The U.S Oil Refining Industry: Challenges Include Closures, Weak Profits, and Demand for Renewable Diesel and SAF

     The U.S. oil refining industry faces numerous challenges heading into the future. Having dealt with new desulfurization rules for maritime fuels in 2020, closures in California, conversion to refining renewable diesel and sustainable aviation fuel (SAF), and other issues, the industry has become more adaptive, according to Robert Auers at RBN Energy. I remember the refining industry re-negotiating with the Biden administration to weaken some costly desulfurization requirements a couple of years ago.

     No large oil refineries have been built in the U.S. since the 1970s. Our refinery capacity is often booked full or nearly so, and also runs thin margins at times, depending on pricing. Capacity that is converted to clean fuels is also diverted from crude oil refining, effectively lowering crude oil refining capacity.

     Auers’ blog post is a run-up to RBN’s Refined Fuels Master Class. He first notes that some refineries in the U.S. have closed simply due to weak profits, rising regulatory costs, and lower demand for gasoline in particular. The U.S. refinery sector is the most competitive in the world. Some U.S. refineries are prospering and expanding.

     The post first gives some basics about refineries:

“Refineries are dynamic hubs that can stretch over thousands of acres, employ more than 2,000 people and often operate at 90% capacity or higher to transform crude oil into fuels like gasoline, diesel and jet fuel. Each refinery is unique and can adjust the quantity of the products it produces depending on market demand and the type of crude oil processed.”

“The process is quite complex. There’s a mix of separation, conversion and treating processes that happen behind the scenes inside pipes, towers and reactors. The key steps include distillation, which separates crude oil into different fractions; and cracking and reforming, where heavy molecules are broken down or improved. Hydrocrackers boost jet and diesel production while reformers increase gasoline octane and generate hydrogen. Hydrotreaters play a crucial role in removing sulfur, making products cleaner and more environmentally friendly.”

     He notes that oil producers are primarily concerned with two properties, or quality specs: gravity (light vs. heavy) and sulfur content (sweet vs. sour). However, as the figure below shows, refiners are concerned with a much wider range of crude properties. He notes that while refineries that process heavier crude can also process lighter crude feeds, those that process lighter crude generally cannot process heavier crude.

     The fate of CITGO’s three refineries, which has been up in the air for nearly a decade, is also discussed. Competing offers and counteroffers have been made, changed, and rejected by the courts. It is still unknown how things will turn out. RBN expects all three CITGO refineries to continue operations after they are sold. They expect other refineries to close.

     SAF is a drop-in replacement for conventional jet fuel. Like renewable diesel, SAF is sourced from vegetable oils, waste fats, and agricultural residues. He notes:

“In 2024, only 7 Mb/d of SAF was produced in the U.S. We expect to see it rise to 76 Mb/d in 2029, making up about 25% of total RD/SAF production.”   

     He notes that it won’t be easy to grow SAF production due to economic headwinds, price competitiveness, and limited market transparency. Policies and incentives will influence how much SAF is produced. The EPA recently issued the Renewable Volume Obligation (RVO) proposal, and there are also proposed restrictions on SAF imports. He then plugs the Master Class again:

“Attendees will learn how to calculate and interpret refining crack spreads (including the impact of RINs on the crack spread) with a model that shows the difference between the price of refined products and the raw material cost of crude oil — the refining margin (see Figure 3 below). Then, we’ll go a step deeper into a refinery yield model which will include a detailed look at typical yields from refineries with different configurations processing different types of crude oil, and their ability to adjust yields in response to market conditions. Yield data will then be compared with prices to demonstrate market refinery margins. A similar, though simpler, model will demonstrate how to calculate RD and SAF profitability based on feedstock, diesel, and credit prices.  These are complex pieces and the type of insight we’ll discuss at our Master Class. “

Figure 3. Crack Spread Terminology. Source: RBN

     Finally, he notes:

“The U.S. refining industry, despite constant change and fierce competition, remains resilient and poised for growing global significance in a rapidly shifting market.”

    

References:

 

Unpredictable - U.S. Refiners Must Adapt to Complex, Shifting Forces to Thrive in Today's Market. Robert Auers. RBN Energy. September 9, 2025. Unpredictable - U.S. Refiners Must Adapt to Complex, Shifting Forces to Thrive in Today's Market | RBN Energy