The White House is considering using the Defense Production Act to add U.S. refining capacity, with American refineries already running at 98% capacity and diesel prices above $6 per gallon for the first time.
The proposal was discussed during President Donald Trump’s recent meeting with nearly a dozen U.S. refiners, according to Reuters. No decision has been made, and discussions are expected to continue.
Refining executives told administration officials that federal money would produce more barrels faster if it were used to expand existing plants or improve refinery efficiency. Building an entirely new refinery would cost billions and take years.
The Defense Production Act gives the president authority to provide financial assistance and direct industrial resources toward materials and capacity considered necessary for national defense.
Trump laid the groundwork in April, when he issued a presidential determination declaring domestic petroleum production, refining and logistics capacity essential to national defense. The order authorized purchases, purchase commitments and financial instruments under Section 303 of the DPA to increase that capacity.
U.S. refiners have little spare room today. Refinery utilization reached 98% in late August after spending three consecutive months above 95%, the longest such stretch since 2000.
That output has become increasingly valuable as refinery capacity disappears elsewhere. Phillips 66 estimated last month that roughly 7 million bpd of refining capacity was offline in Asia and the Middle East, with another 1.4 million bpd unavailable in Russia.
U.S. diesel inventories are now 13% below their five-year average. Diesel prices crossed $6 per gallon this week as disruptions in the Middle East and Russia squeezed global fuel supplies.
One possible test is already taking shape in Texas. America First Refining plans a 168,000-bpd refinery at the Port of Brownsville, announced in March as the first new U.S. refinery in nearly 50 years. Reuters said it remains unclear whether the project could receive DPA funding.
By Julianne Geiger for Oilprice.com
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