Oil Refining In The United States Of America

Published Date: 02 Nov 2017

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Oil Refining in the United States of America, Canada, and other American Countries

Oil refining is considered as a chemical process that entails production of refined oil products. The process involves the industrial processing of crude oil into refined oil through a systematic procedure. The refined oil products include kerosene, liquefied petroleum gas, gasoline but to mention just a few. For instance, oil refining is not carried out in some countries due to various reasons. Some of the critics argue that these countries fail to refine their own oil due to the expenses incurred during the process of refining the oil. On the other hand, some of the critics in the business world tend to argue that reason as to why these countries fail to refine their own oil is due to politics and other reasons (Benoit 16). The paper below seeks to address why Canada, United States of America and other American countries fail to refine their own oil.

It is indicated that the number of refineries in Canada have been decreasing in the past years. Studies have established that from the 1970’s to the current years the numbers of oil refineries in Canada have reduced from approximately 40 to 19 industries. It is as well indicated that the labor force of oil refinery has reduced from more than 27,000 to nearly 18,000 from the year 1989 to 2009. It has been reported in the same study that since the year 1984 to the current years, there has not been a single oil refining industry put up in Canada. This is a clear indication that the business of oil refining in Canada is not a serious business (National Energy Board 21).

As a result of the large expenses experienced in the process of oil refining, Canada is one of the countries in the globe that exports its crude oil to foreign refiners in other countries. It is argued that a majority of the oil sands in Canada tend to offload the crude oil they mine to foreign refiners at a discount. For instance, it is indicated that the crude oil production in Canada is expected to double up by 2025. Various studies indicate that Canada has been out of the oil refining business for several years because of the increasing complexities in the global oil industry, among them financial issues (Benoit 35).

It has been established that the overall oil refining capacity of Canada has declined over the years. A report concerning oil refining in Canada released in 2012 indicate that the country imports approximately 0.7 million barrels of crude oil in each year, of which only 25% of the 0.7 million barrels are refined. This is a clear indication that Canada does not fully take part in the oil refining business (Benoit 23).

Although some of the business critics argue that the main reason behind the failure of Canada in refining its own oil may be political majority of the critics argue that it is financial. Reports indicate that the huge financial expenses incurred in the process of oil refining are a main barrier to Canada in refining oil. Although it is quite hard for the business critics who argue that financials is the main reason behind the failure of oil refining in Canada to state the exact cost of new facility for the process, some of them approximate the cost to be above 10 billion US dollars (National Energy Board 65).

In addition to that, Canada does not refine its own oil due to the fact that the business is considered less profitable on the contrary to what others perceive. It is argued that the refining business in Canada is quite risky as compared to the upstream production of oil. Canada considers the refining business less profitable because it is usually dictated by the global oil prices, as well as the demand of the refined oil products in the market. For instance, if the global oil prices are lowered, the country that engages in oil refining is expected to lower the price regardless of the cost it has incurred in the process of oil refining. In addition to that, when the demand of the refined products is low in the oil market, then countries that refine oil are expected to lower the prices so that the demands in the market can be met, and vice versa. This is a clear indication that a country that refines its own oil cannot setup its own prices of the refined oil products depending on the cost it has incurred in the refining process (National Energy Board p54). Therefore, it is for this particular reason that puts off Canada in taking part in the process of refining its own oil.

The construction of refinery industries has been expensive for Canada, hence a contributing factor to the failure of Canada in refining its own oil. For instance, the facilities to be put up in the industries are as well expensive for the country despite the fact that it is a developed country. Studies have indicated that for more than two decades, Canada has not been able to put up a single oil refining industry. For this reason, oil refining in the country has been a great challenge. Canada has been over the years exporting its crude oil to foreign refiners for the refined oil products. It engages itself in refining a smaller percentage of the crude oil it produces in the little oil refining industries it has. For instance, it is indicated that most of the refining industries in the country are owned by the Americans (Benoit p37).

The poor cost effective imbalance that exists between eastern and western Canada is yet another financial challenge that contributes to the country’s failure in refining its own oil. The country is facing the challenge of failure to move the oil that is produced across the country. For this reason, it is indicated that a majority of the oil refining industries in the country are located in the eastern part, as opposed to the western part. This has created the cost imbalance between the eastern part of Canada and the western part of Canada whereby more expensive crude oil is imported in the eastern part, and the oil sands producers in the west export their crude oil to foreign refiners at a discount. This imbalance between eastern Canada and western Canada is costly to the Canadian government, hence making the country not to refine its own oil. For instance, the imbalance tends to create an economic gap in the economy of Canada. It is estimated that the Canadian economy uses close to 19 billion US Dollars each year to cover up the economic gap (Benoit p68). Therefore, this is a valid financial reason that contributes to the failure of Canada in the refining of its own oil.

