Element Fuels Holdings, a Dallas-area startup, has announced plans to build the first all-new oil refinery in the United States in nearly 50 years. The company is relaunching efforts to construct a large plant in Brownsville, Texas, after previous attempts by entrepreneur John Calce’s ARX Energy and JupiterMLP startups. The project, which was originally owned by a holding company that also owned Centurion Terminals, aims to raise funds for the first phase of construction, estimated to cost $1.2 billion.
One of the key factors driving this project is the need to process U.S. shale oil from fields in West and South Texas. Calce emphasized that the United States has a surplus of light crude but lacks sufficient refining capacity. Therefore, the Element refinery will be able to address this gap in the market and capitalize on the abundance of domestic oil resources.
The company is also exploring potential funding from the U.S. Department of Energy through the Inflation Reduction Act. This government support would significantly bolster the project’s financial viability and facilitate its successful completion.
To address the challenges faced by new refineries in securing financing, Element Fuels Holdings plans to build an on-site power plant with a capacity of 165 megawatts per day. This power plant will be powered by hydrogen produced by the refinery itself. Negotiations are currently underway with a credit counterparty for the refinery, and a long-term off-take contract has been established with a counterparty on the power side. These strategic partnerships will ensure a reliable and sustainable source of funding for the project.
John Auers, managing director of refining consultancy Refined Fuels Analytics, highlighted that financing is the most difficult aspect for new refineries. However, he also cautions that refining projects could face limited lifespans due to projected declines in gasoline demand in the future. With expectations of peak gasoline demand around 2030-2031, as well as potential decreases in demand for middle distillates like diesel and jet fuel after 2040, it is important for Element Fuels Holdings to consider the long-term viability of its refinery.
Calce and his team have taken these future challenges into account and have a contingency plan in place. If demand destruction occurs, turning the refinery into a petrochemicals plant is a viable option. Additionally, the company could explore exporting the refined products to countries that have not yet embraced electric vehicles to the same extent as the United States. By adapting to changing market conditions and exploring alternative avenues, Element Fuels Holdings aims to ensure the continued profitability and sustainability of its refinery in the years to come.
Overall, the proposed construction of a new oil refinery by Element Fuels Holdings represents a significant development for the U.S. oil and gas industry. By addressing the shortage of refining capacity for domestic crude oil, the company’s project has the potential to strengthen the country’s energy independence and support its economic growth. With careful planning, strategic partnerships, and the adaptability to changing market dynamics, Element Fuels Holdings is well-positioned to build a successful and resilient refinery that can thrive in an evolving energy landscape.