Although US gasoline prices are almost as high as they were in May (OGJ, May 24, 2004, p. 15) this once-hot topic has lost some of its allure with the driving public and local newscasts.
OGJ data show that average US pump prices were $1.953/gal for the week ended Aug. 11, only a slight drop from the peak average of $1.963/gal for the week ended May 19.
Maybe drivers are catching on that the rise in summer gasoline prices is a transitory occurrence. Maybe they are tired of hearing about gasoline prices on a daily basis. Or maybe they realize that the higher prices really aren't so burdensome.
Luckily, US refiners didn't have any major upsets this summer, or the situation could have been much worse.
Goings-on in the refining industry, at least for those in the oil and gas business, continue to spark interest, speculation, and sometimes confusion.
Some uncertain events that could affect the future refining picture include talks of a new US refinery and a proposed initiative for regulating the California refining industry like a utility.
New US refinery?
OGJ editors have received numerous calls regarding the possibility of a grassroots refinery to be built in the US. Apparently, recent news stories have sparked interest in this project.
The company planning to build a 145,000 b/d refinery in Yuma County, Ariz., is Arizona Clean Fuels LLC, which is reportedly in the process of obtaining permits and financial backing for the project.
Although it has been in development since the mid-1990s, the project may have renewed interest from foreign investors. Most recently, Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi expressed interest in building grassroots refineries in the US (OGJ, May 3, 2004, p. 30).
This is not the first time, however, that a company had plans to build a refinery in Arizona. In 1994, Williams Cos. Inc. had obtained all the required permits to build a 50,000 b/d refinery near Phoenix (OGJ, Oct. 10, 1994, p. 38), although that project fell by the wayside.
Permitting and financing have been the two major roadblocks that have kept a refinery from being built in the US. From an investment standpoint, companies wanting to obtain US refining assets either have purchased existing plants for 20-30% of their replacement value or entered into other ventures with existing facilities. US refining is definitely a buyers' market.
This new project does have its advantages; the refinery's location would allow the company to supply clean-burning gasoline to the California and Arizona markets. Arizona currently has no refineries and obtains all its fuel from California, New Mexico, and Texas.
This dependence was made painfully clear in July 2003, when a pipeline disruption caused severe gasoline price spikes (OGJ Online, Aug. 19, 2003).
The refinery also would be situated near the Mexico border, where it would get most of its crude via pipeline. The $2.5 billion price tag includes $500 million for a crude pipeline from Puerto Libertad, Mexico.
If and when Arizona Clean Fuels obtains all the required permits and financing, OGJ will report on all the details of the project. The company estimates that construction will commence in 2005.
If this project does come to fruition, it would be the first grassroots refinery to start up in the US since the late 1970s.
California weirdness
An initiative proposed to California's Office of the Attorney General calls for the creation of a California Petroleum Commission, which would "regulate privately owned petroleum companies doing business in the state."
The seven-member commission reportedly would "assure the residents of California of fair and reasonable petroleum prices, a reliable supply of petroleum products, and protection of the residents of California from fraud."
The proposal calls for limits on fuel prices and a 5% profit limit for refiners and producers. Also, the commission would be able to "order a producer to construct additional petroleum facilities ...
California's Legislative Analyst's Office, in a detailed review of the proposal, brought some common sense to the issue. LAO concluded that the initiative would discourage investment in petroleum facilities.
LAO also mentioned that price regulation historically has "distorted markets, causing supply-demand imbalances, reduced investment, and other problems."
Although it is highly unlikely that California will enact this proposal, it just shows what kind of weirdness can occur with the state's initiative process.
Indeed, there are always interesting stories in the refining industry.