Apart from Canada, another country that is facing the problem of refining its own oil is the United States of America. Though some business critics argue that the main reason behind the failure of oil refining in the United States of America is political, some argue that the reason behind is financial. It is indicated that close to 60% of the oil used in the United States of America is usually from external sources, only 40% of the oil the country uses comes from the domestic oil fields (Mehlman 45). This clearly indicates that the United States of America is behind in the production of its own refined oil products.

The United States finds oil refining unfavorable to its economy, hence a financial reason as to why it fails to refine its own oil products. The process of refining oil is quite expensive in terms of facilities, labor, and maintenance of the refining industry. The country found that the estimated amount for refining its own oil is risky for its economy hence it mainly engages in the importation of the refined oil products from other countries such as Saudi Arabia (OECD 62).

Another financial reason that hinders the United States of America from refining its own oil is the fact that the prices of refined oil products are subjected to the global oil prices. The global oil prices are usually not stable, and this is risky for the economy of the United States. The country would rather import the refined oil products for its use instead of incurring in loses in producing refined oil products. It is argued that countries that take part in the refining of oil products plunge into heavy loses whenever the global oil prices are lowered due to the low demand in the oil products in the market. For instance, this is what the United States of America avoids by not refining its own oil products (Mehlman 87).

There are other American countries that do not refine their own oil due to financial issues. One of the financial issues that make these American countries not to refine their own oil is the fact that putting up refinery industries is expensive. The facilities that are needed in the industries for effective refining of oil are as well expensive. This tends to overload the economy of these countries, therefore, they opt to import refined oil products rather than refining their own oil. This is because they find importation of already refined oil products cheaper than refining the products (Langeveld, Marieke and Johan 76).

Another financial reason that makes the American countries not to refine their own oil is the fact that the process is expensive for their economies to handle. It is with no doubt that the oil refining process is involving and extremely expensive. Therefore, these particular countries consider importing already refined oil products which is cheaper than refining the oil products (Tarbell and David 46).

In conclusion, as discussed in the above essay, oil refining process is an expensive process, hence a significant hindrance for countries to produce their own refined oil products. Although some business critics argue that the main reason as to why countries fail to produce their own refined oil is political ignited, this particular essay has supported the critics who argue that countries fail to refine their own oil due to financial issues. Among the financial issues discussed in the essay the contribute to failure of countries to refine their own oil include the expenses incurred during the process, lack of enough funds to put up refinery industries, and the fact that the prices of refined oil products are controlled by the global oil prices and the demand of the oil products in the market.

Annotated bibliography

Benoit, Leon. Current and future state of oil and gas pipelines and refining capacity in Canada report of the Standing Committee on Natural Resources. Ottawa: Standing Committee on Natural Resources, 2012.

Benoit is a Canadian politician in the Canadian House of Commons. In his publication, Benoit argument was on the North American Energy Security. The main question in the argument presented in the publication was based on why the Canadian oil exports provided energy security to America rather than to Canadians first.

Langeveld, Hans, Meeusen Marieke and Sanders Johan. The biobased economy: biofuels, materials and chemicals in the post-oil era. London: Earthscan, 2010.

The authors of this book are all professionals in the energy sector. Hans is currently the Director of Biomass Research, Sanders is a professor at Wageningen University in Valorisation of Plant Production Chains, while Marieke works at Wageningen University as a senior researcher. The book generally covers the beginnings of an economy that is biobased.

Mehlman, Myron. Living in a chemical world: framing the future in light of the past. Boston: Blackwell Pub, 2006.

The author of this book attained his PhD from Massachusetts Institute of Technology. He is the former director of Mobil Oil Corporation. In his book, the author mainly focused on the production of refined oil products, and how they can be a health hazard in the human life and working environment.

National Energy Board. Short-term outlook for Canadian crude oil to 2006: an energy market assessment. Calgary: National Energy Board, 2005.

The Canadian government in 1959 created the National Energy Board. It is considered as an independent body that regulates the economy of the country based on the operation of oil and pipelines of natural gas in the country. In this particular publication, NEB mainly focused on the assessment of the crude oil in the energy market in the year 2006.

OECD. Medium-Term Oil Market Report 2012 Market Trends and Projections to 2017. Paris: OECD Publishing, 2012.

OECD is an international economic organization that was founded in 1961. It is a 34 member organization that tends to stimulate world trade and the economic progress of the member countries. In this publication, OECD mainly focused on the medium term oil market, as well as the trends and projections of the oil market for the member countries in 2017.

Tarbell, Ida and Chalmers David. The history of the Standard Oil Company. New York: Harper & Row, 1966.

Ida Tarbell is the author of this book while David is the editor. Ida graduated in 1880 from Allegheny College. Until her death in 1944, Ida was a renowned American Journalist. The author of this book focused on the oil companies in the United States of America and how they compete against each other in the oil market.