The Cost of Gasoline - Part 2

The previous post reviewed the costs of crude oil and gasoline.

The cost of crude has fallen but the national average cost of gasoline has not.  The expectation was that lower crude prices would lead to lower gasoline prices.

Why hasn’t the price of gasoline declined?  The reason presented was the increasing cost of refining oil into gasoline.

Refineries in the U.S. are old and capacity is limited – not a new one has been built in 50 years.

The expense of maintenance and upgrading is high.  So, the cost of gasoline production is high.  See details in previous post.

That has made the retail of price of gasoline resistant to change – what is called “Sticky” Pricing.

When refineries are already near full capacity, any decline in crude oil costs is often absorbed by refining bottlenecks, not passed on fully to consumers.

Government Policies and Investment Risk have discouraged investment in new refineries in the U.S.  There is also the NIMBY view of new refineries.

Background Facts

As of Jan 1, 2025, U.S. operable crude distillation capacity is about18.4 million barrels per calendar day (b/cd) across 132 refineries.

The current capacity utilization is 90% - way above a normal situation.

As of mid-2025, some refinery operators are planning to close certain plants rather than expand. For example, one company is planning to shut a refinery in the Los Angeles area.

No plans exist for significant replacement and expansion of capacity.

Why No Expansion

Cost of a new Major Refinery:  $15 – 20 Billion.

• Current Income Margins in the refining business do not justify new construction – the Return on Investment (ROI) is too low compared to other investment options.

• The future forecast for Demand is mixed.

• A recent analysis argues that many U.S. refiners expect downward pressure on refining demand over the next 10–20 years (due to energy transition, efficiency gains, regulatory pressure, biofuels, electric vehicles, etc.).

• Given that expectation, massive new investments are risky; many refiners are instead considering shutdowns, conversions, or modest upgrades — not big refinery booms.

What To Expect

Cogport projects the Risk Factors as follows:

• Demand for Gasoline will not decrease as new automobiles are added to the current number.

• A slow adoption of EV Vehicles will not significantly reduce demand for gasoline.

• As U.S. refineries lag in capacity, the U.S. will become dependent on foreign supply.  China, India, and Saudi Arabia are all building new capacity, and doing it fast.

• This is a national supply and security issue. 

• The U.S. has learned recent lessons from dependence on foreign suppliers for semiconductors, electronic components, and rare earth minerals.

What To Do

Private Companies are resistant to new investment due to the perceived risk factors and low ROI.

As a result, the U.S. will need more foreign imports in the future. That will result in loss of domestic control over the future price of gasoline.

Federal and State Governments should adopt policies that encourage new refineries in the U.S. to replace and supplement current capacity.

Cogport proposes that the U.S. should add at least 5 million barrels of capacity per day.  That would mean 25 new plants producing 200,000 barrels per day.

That is an estimated Total Investment Cost of $ 650 Billion.

A vast sum.  But we have a lot of catch-up to do after 50 years of non-investment.

Government Policy should reduce the rules and regulations that increase the cost of new construction.  Speed up the development process. (China can do things fast, the U.S. lags).

Government Policy for Tax and Finance Incentives should be offered to Private Companies to build.  Otherwise, nothing will happen in a situation where the private sector is not working. 

We need to look forward based on the need. It will create many good jobs and secure supply for the U.S.

David Hollaender                                         12/7/25

Cogport.com