US Refining Infrastructure:US Refining Infrastructure:An OverviewAn Overview

Lawrence Kumins,Lawrence Kumins,Energy EconomistEnergy Economist

Congressional Research ServiceCongressional Research ServiceU.S. Library of CongressU.S. Library of Congress

Shortage of DomesticShortage of DomesticRefining CapacityRefining Capacity

• Has a convoluted historyHas a convoluted history• Currently about 4 mbdCurrently about 4 mbd

– Includes 1 mbd of gasolineIncludes 1 mbd of gasoline– Calling for that amount of importsCalling for that amount of imports– Grown over the past 20 yearsGrown over the past 20 years

• With U.S. demand growing at 300,000 bd With U.S. demand growing at 300,000 bd per year out to 2030per year out to 2030– New capacity needs to be added to avoid off-New capacity needs to be added to avoid off-

shoring fuel supplyshoring fuel supply• Will it get worse?Will it get worse?

--WoodMac est 1.3 mbd adds by 2015--WoodMac est 1.3 mbd adds by 2015

US Product Demand 2030US Product Demand 2030With Recent Refinery CapacityWith Recent Refinery Capacity

15

20

25

30

Demand

Ref Capacity 4 mbd gap

Refinery Capacity and Number of Refinery Capacity and Number of Plants: Plants: 1970-20041970-2004

10

15

20

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

0

50

100

150

200

250

300

350mbd

#

Mbd capacity

# of plants

Refinery Capacity andRefinery Capacity andNumber of PlantsNumber of Plants

• Capacity and Plants added during 1970s Capacity and Plants added during 1970s and early 1980sand early 1980s– Result of oil price control programResult of oil price control program– Encouraged small refineriesEncouraged small refineries– Led to refining bustLed to refining bust

• Small Refineries were uneconomicSmall Refineries were uneconomic– No economies of scaleNo economies of scale– Many could not make unleaded mogasMany could not make unleaded mogas– Not suitable for upgradingNot suitable for upgrading– Transport infrastructure lackingTransport infrastructure lacking– Often located in depopulating areasOften located in depopulating areas

Refinery Capacity andRefinery Capacity andNumber of PlantsNumber of Plants

• More total capacity than neededMore total capacity than needed– Glut resulted in falling refiner profitsGlut resulted in falling refiner profits

• Numbers droppedNumbers dropped– From 325 plants to 143From 325 plants to 143

• Capacity declinedCapacity declined– Never to reach old high Never to reach old high

US Refinery Capacity: 1985 - 2005US Refinery Capacity: 1985 - 2005

0

5

10

15

20

19851987

19891991

19931995

19971999

20012003

2005

US Total

LA Gulf

Total TX/LA Gulfs

mbd

US Refinery CapacityUS Refinery CapacityConcentrated in GulfConcentrated in Gulf

• 7.3 mbd is in Gulf7.3 mbd is in Gulf– 42% of total US42% of total US

• 4.9 mbd was off-line after Rita/Katrina4.9 mbd was off-line after Rita/Katrina– 29% of total US29% of total US

• 2.0 mbd off line on 10/10/052.0 mbd off line on 10/10/05• Obvious vulnerabilityObvious vulnerability• No discernable trend awayNo discernable trend away• Gulf Coast Capacity has remained Gulf Coast Capacity has remained

constant share of nationwide capacity constant share of nationwide capacity

Gulf Refining Capacity andGulf Refining Capacity andProduct Demand: 1985 to 2006Product Demand: 1985 to 2006

0

5

10

15

20

25

19851987

19891991

19931995

19971999

20012003

2005

mbd

Product Demand

Ref Capacity

Consumption Exceeds Refinery Consumption Exceeds Refinery CapacityCapacity

• Even if refineries operated at 100%Even if refineries operated at 100%– US has deficit of over 3 mbdUS has deficit of over 3 mbd

• Realistic operating rate is 94%Realistic operating rate is 94%– Effective deficit is 4 mbdEffective deficit is 4 mbd– Nation imported 4 mbd in 2005Nation imported 4 mbd in 2005

• No deficit in 1985No deficit in 1985

Rate of Return in US Refining,Rate of Return in US Refining,1977 - 20041977 - 2004

-5

0

5

10

15

20

19771979

19811983

19851987

19891991

19931995

19971999

20012003

%

Look What Happened toLook What Happened toRefining ProfitsRefining Profits

• Mostly single digitsMostly single digits

• Few <negative> yearsFew <negative> years

• Big bounce in 2000 & 2004Big bounce in 2000 & 2004– No figures for 2005 yetNo figures for 2005 yet

• Golden age or moment of success?Golden age or moment of success?

