Increasing America’s Domestic Fuel Supply by Building New Oil Refineries

* The number of refineries fell from 324 in 1981 to 223 in 1985, and domestic refining capacity dropped by almost three million barrels per day (b/d). * By 2006 the number of U.S. refineries had slipped to 149.Total refining capacity fell as small refineries closed, but the capacity of the remaining refineries has grown due to expansions and improvements in efficiency. For example, due to efficiency improvements refineries that operated at 78 percent of their maximum capacity in the 1980s, on the average, have produced more than 90 percent of their potential output since 1993. However, higher utilization rates increase the seasonal volatility of gasoline prices. Refineries cannot pick up the slack caused by shortages which arise when capacity is taken off-line because of maintenance or natural disaster. Thus, outages cause supply to fall and prices to rise. In the summer of 2007, for example, the loss of output from two refineries led to a gasoline price increase of 24 cents in the Midwest.

NCPA | Brief Analysis #603, Increasing America’s Domestic Fuel Supply by Building New Oil Refineries