Sheila McNulty Chevron’s refining cutbacks speak to grim future for sector

Chevron’s announcement today that it will restructure its refining and market division underlines the difficulties being faced now by the division and expected into the future.

The global economic downturn has cut into refining and marketing sales. And future prosects looks equally bad, given expectations of carbon legislation that are expected to hit the carbon-intensive refining industry hard and the move away from fossil fuels that these refineries are built on.

Indeed, Chevron is not the first to speak to this trend.

Valero, the US’ biggest refiner, has spent the past year scaling back, as as Sunoco, another US refiner. And it looks like Chevron’s fellow oil majors are not immune to refining difficulties, either.

Last year, Wood Mackenzie did a report on the refining industry, which said the climate legislation under consideration in Congress could threaten the sustainability of the US refining industry. If passed into law, the legislation could cost US refiners $100bn per year within three years, said Alan Gelder, Wood MacKenzie’s head of global downstream oil consulting.

So it makes sense for Chevron to put its money elsewhere. The problem is, economic demand will certainly recover, ramping up demand for refined products. And that is going to be long before renewables or biofuels are capable of replacing fossil fuels. Someone is going to need to be providing the fuel in the interim. Perhaps it will fall to Exxon, which continues to insist fossil fuels have a healthy future.

Related links:

A Q4 refining headache for the majors (FT Alphaville, 13/01/10)
More troubles to come for US refining (FT Energy Source, 28/10/09)