US Refining Infrastructure: An Overview

1. US Refining Infrastructure:An Overview Lawrence Kumins, Energy Economist Congressional Research Service U.S. Library of Congress

3. Shortage of DomesticRefining Capacity • Has a convoluted history • Currently about 4 mbd • Includes 1 mbd of gasoline • Calling for that amount of imports • Grown over the past 20 years • With U.S. demand growing at 300,000 bd per year out to 2030 • New capacity needs to be added to avoid off-shoring fuel supply • Will it get worse? --WoodMac est 1.3 mbd adds by 2015

4. US Product Demand 2030With Recent Refinery Capacity Demand 4 mbd gap Ref Capacity

5. Refinery Capacity and Number of Plants: 1970-2004 mbd # # of plants Mbd capacity

6. Refinery Capacity andNumber of Plants • Capacity and Plants added during 1970s and early 1980s • Result of oil price control program • Encouraged small refineries • Led to refining bust • Small Refineries were uneconomic • No economies of scale • Many could not make unleaded mogas • Not suitable for upgrading • Transport infrastructure lacking • Often located in depopulating areas

7. Refinery Capacity andNumber of Plants • More total capacity than needed • Glut resulted in falling refiner profits • Numbers dropped • From 325 plants to 143 • Capacity declined • Never to reach old high

8. US Refinery Capacity: 1985 - 2005 mbd US Total Total TX/LA Gulfs LA Gulf

9. US Refinery CapacityConcentrated in Gulf • 7.3 mbd is in Gulf • 42% of total US • 4.9 mbd was off-line after Rita/Katrina • 29% of total US • 2.0 mbd off line on 10/10/05 • Obvious vulnerability • No discernable trend away • Gulf Coast Capacity has remained constant share of nationwide capacity

10. Gulf Refining Capacity andProduct Demand: 1985 to 2006 mbd Product Demand Ref Capacity

11. Consumption Exceeds Refinery Capacity • Even if refineries operated at 100% • US has deficit of over 3 mbd • Realistic operating rate is 94% • Effective deficit is 4 mbd • Nation imported 4 mbd in 2005 • No deficit in 1985

12. Rate of Return in US Refining,1977 - 2004 %

13. Look What Happened toRefining Profits • Mostly single digits • Few <negative> years • Big bounce in 2000 & 2004 • No figures for 2005 yet • Golden age or moment of success? • Historic prospective • Refining has always been low profit business

14. Legislative Reaction • Started in 2004 • Recognized refinery capacity not keeping pace with consumption • No new plants in 25 years • Many abandoned facilities • Driven by high gasoline prices • Rising product imports • Concerns about supplies of gasoline and components • Successive iterations gain focus

15. First Bill: Refinery Revitalization Act • Passed House by 1 vote • Coordination/fast review for any project needing “federal authorization” • DOE lead agency • Pre-application process • Consolidates state/local permitting • Sets deadlines • Revitalization Zone • Idle refinery + unemployment • Comply with all federal, state, local regulations; use BAT • If enacted, implementation would be work in progress

16. EPAct05: Subtitle H(Refinery Revitalization) • Federal-state regulatory coordination • Agreement with Governor on check-list, schedule, streamlining • EPA designated lead agency • Financial assistance to state for hiring staff, technical, legal capability

17. Refinery Permit Process Schedule Act (HR 5354) • Repeals EPAct05 Subtitle H • At request of Governor, provide technical and financial assistance • President appoints Federal coordinator • Federal/state agencies shall cooperate with coordinator • Within 30 days, Fed coordinator shall convene meeting of stakeholders

18. Refinery Permit Process Schedule Act (HR 5354) • Coordinator to keep consolidated record • Memorandum of agreement • Within 90 days • Sets forth agreement on action items, schedule for Federal authorizations • U.S. District Court for proposed facility location granted jurisdiction • Closed military bases • Designation within 90 days of enactment • 3 installations suitable for new refinery, one of which for biofuel

19. Arizona Clean Fuels,A Grass Roots Refinery • 150,000 bd • Initial financing in place • Permit applied for in 2003 • Ozone non-attainment expanded to original site • New site optioned • Air Permit transferred—2006 • Crude supply pipeline via Mexican port approved (internationally traded crude)

20. Arizona Clean Fuels,A Grass Root Refinery • Pieces still needed • Extension of permit past Nov ’06 expiry • Institutional financing for land, engineering, construction • Close on site • Permits for crude supply pipeline • Begin constructions • Complete in 2011 • Will it get built?