We need more oil refineries

(As published in the Daily Press (Newport News, Va.) on November 25, 2005

Our high-flying gasoline prices are strongly related to the tight capacity and uneven locations of refineries to convert crude oil into gasoline. Our current situation is made even worse by hurricanes Katrina and Rita, with four refineries still closed from these storms. It also doesn’t help that the approval process for new plants is extremely complex and time consuming.

Much of the country has declared itself off-limits for refineries, leaving 40 percent of our capacity on the hurricane-prone Gulf Coast. No major new refinery has been built in the U. S. since 1975.

In Virginia we have a single large refinery in Yorktown, near the mouth of the York River.

In addition to helping ease fuel prices, some new refineries around the country would be useful from an environmental standpoint. All refineries have to meet stringent environmental requirements, but new ones would have to be even cleaner.

Yet, despite House passage of an Administration-backed bill that would speed up the permitting process to encourage more refinery construction, Senate Democrats have balked. Indeed, the Senate Democratic leadership seems to see no problem with the loss of refining capacity in the Gulf of Mexico region and steadily increasing imports of gasoline, diesel and other petroleum products from foreign refineries.

According to the Energy Information Administration, the U.S. consumes 20 million barrels of oil products daily. U.S. refineries have a capacity of about 17 million barrels, while refineries in other countries supply the remaining 3 million barrels. But demand for oil products is projected to grow by another 5.5 million barrels within 20 years, EIA says, so about 30 percent more refining capacity will be needed just to meet this increased demand.

To grasp what it takes to build a new refinery in the United States, consider the experience of Arizona Clean Fuels Yuma, an independent refiner. The company has been trying to build a new refinery for six years, and not a single shovel of dirt has moved. It is still negotiating its way through an overwhelming permitting process involving federal, state, and local requirements. Even if it can obtain all of the necessary permits, the company does not expect the refinery to begin operating until the end of this decade.

Is it any wonder that new refineries are being built overseas rather than in this country?

Here in this country, some states have adopted specially formulated fuels as part of their implementation plans to meet national air quality standards. But these different fuels have the effect of fragmenting the gasoline market, creating islands of different gasoline types. This places a huge strain on the nation’s refining system, because an area using a distinct fuel may not be able to turn to a neighboring area if a local supply problem develops.

Refiners have had to spend $47 billion since 1994 to meet the demands of the Clean Air Act and other statutes. And the industry will have invested another $20 billion to comply with new clean fuel regulations. Add on the cost of complying with scores of other environmental, health, safety and security rules.

These are difficult, but not insoluble problems. Some of the more onerous environmental requirements such as the “New Source Review” provision of the Clean Air Act, which has brought capacity improvements at some existing refineries to a standstill, ought to be reconsidered. The burdensome permitting process needs to be streamlined, so that overlapping requirements by various levels of government are minimized. Finally, do we really need dozens of different gasoline formulations, with all the supply difficulties that involves?

No one effort by itself will remove the obstacles to an expansion of domestic refining capacity, but together these measures have a good chance of succeeding. The Senate needs to find the backbone to make it happen.

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J. Winston Porter is president of the Waste Policy Center in Leesburg and was formerly an assistant administrator of the EPA with national responsibility for solid and hazardous waste programs.