Element Fuels Holdings is proposing to build the first all-new U.S. oil refinery in nearly 50 years in Brownsville, Texas. The company is spending between $3 and $4 billion on the project, which will produce more than 160,000 barrels per day of gasoline, diesel, and jet fuel from shale oil—a type of light oil that most other refineries in the country are not optimized to handle. The company expects to provide 1,000 new jobs in Brownsville.
The refinery will be constructed in three phases that will begin by building a naphtha hydrotreater and reformer, which will process about 50,000 to 55,000 barrels per day of naphtha feedstock into gasoline. Element Fuels is looking to raise funds for the first phase costing about $1.2 billion, which it expects to be operational by 2027. The company is in talks with banks, private credit funds as well the U.S. Department of Energy for funding from the Inflation Reduction Act.
Element plans to build an on-site power plant, with 165-megawatt capacity, powered by hydrogen produced by the refinery and natural gas and include carbon capture and storage to reduce the facility’s carbon emissions. It intends to produce enough hydrogen to supply all the refinery’s power needs, which will result in lower carbon emissions than refineries that run on diesel. It is in negotiations with a credit counterparty for the refinery, and has a long-term off take contract with a counterparty on the power side. It is difficult for a new refinery to obtain financing because new refining projects could have a limited life with demand for gasoline expected by some to peak in 2030-2031, and for middle distillates such as diesel and jet fuel after 2040.
In the refinery’s second phase, Element Fuels is planning to add a distillation unit and diesel hydrotreater, and in its third phase, the company will investigate using excess hydrogen and carbon dioxide to produce biofuels. Element Fuels could turn its refinery into a petrochemicals plant in the future if demand destruction for gasoline and diesel should occur, or export the refined products to countries with fewer mandates and less electric vehicle adoption. The refinery is being designed with the flexibility to produce various fuel grades.
According to the U.S. Energy Information Administration, refinery utilization rates are expected to average 90.5 percent this year, a significant increase from the 2020 pandemic low of 78.9 percent. Refinery utilization is the amount of crude oil and other oils used as input at a refinery divided by the total capacity at that refinery. Refinery utilization reached 95.4 percent capacity in May, processing 17.584 million barrels per day of oil and other feedstocks.
Background
Some are doubtful that a new oil refinery could be built in the United States due to the ESG movement and onerous federal government policies. Policies hurting the refinery industry include Biden’s Corporate Average Fuel Economy (CAFE) standards that force a transition toward electric vehicles, the Renewable Fuel Standard (RFS) created in 2005 requiring a certain amount of biofuels such as ethanol to replace petroleum-based fuels, EPA’s tailpipe emissions rule and electric vehicle tax subsidies, to name a few. The promises of Biden’s EV programs are currently not being felt as consumers have grown increasingly wary about EV costs and complications.
The last significant refinery built in the United States was in 1976. (A small refinery came online in 2020 in North Dakota). Over the last several years, due to reduced demand from the pandemic and President Biden’s stated policy to reduce the demand for petroleum products, U.S. refineries have been shut down or repurposed to become biofuel refineries. (Many of those repurposed refineries, however, are currently losing money due to a lack of demand for the more expensive biofuels.) In a business where investments have a payout period of a decade or more, it is unlikely for investment to be spent on policies where the demand is being forced to be reduced. As a result, it is not surprising that the Brownsville project had been proposed at least twice before, with one proposal leading to a bankruptcy filing.
Conclusion
Element Fuels is planning to build a greenfield refinery in Brownsville, Texas, but needs to get financing for it, which is difficult to do since its investment will have a pay-back period of a decade or more and because of onerous federal policies that under President Biden are getting more numerous and focused toward transitioning to electric vehicles. The Brownsville refinery was attempted at least twice before without successful. If it does obtain financing, it will be built in three phases, have its own power plant fueled by hydrogen and natural gas, have a carbon capture and sequestration unit and use shale oil that is a type of light oil, which most other refineries do not use since they were retooled to use medium or heavy oil before the shale oil renaissance came about.
