POINT OF VIEW–Special Report: NPRA will increase advocacy as refiners face challenges

The next decade will be a crucial time for refiners in the US and throughout the world as they face more-stringent environmental regulations, historically high operating rates, and considerable new investment requirements.

Bob Slaughter, newly appointed president of the National Petrochemical & Refiners Association, said that the association will increase its existing advocacy efforts to help refiners through the trying times.

Slaughter told OGJ that NPRA's greater focus on advocacy directly led to his hiring. Prior to his present position, Slaughter had been active in energy policy.

The advocacy activities include expanded participation in legislative issues in Congress and regulatory issues. Slaughter said, "We've tried to raise the profile of the association; we reintroduced ourselves as the major spokesman for the refining and petrochemical industries and remodeled the association."

Slaughter noted that NPRA has a broad membership that owns or operates 98% of all US refining capacity and adheres to a general principle of "one company, one vote." Slaughter said that NPRA benefits from "a very broad point of view on most policy issues."

Gasoline

The most important issue today for US refiners regarding gasoline is the phase-out of methyl tertiary butyl ether (MTBE) and the status of a federal oxygenate mandate. The mandate essentially means that refiners have to blend in ethanol in the absence of MTBE.

Slaughter expressed NPRA's position on these issues: "We do not support an ethanol mandate nor do we support an MTBE ban. We think that those initiatives essentially are not good public policy.

"This intervention in the market has adverse supply consequences, and so we have argued against adoption of the fuels language that was included in the [2001] Senate energy bill, which included that mandate and MTBE ban," he continued.

In early March 2002, the American Petroleum Institute endorsed the proposal for replacing the oxygenate standard with a renewable fuel standard (OGJ, Mar. 11, 2002, p. 32). This equates to an ethanol mandate with a different name, said Slaughter, due to the current renewable fuels infrastructure in the US.

NPRA disagrees with API's position on this issue. Slaughter said that there is an overlap in membership between the two groups, but "we agree more often than we disagree. The disagreement is more of us looking at this issue in different ways. We are hoping that we can work for a more free-market, less-intrusive solution than what was in that fuel package."

"API and NPRA have talked about our disagreement for a long time. We tried to see if we could work together on the issue before we went our separate ways. But NPRA feels strongly on the mandate and ban."

Slaughter also said, "We think the legislative process is much better if it goes through the regular process, including committee hearings and committee action. That particular package in the Senate bypassed the committee process and went straight to the [Senate] floor."

Diesel

Another major issue facing US refiners, according to Slaughter, is the security of diesel and gasoline supplies in light of tighter sulfur specifications.

He said, "One of the overall themes of NPRA's advocacy efforts is that policy-makers need to pay close attention to the impact on supply of new policy initiatives, particularly environmental ones. They should try to balance the need for continued energy supply security and the need for environmental progress.

"In terms of highway diesel, we cautioned from the very beginning that the industry needed to be given a realistic target for sulfur reduction and sufficient time to achieve that reduction. We were concerned about the expense of that program and difficulties [in going to 15-ppm sulfur] that there would be a disproportionate impact on diesel production."

He noted that the time frame for ultralow-sulfur diesel specifications coincides with Tier II gasoline specifications. Slaughter said, "Gasoline sulfur regulations will cost the industry about $8 billion, and diesel sulfur regulations will cost about the same amount."

NPRA went so far as to take the US Environmental Protection Agency to court over implementation of the highway diesel rule. The courts ruled in favor of EPA.

Slaughter said that there remain a number of concerns regarding the rule, many of which are still being debated.

"There are still concerns about the practicability of producing diesel at 15 ppm sulfur and actually delivering it at that level," he said. "There are some issues about product contamination that require more attention."

New source review

Another issue gaining importance for US refiners is the new source review (NSR) rule being finalized. NPRA wants to reform NSR to allow refiners to maximize existing and new capacity.

Slaughter said, "There was great uncertainty about what was permissible and what was not under the preexisting program. It was having an adverse impact on routine maintenance and repair."

He also pointed out, "The only way we have any hope of keeping up with increased demand for product is by adding capacity at existing sites. NSR reform is crucial to that. We are pleased to see the administration come forward with its new final rules on NSR and we look forward to participating in the rulemaking on routine maintenance as well."

Petrochemicals

Plant operators that produce petrochemicals comprise a large segment of NPRA members. And although independent petrochemical producers are not directly affected by the same factors as refiners, the two are closely intertwined.

Slaughter sees three main issues influencing the operating practices of petrochemical producers:

• Feedstock prices.
• Security of feedstock supply.
• Facility security.

NPRA is active in encouraging policy that helps maintain adequate supply of natural gas and NGLs at reasonable prices. Secure supply will, of course, help keep prices and profit margins stable.

Slaughter expressed concern about the consolidation in the rail transportation sector. "We want to maintain a competitive shipping environment" to keep transportation prices low, he said.

Facility safety

Since the Sept. 11, 2001, terrorist attacks on the US, NPRA has been active in providing stewardship for making refineries and petrochemical plants as secure as possible. Slaughter said that NPRA has developed two special seminars on security issues that will help companies share best practices.

Slaughter said NPRA is now working with the US Department of Energy and is looking forward to working with Department of Homeland Security in this area.

NPRA is instituting a security conference and has also formed a security committee.

Slaughter said, "We are trying to help our members cope with security threats. We want to keep them on the cutting edge of developments in the security area."

Outlook

Overall, Slaughter sees the present as a crucial period for refining and petrochemicals. He said, "We have an immense amount of new investment that the industry will have to make to comply with new environmental requirements and capacity modernization and, hopefully, expansion.

"It looks like the refining industry is going to require at least $20 billion of new investment in this decade. Some estimates I have heard go as high as $50 billion," he said.

Slaughter concluded, "There will be changes in the industry over the next decade; some refineries may close, and other refineries may change ownership. The refining and petrochemical industries are full of dedicated people who work hard to meet the nation's needs, and that is one factor that will be constant."

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