Oil Refinery Running Costs: $108M Fixed, $144B EBITDA (2026);

Oil Refinery Running Costs

Operating an Oil Refinery involves massive scale, meaning monthly running costs are dominated by variable expenses like crude oil feedstock and processing energy, not fixed overhead Total fixed and payroll costs for 2026 start around $108 million per month, but this is dwarfed by variable COGS, which can exceed $140 million monthly based on $181 billion annual revenue Your primary financial focus must be managing the volatility of raw material input costs and ensuring efficiency, as EBITDA is projected to reach $144 billion in the first year (2026) This guide breaks down the seven critical recurring expenses you must model for sustainable operation

7 Operational Expenses to Run Oil Refinery

#	Operating Expense	Expense Category	Description	Min Monthly Amount	Max Monthly Amount
1	Feedstock	Variable	This is the largest variable cost, calculated by multiplying the unit volume of each product by its specific feedstock cost.	$0	$0
2	Energy & Utilities	Variable	Includes energy for specific processes like cracking and distillation, plus general utilities (12% to 16% of product revenue).	$0	$0
3	Payroll	Direct Operations	Covers salaries for operational staff like Process Engineers and Maintenance Technicians, totaling $315,833 monthly.	$315,833	$315,833
4	Lease & Insurance	Fixed	These are major fixed costs, totaling $400,000 monthly ($250,000 for site rent and $150,000 for refinery insurance premiums).	$400,000	$400,000
5	Chemicals/Catalyst	Variable	Variable costs tied to production volume, estimated as a percentage of revenue (03% to 11%) for processing chemicals and catalyst replacement.	$0	$0
6	Logistics	Variable	A variable expense covering the movement of crude oil in and refined products out, budgeted at 30% of total revenue in 2026.	$0	$0
7	Compliance	Fixed/Variable	Fixed costs for Environmental Monitoring ($75,000 monthly) plus variable Environmental Compliance Fees (10% of total revenue in 2026).	$0	$0
Total	Total	All Operating Expenses		$715,833	$715,833

What is the total monthly running budget required for the first 12 months?

The required monthly running budget starts at $9 million just to cover fixed overhead, but the true cost will soar due to variable Cost of Goods Sold (COGS) tied directly to crude oil markets; you can defintely review market stability context by reading Is The Oil Refinery Business Currently Achieving Sustainable Profitability?

Monthly Fixed Burn Rate

Annual fixed overhead totals $108 million.
This means the baseline monthly cash requirement is $9 million.
This $9M covers operational staff, facility depreciation, and administrative needs.
If onboarding takes 14+ days, churn risk rises for key technical hires.

Variable Cost Exposure

Variable COGS are massive, driven by crude oil input costs.
The 2026 production target is 25 million units.
Every dollar change in crude price drastically shifts margin structure.
This business relies heavily on hedging strategies to manage commodity risk.

Which recurring cost categories pose the biggest financial risk?

The biggest financial risks for the Oil Refinery are the costs tied directly to the raw material and the power needed to run the plant. Crude Oil Feedstock and Energy for Processing, both classified under Cost of Goods Sold (COGS), dictate profitability because their prices swing wildly based on global markets. Have You Considered How To Outline The Market Analysis For Oil Refinery Business Plan? This exposure means your margin is highly sensitive to geopolitical events.

Feedstock Cost Sensitivity

Crude Oil Feedstock is the single largest component of COGS (Cost of Goods Sold).
Profitability hinges on the crack spread: input cost versus finished product sale price.
If feedstock costs rise 10% faster than product prices, your contribution margin shrinks fast.
This cost category requires active risk management against commodity futures volatility.

Energy Use and Operational Levers

Energy for Processing is the second major COGS drain on the operation.
Geopolitical shifts immediately impact the cost of natural gas used for heat and power.
The unique value proposition highlights modern efficiency, which must translate to lower energy intensity.
If energy costs exceed 15% of total operating expenses, you need immediate hedging review.

