HomeFutures and CommoditiesUS refinery mergers and acquisitions slow due to aging assets and uncertain...

US refinery mergers and acquisitions slow due to aging assets and uncertain future, as buyers hesitate.

The Struggles of the U.S. Refinery Industry

Refinery Deals Stall as Energy Transition Accelerates

Last year, the U.S. oil industry witnessed nearly $200 billion in upstream deals, but the refining sector missed out on the action. The transition away from fossil fuels and doubts about the long-term value of aging U.S. refineries have led to a lack of buyers. This situation is despite the hope that a post-pandemic surge in margins might have opened up a rare window to exit assets profitably. However, high margins have not translated into favorable sales as plant valuations remain down a third since the global financial crisis of 2008.

Challenges Faced by Refinery Operators

The U.S. refinery sector has not seen a change in ownership since independent refiner Par Pacific completed its acquisition of Exxon Mobil’s Billings, Montana, plant last year. Delta Air Lines has also struggled to offload its 100-year-old Trainer, Pennsylvania, refinery, while Phillips 66 is pursuing a $3 billion divestiture program that may include some of its smaller refineries. Additionally, Venezuelan-owned Citgo has put three refineries up for sale as part of a U.S. court auction to settle Venezuelan debts.

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Impact of the Energy Transition

The U.S. is the world’s top gasoline market, but with the wider adoption of electric vehicles and policies to phase out fossil fuels, refiners are expected to face new challenges. The rising sales of electric vehicles have led forecasters to bring forward their projections for when global oil use will peak. This shift in the market is expected to lead to a decline in gasoline consumption from next year onwards.

Costly Maintenance and Shutdowns

The rising cost of maintenance and workloads to keep aging plants online have deterred potential refinery buyers. Valero, Marathon, and Phillips 66 together had the equivalent of 280,000 bpd of capacity offline in 2023 due to planned and unplanned outages. The bill to repair these facilities can be enormous, with some estimates indicating a need for up to $1 billion in upgrades to continue operations.

Challenges for Refiners

Seven other North American refineries have shuttered since capacity peaked at 19 million bpd in 2020, removing about 1 million bpd of capacity. Refiners are learning that failing to invest in their facilities before putting their plants up for sale can lead to dwindling interest from potential buyers.

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