Bush administration spokesmen appeared unconvinced about the extent of the U.S. refining industry's problems at a Senate energy committee hearing.
The oversight hearing examined various challenges facing refiners.
Roger Beach, president of Unocal Refining and Marketing Division, testified for the National Petroleum Refiners Association, of which he is chairman.
Beach said refineries still do not know what final Clean Air Act (CAA) amendments regulations will be, and state rules are changing, too.
"Amidst all this uncertainty, we're trying to make decisions on capital investments that involve billions of dollars," Beach said.
"It's like trying to put up a 50 story skyscraper without knowing what the building codes are until the first 20 floors are in place. Needless to say, the implications are very serious if you make the wrong assumptions."
REFINERY CASUALTY LIST
Beach released a study by Wright Killen & Co., Houston, that found 27 U.S. refineries with capacity totaling 927,000 b/d are likely to close within the next 2 years or are at risk of closing.
The analysis said 13 refineries totaling 483,000 b/d have recently closed, 11 totaling 250,000 b/d are likely to fail, and 16 totaling 677,000 b/d are at risk.
Beach said "It is clear that smaller refineries will have the most difficulty because they lack economies of scale, flexibility in processing, and access to capital. Those refineries are operating today because they are efficient at supplying their markets at competitive prices. Some of them are near domestic crude oil sources. Others have 'niche' markets, such as the military jet fuel requirements that are being phased out.
"One thing is fairly certain. You will not see new refinery capacity being added in the U.S. The proliferation of costly environmental regulations has discouraged refinery development in the U.S. for the past decade, and new environmental regulations make future construction infeasible.
"If anything, the refining side of the U.S. oil industry will follow the lead of the exploration and production side and move increasingly to foreign soil. Given lower construction, regulatory and labor costs, we could see refining capacity transported overseas, replacing that which is lost in the U.S."
Beach said the Environmental Protection Agency should change its approach from "command and control" regulations to a system under which EPA sets the standards and allows industry the flexibility of finding the most efficient method to meet them.
HUGE OUTLAYS
John Lichtblau, chairman of the Petroleum Industry Research Foundation Inc., New York, said U.S. refiners will have to spend $35-40 billion in the 1990s to meet environmental regulations, atop a like amount spent in the 1980s.
He said, "The burden of this investment will weigh heavily on all U.S. refiners because it coincides with a leveling off and subsequent decline of the industry's principal, most profitable product: gasoline."
He cited as reasons significantly higher prices brought about by CAA investment requirements, a continuing increase in the fuel efficiency of motor vehicles, and the slow but apparently determined move to alternative fuels for motor vehicles.
"The inevitable result of these developments--rising capital requirements and falling gasoline demand--will be the closing of some U.S. refineries and consolidation of plants and companies. The most endangered species are the small refineries, both those operated by large companies and those that often represent the only assets of small companies."
ADMINISTRATION RESPONSE
William Rosenberg, assistant EPA administrator for air and radiation, said EPA has launched a detailed effort to respond to the needs of refiners through a special intraagency "refinery cluster" project.
Goal of the group is to provide an integrated picture of environmental rules affecting refineries and improve EPA information.
Rosenberg said refiners are not being closed due just to environmental rules.
He noted crude supply patterns are changing, and capital for new projects is tight.
Rosenberg also observed, "Since passage of the 1990 amendments, more than 60 new domestic projects have been announced to provide methyl tertiary butyl ether, an oxygen-containing ether, for use in new cleaner gasolines. In fact, MTBE sales are growing faster than those of any other chemical. Construction of MTBE facilities is beginning across the country."
Vito Stagliano, a deputy undersecretary, in the Department of Energy, said it is hard for DOE to estimate how shifting environmental rules will affect the investment needs of the refining industry and the cost of products.
He said, "Many numbers have been put forward, but all are highly uncertain. Not only are a number of significant regulations yet to be established, but also it is very hard to separate those investments made for economic and competitive reasons from those made solely to comply with environmental requirements."
He too stressed that refineries are not being closed for environmental reasons alone. "A number of refineries being closed are owned by large refiners who have the investment capacity to make changes," he said.
"In addition, certain refineries being closed are in parts of the country where environmental regulations will have a smaller impact than in other parts of the country."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
