Oil refineries have long been the lifeblood of many working-class neighborhoods in East Texas, often offering six-figure incomes without education requirements. Now, change is in the air.
Workers among the roughly 1,000 employed at one of the Houston area’s largest refineries began receiving layoff notices Thursday, a union representative said. The facility’s owner, chemical giant LyondellBasell, is preparing to start shutting down the refinery permanently within the week as it seeks to reposition itself in a world expected to burn fewer fossil fuels.
Until now, Houston had resisted the trend sweeping the industry: Oil refiners are deciding not to fix their aging or damaged facilities as increasingly fuel-efficient and electric vehicles eat into gasoline demand, threatening the return on those investments.
The closure of a major Houston refinery is a bellwether for pressure on a segment of the oil and gas industry that is costly to run and historically not very profitable. But just how quickly EVs begin to dominate the market and force out more refineries depends somewhat on the federal government.
President Donald Trump’s ban on subsidies for EVs may have bought Houston refineries more time, said Debnil Chowdhury, S&P Global Commodity Insights’ head of fuel and refining in the Americas.
“With our newest forecasts, based on Trump's EV policies, we see basically a slowdown in the electric vehicle penetration rates,” Chowdhury said. “They're still going to increase, but not as much as we were thinking before President Trump took office. That extends the period that Gulf Coast refiners are running.”
Before Trump’s policy shift, refineries along the Gulf Coast were expected to start feeling more economic pressure within the next five to seven years, Chowdhury said. Now, with slower EV adoption expected, most refineries in the Houston area are likely to operate economically for at least another 10 years, he said.
Houston’s last stand
Refineries in the Houston area are likely to be the last standing as consumers turn away from gas-powered vehicles, Chowdhury said. Refiners here have competitive advantages like proximity to oil production, cheap natural gas to power their facilities, ample pipelines and access to exports through the Gulf of Mexico. These advantages will likely allow more of them to remain operational longer than refiners in other regions, he said.
Additionally, Gulf Coast refineries are better equipped to switch from fuel to petrochemical production as the transition away from fossil fuels accelerates.
“Even though gasoline demand is close to peaking and showing signs of decline, longer term, chemical demand is constantly growing with GDP,” Chowdhury said. “That's actually a really important point for Houston refineries versus the rest of the country, is that they have that option.”
Still, there is growing economic pressure on refineries now, as fuel demand begins to taper in the U.S. and large new refineries are coming online in Nigeria and Mexico, infusing the market with new fuel supplies. Potential tariffs on heavy Canadian crude imports, which are important for many Houston- area refineries built long before lighter oil began pouring in from the Permian Basin, also threaten refiners’ economic backdrop.
Refineries in the U.S. are also aging — nearly 50 years have passed since the last major refinery was built — so they could require costly upkeep, said Andy Lipow, president of Lipow Oil Associates in Houston.
“Refineries are getting older as time goes on, and they may require a significant capital expenditure in order to extend the life of the facility by 30 or 40 years,” he said. “That may not be economical as gasoline and diesel demand in the United States starts to decline.”
End of an era
After years of losses at the facility, Lyondell first attempted to sell the refinery in 2016. Even in 2022, as war in Ukraine drove up gasoline prices and pushed refiners’ profits to record highs, the refinery didn’t lure a buyer. Lyondell announced that it planned to close the facility and was considering other uses for the site — hydrogen, recycled plastics and renewable fuel production.
Lyondell said it would shutter the Houston refinery in stages, beginning within the next week. A second phase of the shutdown begins next month; the facility will no longer be operational by the end of March.
“Our focus is on safely ceasing refining operations to protect the community, environment and our workers,” the company said in a statement.
It won’t be the last refinery to stop operating this year, said Joe Pezzino, senior advisor at S&P Global Commodity Insights who tracks refinery outages and closures, pointing to Phillips 66’s plans to close its Los Angeles-area refinery later in 2025.
Phillips 66 cited the facility's low profitability compared to other assets in the company’s portfolio and “a shift from consumers in the state towards lower carbon energy sources.”
“Sadly for the industry, it's happening more and more,” Pezzino said.
Phillips 66 stopped operating its Santa Maria refinery in 2023 as part of its plan to convert its San Francisco facility to a renewable diesel and sustainable aviation fuels plant.
Phillips 66 also closed its Alliance refinery in Louisiana in 2021, unwilling to reinvest after it was battered by multiple hurricanes. Shell closed its Convent refinery in Louisiana in 2020, taking a major refinery offline as part of a company effort to reduce carbon emissions.