The Take: Oil Refiners and Gasoline Prices

What’s News

President Joe Biden has called on seven major oil refinery companies to take “immediate actions” to ramp up gasoline supplies in the U.S. where the war in Ukraine and other factors, including bottlenecks at refineries, have sent gasoline prices soaring to more than $5 a gallon for the first time ever.

The Biden Administration acknowledges that Russia’s war in Ukraine is the primary factor driving oil and gasoline prices higher. Oil prices have jumped by more than 50% this year, raising gasoline prices more than $1.70 per gallon.

However, the oil price jump has been exacerbated by what Goldman Sachs has called “unprecedented” bottlenecks at oil refineries, where crude oil is converted into usable products like gasoline.

SAP’s Take

“Refiners were hard hit by the coronavirus pandemic in early 2020 when demand for gasoline and other products derived from oil plunged and many refineries had to close their operations,” said Benjamin Beberness, global VP of Oil, Gas, and Energy at SAP. “Now that demand has increased, refiners are facing a shortage of skilled labor.”

Analysts at Wood Mackenzie, an energy consultancy, estimate that 3 million barrels a day of refinery capacity shut down in 2020 and 2021.

Refineries are complex, and once shutdown or shut-in it can be hard to get them to full capacity again. That has made it difficult for oil refiners to respond quickly to the rebound in consumer and industrial demand for gasoline, diesel, and jet fuel.

“While some companies have shut down their least efficient refineries, other companies have taken the opportunity to perform planned maintenance or turnarounds. Unfortunately, this means it could be some time before refining capacity is restored to pre-pandemic levels,” Beberness said.

Companies and investors in the energy sector are also wary of repeating the mistakes made at the end of the 2010s, when the sector overinvested in fracking and refining at a time when demand evaporated. Several U.S. energy companies went bankrupt, and access to investment money evaporated.

In the longer term, they also know that they will have to invest in cleaner energy sources and are keen to avoid over-investment in oil and natural gas refining when the underlying trend is towards alternative energy.

“Whatever the short-term pressures, the refiners are having to balance between meeting the demand for fuel and the vast array of other byproducts that consumers use every day with lowering their ESG (environmental, social and corporate governance) output,” Beberness said.

“To do this they are seeking to mitigate emissions through CCUS (carbon capture, utilization, and storage) and other technologies, in addition to investing in a more diverse portfolio or repurposing existing infrastructures for renewable transportation fuels and hydrogen.” 

Ilaina Jonas, Senior Director of Global Media Relations, SAP
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