The White House is considering whether to use the Defense Production Act (DPA) to increase U.S. refining capacity, as American refineries operate close to full utilization and diesel prices have climbed above $6 a gallon for the first time.
According to Reuters, the option was discussed during President Donald Trump’s recent meeting with nearly a dozen U.S. refiners. No final decision has been taken, and talks are expected to continue.
Refining executives told administration officials that federal funding would deliver additional barrels more quickly if it were directed toward expanding existing plants or improving refinery efficiency. Building an entirely new refinery, they argued, would cost billions of dollars and take years.
The DPA gives the president authority to provide financial assistance and direct industrial resources toward materials and capacity deemed necessary for national defense.
Donald Trump set the stage for such a move in April, when he issued a presidential determination declaring domestic petroleum production, refining and logistics capacity essential to national defense. The order authorized purchases, purchase commitments and financial instruments under Section 303 of the DPA to expand that capacity.
U.S. refiners currently have very little spare room. Refinery utilization reached 98% in late August after staying above 95% for three straight months, the longest such stretch since 2000.
U.S. output has become more important as refining capacity has gone offline elsewhere. Phillips 66 estimated last month that about 7 million bpd of refining capacity was offline in Asia and the Middle East, with another 1.4 million bpd unavailable in Russia.
U.S. diesel inventories are now 13% below their five-year average. Diesel prices moved above $6 per gallon this week as disruptions in the Middle East and Russia tightened global fuel supplies.
One possible early test case is emerging in Texas. America First Refining plans a 168,000-bpd refinery at the Port of Brownsville, announced in March as the first new U.S. refinery in nearly 50 years. Reuters said it remains unclear whether the project could receive DPA funding.
