Independents nab control of US refining industry


Independent refiners are destined to be in the driver's seat of the US refining industry as integrated oil companies increasingly shed refining assets, according to analysts at Deloitte.

In a report released Wednesday, the consultancy said by the end of 2013, over 70% of domestic refining capacity may be controlled by independent refiners, a radical shift from 1990, when most of the refining capacity in the US was in the hands of integrated oil companies.

That likely means a reduction in the cyclical profit margin swings normally seen by refiners, as independent companies are less likely to be able to weather downturns and therefore strive for more efficient and stable operations, Deloitte consultant Roger Ihne said.

"Refiners operate on a very small margin," Ihne said.

If it shrinks, "the amount of impact is greater" for an independent refiner than for an integrated oil company buoyed by profitable oil-and-gas production, he added.

For consumers, however, the smoothing of these profitability cycles is likely to have a relatively small impact, Ihne said, as profit margins account for a minuscule portion of the price at the pump.

Independent refiners, however, likely are going to be more focused on the retail aspect, which has been neglected by the oil majors.

"They're going to provide additional value to the consumer," Ihne said.

The restructuring of the US refining industry comes as there are expectations for a long-term decline in domestic demand for fuel, driven mainly by gains in efficiency.

That is triggering refinery sales and shutdowns, both among majors and independents.

Last year, integrated oil company Marathon Oil split into an oil-and-gas exploration company, and an independent refiner, Marathon Petroleum.

Energy company ConocoPhillips is in the process of completing a similar move.

Meanwhile, UK-based oil major BP has put two of its US refineries up for sale.

Dow Jones Newswires

Images courtesy of BP p.l.c.

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