated with higher fuel prices due to a shortage of refining capacity.
Oil majors warn of a continuing tight market for petroleum products due to a lack of global refinery capacity as the Ukraine and Iran wars have reduced the operations of refineries in Russia and the Middle East. In both Europe and the United States, refineries have shuttered due to onerous regulations and government policies. The Trump administration is considering reopening closed oil refineries, including the St. Croix refinery in the U.S. Virgin Islands, to address high gasoline and diesel prices. The St. Croix refinery, which was shut down in 2021, is of interest because of its strategic location and its ability to refine Venezuelan oil. U.S. refining capacity has dropped by nearly 5% from a high of about 19 million barrels a day in 2020.
U.S. refineries have been producing at high margins to keep gas stations supplied and respond to the global demand for petroleum product exports due to declining fuel stockpiles combined with curtailed petroleum exports from China and refinery outages in Russia Nearly 10% of the world’s ability to refine crude oil is effectively offline due to the effective closure of the Strait of Hormuz, continued Ukrainian attacks on Russian refineries and China’s export ban. At current high operating margins, U.S. refineries would be unable to produce more fuel even if oil were available. Recently, U.S. refineries were operating at more than 97% of their capacity, processing 17.3 million barrels of oil, the highest level since September 2019. Retail gasoline prices at over $4 a gallon are 10% below this year’s peak in May, even though West Texas Intermediate (WTI) is down 26% from its 2026 high.
Prices for middle distillates, diesel, jet fuel and heating oil are a concern. Retail diesel prices are 6% below their highs this year even though the drop in WTI has been four times as much. The market is likely to tighten further as countries restock heating oil ahead of winter. Despite oil being the largest price component of gasoline, gasoline prices are beginning to disconnect from oil, trading instead on storage levels (inventories). Refined product inventories “are approaching historical lows.” ExxonMobil, which operates the world’s largest refinery network outside China, sees this trend continuing for the foreseeable future because about 5 million barrels per day of refining capacity cannot reach the global market.
The Trump administration has taken steps to make it easier to restart shuttered refineries. Last year, the EPA stopped a policy that required refineries and other industrial sites to obtain a new round of permits when resuming operations after two or more years of inactivity. Two recent U.S. refineries have shuttered. Phillips 66 halted operations at its refinery in Los Angeles last fall, and Valero did likewise at its Benicia, California, facility this spring. Both companies cited long-term regulatory and market pressures in the state. California officials tried to broker deals with other oil companies to keep the facilities running after closures were announced but were unsuccessful.
Trump has also announced plans for the first major new U.S. refinery in five decades, a proposed facility in Brownsville, Texas, that may begin construction this year. America First Refining will build a 168,000-barrel-per-day refinery, supported by investment from India’s Reliance Industries. The facility will operate on light shale oil and help reduce the U.S. trade deficit with India by $300 billion. Many Gulf Coast refineries are unable to process light, sweet oil from fracking shale fields because they were configured in the last 40 years to run on lower-cost heavy, sour oil, which has higher density and has been readily available from Canada, Venezuela, and Mexico.
The St. Croix Refinery
The St. Croix refinery, which operated from 1966 until 2012 and briefly in 2021, houses billions of dollars in refining equipment and infrastructure and is located at a strategic point along Atlantic shipping lanes. To revive the facility, investors would need to overcome a troubled operational and environmental history, including the first Trump administration’s restart attempt. In 2021, just months after the plant reopened, Biden’s EPA ordered it shut down after a series of operational incidents. Biden’s EPA used emergency powers to shut it down, supposedly to protect the surrounding community, which is “predominantly made up of people of color and low-income populations.” The plant, then owned by Limetree Bay Ventures LLC, filed for bankruptcy.
Two years later, a federal court overturned EPA’s order requiring the plant to undergo a lengthy and expensive permitting process before restarting operations. Last year, Trump’s EPA Administrator, Lee Zeldin, cited that court decision in ending the agency’s policy of requiring power plants, refineries and other industrial sources to obtain a new round of permits if resuming operations after two or more years of sitting idle.
The owner of the St. Croix refinery estimates that a restart would cost approximately $686 million and take 18 months to bring the facility back to the 180,000 barrels-per-day capacity it reached under its previous owners in 2021. That is well below the 650,000 barrels per day it produced at its peak in the 1970s when it was one of the world’s largest refineries. Others believe that the cost estimate is high and, based on a different scope of work and methodology, estimate the cost of the restart at about $402 million.
Analysis
President Trump’s initiative to reopen shuttered refineries and to construct new ones could help lower fuel prices and strengthen national security. The Trump administration wants to expand fuel production closer to home and stem a wave of refinery closures in recent years, driven by disruptions in global fuel supplies caused by the wars in the Middle East and Ukraine. The administration also wants to increase oil production in Venezuela, which previously supplied the bulk of the oil processed by the St. Croix plant under a joint venture with its original owner. Venezuela’s oil production and exports have rebounded to around 1.2 million barrels per day, but its aging refineries remain far below capacity and may require at least $20 billion to restore to full capacity. Investors are more likely to prioritize upstream projects and exports than refinery upgrades in Venezuela because low domestic fuel prices, earthquake recovery needs, and uncertain commercial terms weaken the case for major downstream spending.
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