The National Petrochemical and Refiners Association (NPRA) believes that increased domestic refining capacity in the long term will help provide adequate supplies of gasoline, diesel, home heating oil, and other oil products to meet the needs of America’s growing economy.
Bob Slaughter, NPRA president, made the comment in testimony before a subcommittee of the House Committee on Government Reform October 19. He said that in the face of disasters of the magnitude of Katrina and Rita, there are few short-term fixes.
“With the increased returns on refining operations in the past two years, it is quite likely that additional investment in US refining will now occur," he said. "But even then, it may be difficult, if not impossible, for the domestic industry to keep pace with increasing US demand for gasoline, diesel, and other products.”
He said NPRA offers recommendations to add US refining capacity and increase future product supply:
•Make increasing the nation’s supply of oil, oil products and natural gas the number one US public policy priority.
•Remove moratoria and other barriers to increased production of domestic oil and gas resources.
•Resist tinkering with market forces when the supply/demand balance is tight.
•Expand the refining tax incentive provision in the Energy Act and remove other disincentives for refining investment.
•Review the permitting procedures for new refinery construction and capacity additions.
•Seek ways to encourage state authorities to recognize the national interest in adding domestic capacity.
In addition, Slaughter said that Congress should keep a close eye on several upcoming regulatory programs that could significantly impact gasoline and diesel supply, including implementation of the ethanol mandate in the recently passed energy bill, implementation of the ultra-low sulfur diesel highway diesel regulation, Phase II of the Mobile Source Air Toxics rule for gasoline and the need for changes in the implementation schedule for the new eight-hour ozone standard.
During and after the hurricanes the refining industry faced unprecedented logistical, facility, and personnel complications with the impact of two major storms in rapid succession. Despite the storms, the industry reacted quickly and effectively, he said.
Slaughter cited the heroic efforts of refining industry employees to get the industry back on line in hurricane-damaged areas of Texas and Louisiana.
At the hurricanes' peak September 23, refinery shutdowns accounted for nearly five million barrels per day of capacity. As of today, the Department of Energy reports that about 1.6 million barrels per day remains offline.
Despite so great a loss of productive capacity in such a short time, the nation experienced only isolated and short-lived transportation fuel shortages. Reliance on market forces provided appropriate market signals to help balance supply and demand even during these difficult times, he added.
In addition, he said that "enactment of politically tempting, but marketplace disrupting, price controls is the absolute wrong cure for the situation. And it is important to note that a ‘windfall profit tax’ is merely another form of price control. Interference in market forces always created inefficiencies in the marketplace and creates extra costs for consumers.”
The most significant factor affecting gasoline and distillate prices is the supply and price of crude oil. Crude prices have been steadily increasing since 2004, largely due to strong growth in oil demand in China and India, as well as in the United States.
Limited refining capacity also affects the price of refined fuels. No new refinery has been built in the United States since 1976 due to the cost of meeting environmental requirements, and also the not-in-my-backyard attitudes of potential host communities, he said.
As a result, some 47 percent of the US refining capacity is located in and around the Gulf of Mexico. Although the concentration of refining facilities in that area has been criticized, it is likely that any attempt to relocate facilities would result in further reductions in US refining capacity and an increased dependence on imports of refined products, he added.
Despite many obstacles, the industry has made substantial investment in US facilities to keep pace with demand, resulting in expansions of 2.1 million barrels per day of US capacity over the past 11 years at existing sites.
Recently announced and projected capacity expansions by refiners - including Valero, Motiva Enterprises, ExxonMobil, and Marathon - demonstrate their continuing efforts to meet growing demand.