How much working capital is required to cover operations before revenue stabilizes?

Although the Oil Refinery model projects reaching profitability in just one month, you must secure $146 million in starting capital to cover the working capital gap between buying feedstock and getting paid for refined products. Have You Considered The Necessary Permits To Open Your Oil Refinery?

Bridging the Cash Cycle

Working capital covers the time lag for inventory holding.
You must pay for crude oil before any product is sold.
Sales to B2B clients, like logistics corporations, involve payment terms that extend the cash conversion cycle.
This $146 million estimate represents the minimum cash balance needed to keep the processing line running smoothly.

Breakeven Versus Liquidity

The accounting breakeven point is fast, estimated at 1 month.
That breakeven assumes cash flows instantly, which is not reality in bulk commodity sales.
The operational need for cash is driven by the physical process timeline, not just profit margins.
If onboarding large fuel distributors takes longer than expected, cash burn increases quickly.

How will we cover running costs if global demand or crude supply is lower than expected?

If demand drops or supply tightens unexpectedly, the Oil Refinery must secure feedstock costs now and tightly control physical inventory levels to safeguard the projected $144 billion annual EBITDA; understanding these operational levers is key, much like when you Have You Considered How To Outline The Market Analysis For Oil Refinery Business Plan? You defintely need dual strategies here.

Lock In Feedstock Costs

Use derivatives to fix crude oil purchase prices.
This hedges against sudden input cost spikes.
It stabilizes the cost of goods sold calculation.
Lower exposure protects the $144 billion EBITDA target.

Manage Inventory Exposure

Implement strict just-in-time inventory rules.
Avoid accumulating large stocks of crude oil.
If demand drops, inventory value depreciates fast.
Tight control minimizes losses from price drops.

Key Takeaways

Monthly fixed operating costs are established at $108 million, but profitability is overwhelmingly driven by managing massive, volatile variable costs like feedstock procurement.
The primary financial risk centers on Crude Oil Feedstock and Processing Energy, which are the largest recurring costs subject to commodity price volatility.
A minimum cash buffer of $146 million is required to ensure operational continuity and manage feedstock procurement timing, even with a projected one-month breakeven point.
Effective cost management, focusing on feedstock hedging and energy efficiency, is crucial to achieving the projected $144 billion EBITDA in the first year of operation (2026).

Running Cost 1 : Crude Oil Feedstock

Feedstock Cost Calculation

Crude oil feedstock is your single biggest variable expense, directly driving profitability. You calculate this cost by taking the total volume produced for each product, like gasoline or diesel, and multiplying it by that product's specific per-unit crude cost. Managing this input cost dictates whether the refinery stays profitable.

Required Feedstock Inputs

To budget for feedstock, you need two hard numbers: projected annual production volume for every output and the current contracted or forward-priced cost per unit of input crude required to make that output. This cost must be tracked daily. What this estimate hides is the volatility of the underlying commodity market.

Need volume targets per product.
Need specific feedstock cost per unit.
Track input cost changes weekly.

Controlling Input Spend

Since feedstock is the largest variable expense, managing its price risk is essential for margin protection. Legacy facilities often suffer from poor hedging strategies or inflexible supply contracts. You need a forward-buying strategy to lock in favorable pricing windows. Defintely review your crude slate flexibility.

Implement forward contracts now.
Maximize crude slate flexibility.
Avoid spot market reliance.

Margin Dependency

The refinery's margin profile hinges on the spread between the feedstock cost and the final product selling price. If crude prices spike but product prices lag due to market conditions, your contribution margin vanishes quickly. This is why operational efficiency in conversion is secondary only to securing affordable input material.

Running Cost 2 : Processing Energy & Utilities

Energy Cost Structure

Energy and utilities are a mixed variable cost structure for the refinery. Specific processes like cracking cost $120 per Gasoline unit, and distillation costs $130 per Diesel unit. General utilities add another layer, running between 12% and 16% of total product revenue.

