Much has been made of the fact that no significant grassroots refinery has been built in the United States in nearly 3 decades other than some small simple refineries. Yet, U.S. refinery capacity has increased 1.9 million barrels per day over the last 10 years, which is equivalent to the addition of 1 medium-size refinery per year on average, as refiners attempt to de-bottleneck and make their refineries more efficient, change feedstocks, and add capacity to meet market opportunities. In EIA's latest Petroleum Supply Annual, Volume 1, although the number of refineries stayed the same between January 1, 2003 and January 1, 2004, capacity increased by 137,000 barrels per day, adding, again, the equivalent of another medium-sized refinery! The release of this information comes at a critical juncture within the petroleum refining industry, when many policy makers and industry analysts are debating the merits of adding distillation capacity by either building new refineries or by the reactivation of closed ones. High gasoline prices and questions about the ability of the U.S. refining industry to meet growing demand are fueling these arguments.
Concern regarding the adequacy of refining capacity is relatively recent. There was significant surplus capacity from the mid-1970s until the mid-1990s. The U.S. refining industry reached its peak in 1981 with 324 operable refineries with a total distillation capacity of 18.6 million barrels per calendar day. That same year, surplus refining capacity, measured as operable capacity minus gross inputs, totaled about 5.9 million barrels per day, resulting in an average utilization rate of 69 percent (see chart below). Many small, inefficient refineries shut down in the early 1980s when the Domestic Crude Oil Allocation Program was removed and their subsidies ended, but capacity was still in excess relative to demand. Many small refineries have continued to close, albeit at a slower rate than in the early 1980s, to reach 149 refineries today, with the last new grassroots refinery completed in 1976. Even with the shutdowns, however, total capacity has remained relatively flat since the mid-1980s as operating refineries have expanded at existing facilities.