NPRA chief puts energy bill atop list of refining issues

March 15, 2005
The US refining industry faces a wide range of issues in 2005, speakers said at the Mar. 14 opening session of the National Petrochemical & Refiners Association annual meeting in San Francisco.

David N. Nakamura
Refining/Petrochemical Editor

SAN FRANCISCO, Mar. 15 -- The US refining industry faces a wide range of issues in 2005, speakers said at the Mar. 14 opening session of the National Petrochemical & Refiners Association annual meeting in San Francisco.

The issues include a new energy bill, complying with stringent new fuel specifications, uncertainty surrounding crude supplies, relatively high gasoline demand as refiners prepare to meet summer US gasoline specifications, natural gas supply for petrochemical and refining companies, new source review regulation, and facility security, said NPRA Chairman William Klesse, executive vice-president and chief operating officer of Valero Energy Corp.

"The major issue this year for our business remains comprehensive energy legislation," he said. "Despite the challenges, we are hopeful that final passage of comprehensive energy legislation will become a reality with this Congress this year. It remains the single most important step that can be taken to improve US energy security."

NPRA remains committed to inclusion in the energy bill of limits on defective-product liability for makers of methyl tertiary butyl ether, Klesse said.

Energy equation
Patricia Woertz, executive vice-president, ChevronTexaco Corp., noted the importance of Asia to future growth in global demand.

"China is adding 4 million cars and trucks a year to its roads," she said. "It's this growth that leads some. . .to project that global oil demand growth will increase by about 46% in the next 20 years, reaching 120 million b/d by 2025."

Contrary to much public opinion, the world is not running out of oil, Woertz said. A major share of reserves, however, is in areas marked by geopolitical uncertainty and strife.

"While the world has oil, industry's ability to develop these reserves and supply refineries, and the ability of refineries to supply products, is becoming constrained," she said.

In the past 20 years, the increase in demand for crude has reduced the amount of spare production capacity. OPEC has about 2 million b/d of spare capacity today, down from about 9 million b/d in 1993, according to Woertz.

The drop in spare production capacity has coincided with a one-third reduction in spare refinery capacity worldwide. This has forced refiners to run at historically high utilization rates, especially in the US.

Industry challenges
Industry challenges in the US are especially critical. The US imports about 62% of its crude and 10% of its refined products. And 20 years from now, US oil demand is projected to be nearly 28 million b/d.

"With US refineries running at full capacity already, we may be hard pressed to supply all of that growth," Woertz said. "And, with demand in international markets absorbing utilization gains generated by non-US refineries, our ability to import more finished product may become more limited."

Expanding the US refining infrastructure would be the obvious solution; however, historical rates of return of 5-8%, compared with 12% in other industries, do not motivate capital investment. And the investments that have occurred during the past 20 years have focused on meeting new fuel and environmental requirements.

Part of the solution depends on legislators in the US, she said. It is important that the industry push for an energy policy that reflects the importance of supply and aligning that policy with other national imperatives.

"Such alignment would be an important step toward increasing regulatory certainty," Woertz said. It would "help ensure that our industry can operate within a framework of rules that won't change after major investments have been made."

Streamlining is needed for the "inhibitive" permitting process that impedes work to increase energy supply. She said federal, state, and local agencies must work together to expedite permitting.

MTBE, clean fuels
She also stressed the need for limited liability protection for manufacturers of fuel containing MTBE.

Regarding clean fuels, Woertz said flexibility is the key. Instead of specifying the recipe for clean fuels, regulations should have outlined a fuel specification and allowed refiners the flexibility to satisfy the specifications.

The mandated phaseout of MTBE in California, for example, forces refiners to use ethanol to satisfy the oxygenate mandate.

"Now, research is showing unexpected excess emissions from cars using ethanol-blended gasoline, and the California Air Resources Board has concluded that these emissions cannot be offset by further changes to the California specs," she said. "So California continues to work for a waiver of the oxygenate requirement. But thus far, EPA has been unwilling to grant that waiver."

Legislators should also examine rationalizing state and local gasoline standards. The proliferation of boutique fuels contributes to supply pinches and price volatility. Making gasoline more fungible can ease both supply and consumer frustrations without sacrificing clean air benefits, Woertz said.

Contact David N. Nakamura at [email protected].