Inputs for Process Energy

You calculate process energy by multiplying expected output volumes by unit rates. For example, if you run 1 million Gasoline units, that specific energy cost is $120 million. General utilities require a revenue forecast to estimate the 12% to 16% slice of sales dollars. This cost hits your budget early.

Managing Utility Spend

Control this expense by optimizing process efficiency, especially in high-cost areas like cracking. Since utilities are tied to revenue, look at energy contracts for fixed-rate options to hedge against volatile energy markets. Defintely monitor throughput vs. energy input closely.

Benchmark utility spend vs. industry peers.
Negotiate fixed-rate energy supply contracts.
Investigate energy recovery systems upfront.

Tracking Margin Impact

Because process energy is tied directly to units produced, any downtime or inefficiency immediately inflates your cost of goods sold. Ensure your financial model separates the $120/$130 unit costs from the revenue-based utility percentage for accurate margin analysis.

Running Cost 3 : Direct Operations Payroll

Operational Payroll Burn

Direct Operations Payroll for the refinery in 2026 is projected at $315,833 monthly. This covers the core technical staff needed to run the facility, primarily Process Engineers and Maintenance Technicians. Getting these headcount numbers right is crucial since labor is a major fixed operating expense.

Cost Components

This payroll line item accounts for essential technical roles needed to keep the refinery running safely. You estimate this by summing the salaries for 5 Process Engineers at $150,000 each and 15 Maintenance Technicians at $80,000 annually. Don't forget to factor in the employer burden (taxes, benefits) which drives the total up to that $315,833 monthly figure.

5 Engineers @ $150k salary
15 Techs @ $80k salary
Total 20 FTEs planned for 2026

Managing Technical Headcount

Managing operational payroll means balancing expertise against necessity. Overstaffing engineers leads to high fixed costs when throughput dips. A common mistake is under-budgeting for specialized maintenance staff, which spikes emergency repair costs. Try benchmarking technician salaries against regional industrial averages; you might find savings if you're paying above the 75th percentile. It’s defintely a cost you can’t cut deep without risking downtime.

Ramp-Up Risk

If the refinery needs 14+ days for new Process Engineer onboarding due to specialized certifications, your ramp-up time and associated training costs will increase significantly. This fixed cost base demands high utilization from day one to cover the $315k monthly burn rate.

Running Cost 4 : Site Lease & Property Insurance

Fixed Cost Foundation

Site lease and property insurance are your bedrock fixed expenses, hitting $400,000 monthly. This cost covers the physical location rent ($250k) and essential refinery insurance premiums ($150k). Missing these payments stops operations defintely. These costs must be covered before anything else.

Cost Inputs Defined

This $400,000 monthly spend locks in operational space and covers catastrophic risk. Site rent uses a fixed monthly rate ($250k). Insurance requires actuarial assessment based on refinery size and asset value ($150k premium). These are non-negotiable overheads before you sell a single gallon of fuel.

Site Rent: $250,000 fixed monthly.
Insurance: $150,000 premium for risk coverage.
These fund operational continuity.

Managing Lease Exposure

You can't easily cut these, but you must manage the lease term carefully. Avoid escalating rent clauses tied to inflation if possible. For insurance, shop premiums annually; competitive bidding can sometimes yield 5% to 10% savings on large industrial policies. Don't skimp on coverage, though; a single major incident voids the whole business model.

Negotiate lease renewal terms early.
Benchmark insurance quotes yearly.
Ensure deductibles match actual risk tolerance.

Fixed Cost Leverage

Honestly, these fixed costs define your minimum viable revenue. With $400,000 monthly overhead here, your production volume must cover this before factoring in feedstock or payroll. If your break-even point requires 500,000 barrels processed monthly, this lease/insurance sets the floor for that target volume.