• Historic prospectiveHistoric prospective– Refining has always been low profit Refining has always been low profit

businessbusiness

Legislative ReactionLegislative Reaction

• Started in 2004Started in 2004• Recognized refinery capacity not keeping Recognized refinery capacity not keeping

pace with consumptionpace with consumption– No new plants in 25 yearsNo new plants in 25 years– Many abandoned facilitiesMany abandoned facilities

• Driven by high gasoline prices Driven by high gasoline prices • Rising product importsRising product imports• Concerns about supplies of gasoline and Concerns about supplies of gasoline and

componentscomponents• Successive iterations gain focus Successive iterations gain focus

First Bill: Refinery Revitalization ActFirst Bill: Refinery Revitalization Act

• Passed House by 1 votePassed House by 1 vote– Coordination/fast review for any project Coordination/fast review for any project

needing “federal authorization”needing “federal authorization”• DOE lead agencyDOE lead agency• Pre-application processPre-application process• Consolidates state/local permittingConsolidates state/local permitting• Sets deadlinesSets deadlines

– Revitalization ZoneRevitalization Zone• Idle refinery + unemploymentIdle refinery + unemployment

– Comply with all federal, state, local regulations; Comply with all federal, state, local regulations; use BATuse BAT

– If enacted, implementation would be work in If enacted, implementation would be work in progress progress

EPAct05: Subtitle HEPAct05: Subtitle H(Refinery Revitalization)(Refinery Revitalization)

• Federal-state regulatory coordinationFederal-state regulatory coordination– Agreement with Governor on check-list, Agreement with Governor on check-list,

schedule, streamliningschedule, streamlining

• EPA designated lead agencyEPA designated lead agency

• Financial assistance to state for Financial assistance to state for hiring staff, technical, legal capability hiring staff, technical, legal capability

Refinery Permit Process Schedule Refinery Permit Process Schedule Act (HR 5354)Act (HR 5354)

• Repeals EPAct05 Subtitle HRepeals EPAct05 Subtitle H• At request of Governor, provide At request of Governor, provide

technical and financial assistancetechnical and financial assistance• President appoints Federal President appoints Federal

coordinatorcoordinator– Federal/state agencies shall cooperate Federal/state agencies shall cooperate

with coordinatorwith coordinator– Within 30 days, Fed coordinator shall Within 30 days, Fed coordinator shall

convene meeting of stakeholdersconvene meeting of stakeholders

Refinery Permit Process Schedule Refinery Permit Process Schedule Act (HR 5354)Act (HR 5354)

• Coordinator to keep consolidated recordCoordinator to keep consolidated record• Memorandum of agreementMemorandum of agreement

– Within 90 daysWithin 90 days– Sets forth agreement on action items, schedule Sets forth agreement on action items, schedule

for Federal authorizationsfor Federal authorizations• U.S. District Court for proposed facility U.S. District Court for proposed facility

location granted jurisdictionlocation granted jurisdiction• Closed military basesClosed military bases

– Designation within 90 days of enactmentDesignation within 90 days of enactment• 3 installations suitable for new refinery, 3 installations suitable for new refinery,

one of which for biofuel one of which for biofuel

Arizona Clean Fuels,Arizona Clean Fuels,A A Grass Roots RefineryGrass Roots Refinery

• 150,000 bd150,000 bd– Initial financing in placeInitial financing in place

• Permit applied for in 2003Permit applied for in 2003• Ozone non-attainment expanded to Ozone non-attainment expanded to

original site original site • New site optionedNew site optioned• Air Permit transferred—2006Air Permit transferred—2006• Crude supply pipeline via Mexican port Crude supply pipeline via Mexican port

approved (internationally traded crude)approved (internationally traded crude)

Arizona Clean Fuels,Arizona Clean Fuels,A A Grass Root RefineryGrass Root Refinery

• Pieces still neededPieces still needed– Extension of permit past Nov ’06 expiryExtension of permit past Nov ’06 expiry– Institutional financing for land, Institutional financing for land,

engineering, constructionengineering, construction– Close on siteClose on site– Permits for crude supply pipelinePermits for crude supply pipeline– Begin constructionsBegin constructions

• Complete in 2011Complete in 2011

• Will it get built?Will it get built?