Engineering News

NPRA Testimony Underscores Importance of
Increased U.S. Refining Capacity

Wednesday October 19, 2:30 pm ET

Cites Evidence of Industry's Commitment to Maintain Supplies Despite Two Natural Disasters

WASHINGTON--(BUSINESS WIRE)--Oct. 19, 2005--Bob Slaughter, President of NPRA, the National Petrochemical and Refiners Association, today testified before the House Committee on Government Reform Subcommittee on Energy and Resources regarding petroleum refineries and whether record profits will spur investment in new capacity. In his testimony, Mr. Slaughter said, "In the face of disasters of the magnitude of a Katrina and Rita, there are few short-term fixes. However, in the long term, NPRA believes that increased domestic refining capacity will help provide adequate supplies of gasoline, diesel, home heating oil and other oil products to meet the needs of America's growing economy." In his oral remarks, Slaughter cited the heroic efforts of refining industry employees to get the industry back on line in hurricane-damaged areas of Texas and Louisiana. "These activities demonstrate in the most unmistakable terms the commitment of the industry and its employees to the nation's energy consumers," Slaughter said.

NPRA explained that the refining industry faced unprecedented logistical, facility, and personnel complications with the impact of two major storms in rapid succession and it reacted quickly and effectively. At their peak on September 23, refinery shutdowns accounted for nearly 5 million barrels per day of capacity. As of today, the Department of Energy reports that only about 1.6 million barrels per day remains offline. Most of the credit for the rapid return to service of so much capacity goes to the refining companies and their dedicated employees. Slaughter also commended the federal government, especially DOE, EPA and DHS, for taking quick and decisive steps in the face of these supply outages.

Despite so great a loss of productive capacity in such a short time, Slaughter pointed out that 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. "Enactment of politically tempting, but marketplace disrupting, price controls is the absolute wrong cure for the situation." Mr. Slaughter added, "And it is important to note that a 'windfall profit tax' is merely another form of price control. Price caps and other forms of price regulation are no more effective in the 21st century that they were in the 1970s. Interference in market forces always created inefficiencies in the marketplace and creates extra costs for consumers."

Slaughter explained that 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 U.S. Limited refining capacity also affects the price of refined fuels. No new refinery has been built in the U.S. since 1976 due to the cost of meeting environmental requirements, and also the not-in-my-backyard attitudes of potential host communities. As a result, some 47% of the U.S. 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 U.S. refining capacity and an increased dependence on imports of refined products.

Despite many obstacles, the industry has made substantial investment in U.S. facilities to keep pace with demand, resulting in expansions of 2.1 million barrels per day of U.S. 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. "With the increased returns on refining operations in the past two years, it is quite likely that additional investment in U.S. refining will now occur. But even then, it may be difficult, if not impossible, for the domestic industry to keep pace with increasing U.S. demand for gasoline, diesel and other products," Slaughter stated.

As the nation moves forward to address and overcome the effects of Katrina and Rita, NPRA offered recommendations to add U.S. refining capacity and increase future product supply: make increasing the nation's supply of oil, oil products and natural gas the number one U.S. public policy priority; remove OCS 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; and seek ways to encourage state authorities to recognize the national interest in adding domestic capacity.

Finally, 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 (RFS) 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, very importantly, the need for changes in the implementation schedule for the new 8-hour ozone NAAQS standard.

Slaughter concluded his testimony by expressing NPRA members' dedication to working cooperatively with government at all levels to resolve the current emergency conditions resulting from the hurricanes and to maintain adequate fuel supplies to promote additional economic growth. "We feel obliged to remind policymakers that action must be taken to improve energy policy to help increase supply and strengthen the nation's refining infrastructure," he concluded.

NPRA is a national trade association with more than 450 company members, including virtually all U.S. oil refiners and petrochemical manufacturers.

Source: National Petrochemical and Refiners Association

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