What U.S. Refinery Closures Mean for Fuel Prices, Supply, and Exports

The U.S. refining landscape is undergoing a profound transformation, one that could have lasting impacts on fuel prices, supply, and America’s role as a leading fuel exporter. With two major refineries—one in Houston and one in Los Angeles—slated to close, and more closures or conversions on the horizon, the nation’s refining capacity is shrinking. Combined with growing demand for gasoline, diesel, and jet fuel, this tightening of supply is expected to affect fuel markets both domestically and abroad.

The Energy Information Administration (EIA) recently warned that the closure of Lyondell and Philips 66 refineries will contribute to fuel inventories falling to their lowest levels since 2000. Houston’s LyondellBasell Industries’ refinery has long been a backbone of U.S. refining operations. As a global leader in polymers, petrochemicals, and refined products, LyondellBasell made the executive decision to permanently shut down their Houston refinery on January 27th of this year. The loss of these two refineries alone will remove roughly 400,000 bpd of refining capacity from the U.S. fuel market—at a time when demand is rising.

Why Did Lyondell’s Houston Refinery Shut Down?

Lyondell’s Houston refinery, which had a capacity of 268,000 barrels per day, ended operations in January of this year, after years of attempts to sell the facility. LyondellBasell announced its intention to shut down the Houston refinery in 2022, citing the facility’s misalignment with the company’s strategic focus on becoming a global leader in plastic pellet manufacturing. Despite the efforts to sell the refinery, the company ultimately decided to close it, extending the shutdown timeline to early 2025 to accommodate strong fuel margins and ensure a smooth transition.

While this closure came as a shock to outside parties, many businesses, employees, and consumers prepared for this drastic shift in the industry. LyondellBasell’s decision to shut down its Houston refinery reflects a broader trend of U.S. refinery closures. Notably, Phillips 66 plans to cease operations at its 139,000 barrels-per-day Los Angeles-area refinery by the fourth quarter of 2025, citing market dynamics and a shift towards lower-carbon energy sources. Similarly, Valero Energy is evaluating options for its California refineries, including potential closures, due to increasing regulatory pressures and the state’s aggressive climate policies. These developments are indicative of a major transformation within the U.S. fuel market, driven by declining domestic fuel demand, the rise of renewable energy, and stringent environmental regulations.

The Impact on Fuel Exports

The Gulf Coast is a hub for U.S. fuel exports, raising the question—will Lyondell’s refinery closure tighten fuel exports? The shutdown of a large refinery like LyondellBasell’s will likely constrain supply, sparking additional questions about its impact on the energy market and economy. With margins now returning to pre-pandemic levels, fuel producers, wary of weak demand, are eager to prevent further declines. With that, the most prominent impact on energy markets could be on fuel exports—gasoline and diesel supplies being tighter than usual. Prior to its shutdown, Lyondell’s refinery produced approximately 140,000 bpd of gasoline and 100,000 bpd of diesel, a large portion of the U.S.’s combined export total of about 1.9 Mbpd for these fuels.

Gasoline Exports: In September 2024, gasoline exports from the U.S. Gulf Coast (PADD 3) averaged 660,000 bpd, a decrease from 745,000 bpd in August.

Diesel Exports: Specific data on diesel export fluctuations post-closure is limited. However, the reduction in diesel production capacity due to the refinery’s shutdown likely contributes to tighter diesel supplies, potentially affecting export volumes.

Additional Implications of Lyondell’s Refinery Closure

Industry experts suggest that the shutdown could cause temporary disruptions in fuel supply, particularly in regions dependent on Gulf Coast exports. However, the long-term impact will largely depend on factors such as alternative supply availability, refining capacity adjustments, and shifts in demand for refined products. LyondellBasell’s decision to shut down its Houston refinery was primarily driven by strategic and financial considerations. The company aimed to exit the refining business due to its volatile and low-margin nature, allowing it to focus resources on opportunities for sustainable value creation. Additionally, this will align with LyondellBasell’s decarbonization goals, as the company seeks to transition towards renewable energy sources and reduce its carbon footprint.

The closure of LyondellBasell’s Houston refinery signifies a pivotal shift in the U.S. refining industry and fuel exporting capabilities. While it may initially tighten fuel exports and strain supply, the long-term impacts will be shaped by market dynamics, industry adaptation, and broader energy transition trends. This development underscores the need for strategic planning and investment in sustainable energy solutions.