U.S. Energy Boom Helping Refiners and Manufacturers

The U.S. oil boom is helping U.S. manufacturers, including refiners, by producing low-cost energy to help American companies compete in a global economy. The latest example of this is a recent report by the Energy Information Administration (EIA) that compares the profitability of American and European refiners over the past 10 years. EIA’s analysis shows that over the last three years American refiners have reported considerably higher profits than their European counterparts due to lower input costs. This is because of benefits of increased domestic natural gas and oil production.

The recent influx of oil obtained through the use of hydraulic fracturing and directional drilling has widened the spread between the price of WTI (domestic) and Brent (European) crude oil prices. This has resulted in lower input costs for U.S. refiners that acquire their oil domestically. After the first quarter of 2014, the EIA reports American refiners earned around $6 more per barrel processed than refiners operating in the European markets—all because of an increase in U.S. natural gas and oil production.

This increase in supply of oil for U.S. refiners comes in the wake of a large build-out of transportation and storage infrastructure over the past several years. Firms spent billions to complete projects that move oil and gas across the United States from operating wells to refiners, and ultimately to consumers.

This increase in available oil is leading refiners to actually increase refining capacity in the U.S. A Wall Street Journal article from March 2014 reports an estimated increase in oil-refining capacity of 400,000 barrels per day to existing plants by 2018 – the equivalent of constructing a new, large-scale refinery – the last of which was built over three decades ago.

One town reaping the benefits of the refining boom is Nixon, Texas, profiled in a New York Times article earlier this year. The town is home to a refining plant owned by Blue Dolphin Energy, which resumed operations 2 years ago. The opening of the refinery resulted in the direct employment of 50 individuals, has packed the town’s diners and stores, quadrupled home values and allowed the town to improve infrastructure like roads and water systems.

The re-opening of the refinery in Nixon, Texas and the proposed capacity additions highlight the beneficial impact increased energy production, and the resulting lower energy prices, can have on individuals, small businesses, and towns alike.

IER summer associate Justin Bohlen authored this post