In general, refining has been significantly less profitable than other
industry segments. Gross refinery margins -- the difference between the
cost of the input and the price of the output -- have been squeezed at the same
time that operating costs and the need for additional investment to meet
environmental mandates has grown, thus reducing the net margin even further.
In addition, much of the investment made during the 1980's was designed to take
advantage of the differential between the dwindling supply of higher quality
crude oils and the growing supply of heavier and higher sulfur crudes.
When that differential narrowed, however, the financial return on those
investments declined. Refining margins peaked in the late 1980's.
During the 1990's the role of independent refiners (those without
significant production) has grown substantially, largely as the result of
refinery purchases from integrated companies (the "majors") seeking to
streamline and realign their positions. Furthermore, the independent
refiners, like the majors, are in a period of consolidation; the mergers and
acquisitions are having a significant impact on refinery ownership although not
overall refined product supply.