Running Cost 5 : Chemicals and Catalyst Replacement

Chemical Cost Range

Chemicals and catalyst replacement are volume-dependent variable costs for your refinery operations. Expect these expenses to consume between 3% and 11% of your total revenue. This range directly impacts your gross margin before accounting for feedstock and energy inputs, so watch it closely.

Cost Inputs Needed

This category covers essential processing chemicals and the periodic replacement of expensive catalysts needed for conversion efficiency. To budget accurately, you need a reliable revenue projection for gasoline, diesel, and jet fuel sales. This 3% to 11% estimate must be layered onto your feedstock and utility costs.

Projected annual sales revenue.
Catalyst replacement schedule.
Chemical supplier quotes.

Managing Chemical Spend

Controlling this spend requires rigorous process monitoring, not just price shopping. The key is maximizing catalyst lifespan and minimizing chemical usage per barrel processed. A major mistake is letting process deviations force premature catalyst swaps; you must defintely track catalyst activity metrics.

Negotiate bulk purchase agreements.
Optimize reaction temperatures precisely.
Track catalyst activity metrics closely.

Quality vs. Cost

If you push throughput too hard, you risk product quality degradation, which forces expensive rework or rejections. Maintaining the 11% upper bound might be necessary during peak demand to guarantee final product specifications are met. It's a quality insurance cost, plain and simple.

Running Cost 6 : Logistics and Transportation

Logistics Cost Trajectory

Logistics and Transportation costs are budgeted at 30% of total revenue in 2026 for moving crude oil in and refined products out. This variable expense must drop to 20% by 2030 as operations scale. That 10-point reduction is a key driver for margin improvement over the medium term. It's a big lever.

Input Costs for Movement

This cost covers moving crude oil into the refinery and shipping finished products like gasoline and diesel to distributors. You need volume forecasts multiplied by negotiated carrier rates, which are highly sensitive to fuel prices. Honestly, it’s a direct function of throughput volume.

Crude volume in (barrels/gallons).
Product volume out (gallons).
Negotiated per-mile or per-ton rates.

Cutting Transportation Drag

Achieving the 20% target requires locking in long-term contracts with transport providers now, before volumes ramp up. A big mistake is relying on spot market rates for product egress. Focus on optimizing routes to minimize deadhead miles on return trips.

Secure 3-year freight contracts.
Prioritize pipeline access where possible.
Incentivize distributors for bulk pickup.

Margin Impact

The difference between the 30% start rate and the 20% target represents 10% of revenue falling straight to contribution margin, assuming other costs hold steady. Defintely model this impact aggressively.

Running Cost 7 : Compliance and Monitoring

Compliance Cost Structure

Environmental compliance requires a fixed base cost of $75,000 monthly for monitoring, plus a significant 10% variable fee tied directly to 2026 revenue. This dual structure means regulatory adherence is a major, non-negotiable operational expense you must budget for now.

Cost Inputs Defined

Environmental Monitoring is a fixed overhead cost of $75,000 per month, covering necessary site checks and reporting systems to keep regulators satisfied. The variable portion, 10% of revenue in 2026, covers specific compliance fees based on output volume or emissions. You need projected revenue figures to nail this variable estimate.

Fixed Monitoring: $75,000 monthly
Variable Fees: 10% of 2026 Revenue

Managing Variable Fees

Since the monitoring is fixed, focus on minimizing the 10% variable fee by optimizing production efficiency. Avoid process waste that triggers higher compliance charges. A key tactic is investing upfront in cleaner technology to lower the variable fee basis later on, especially if you project high sales volumes.

Invest in efficiency to reduce waste
Model variable fees against revenue
Ensure monitoring systems are robust

Risk Exposure

If revenue projections for 2026 are aggressive, that 10% variable compliance cost scales rapidly, potentially eroding contribution margins if not modeled accurately. Missing monitoring requirements results in immediate, punitive fines that defintely dwarf operational savings.