Refiners like new law on plant expansion

June 13, 2006

Marathon Petroleum and an area congressman are hailing legislation designed to streamline the process oil companies have to go through to build or expand refineries.

The U.S. House approved legislation Wednesday that supporters said will make it easier for oil companies to build or expand refineries, although opponents said it could lead to more pollution and less local involvement in the siting of refineries.

The bill’s sponsors argued that refinery constraints have added to the tight gasoline market that has seen prices at the pump soar to more than $3 a gallon across most of the country. But they acknowledged the measure is not intended to address this summer’s high gas prices.

Earlier in the day at a House hearing, the head of the Energy Department’s statistical agencies said he expects crude oil prices — which have been hovering above $70 a barrel — to remain high into next year.

“Marathon Petroleum Company is generally supportive of legislative attempts intended to improve the permitting process for U.S. refinery expansion and new construction,” corporate spokeswoman Christiane Fox told the Daily News.

“By focusing on permit streamlining, this particular legislation appears to recognize the important fact that there is no single piece of legislation or silver bullet that will increase U.S. refining capacity overnight. The extent to which this bill, if enacted into law, will materially improve our ability to obtain necessary permits is not clear at this time,” Fox added.

For its part, Marathon has a “robust” refining improvement plan in place, spokesman Paul Weeditz pointed out. The company has taken significant steps to increase refining capacity with its recently-completed $300 million major expansion at its Detroit, Mich., refinery. That project increased capacity by 26,000 barrels per day.

Also, a $2.2 billion project is under consideration at Marathon’s Garyville, La., refinery that would add an additional 180,000 bpd of capacity. Garyville, coincidentally, was constructed in 1976, the last domestically-built refinery.

“In addition,” Fox said, “the company continues to look for and evaluate opportunities to further increase capacity.”

One such opportunity could be future expansion at the Robinson refinery. Research into the prospect is now in Phase 2, with the company looking at potential costs and benefits before green-lighting Phase 3.

Realistically, it would be a year or two before the preliminaries are out of the way and the company decides whether to proceed with the Robinson project. If approved, completion could take up to five years. The first two years will be mostly engineering and site preparation, with the first new towers and vessels going up in the third year.

Construction would create 1,500 to 2,000 jobs which would last three to four years. The number of permanent jobs is still under evaluation, but would likely be more than 100.

The local refinery just underwent a $20 million turnaround.

U.S. Rep. Tim Johnson, R-Urbana, said passage of the Refinery Permit Process Schedule Act should pave the way for expansion of the nation’s refining capacity in a responsible manner that serves the best interests of the nation.

“This Act is a product of lengthy negotiations among many diverse interests,” Johnson said. “Katrina showed us all too clearly the weaknesses in the fuel supply. This legislation will clear any perceived roadblocks in the regulatory environment, hold the industry accountable to important environmental laws, and at the same time diversify the fuel supply by bringing renewable fuel refineries and traditional refineries online outside the Gulf of Mexico.”

Perhaps the greatest benefits to the public, Johnson added, are in the incentives for geographic diversity of plant construction that would allow greater use of alternative fuel feedstocks such as ethanol and other biomass crops.

“This is a step forward in cutting through and coordinating the relevant bureaucracies,” he said. “The actions today are positive steps. I must emphasize, however, that long-term relief from these kinds of prices will come in exploiting the many opportunities we have for renewable fuel sources, conservation and making use of evolving technologies that will reduce our reliance on foreign oil.”

“This is an industry straining to meet the demand facing it,” Guy Caruso, head of the Energy Information Administration, told a House Government Reform subcommittee hearing. He said limited refining capacity has added to the tight market.

Separately, Alan Greenspan, former chairman of the Federal Reserve Board, told a Senate hearing Wednesday that while the U.S. economy has been able to absorb the surge in energy costs up until now, some impacts are beginning to be felt on economic growth.

The House passed the refinery legislation by a vote of 238-179, but its prospects in the Senate are uncertain. Last year a similar bill failed to get out of committee amid solid opposition by Democrats and moderate Republicans.

Rep. Joe Barton, R-Texas, a leading advocate for the refinery measure, said the bill was aimed at addressing “long term security issues” and not current gasoline prices. He argued that long delays in getting federal, state and local permits has kept oil companies from investing in new refineries.

The bill would streamline the permitting process, impose a time schedule for state and local decisions on permits and create a new federal office to coordinate refinery approvals. It also would direct the president to single out three or more closed military bases for potential refineries.

Only a few Democrats supported the House measure.

“We need to build more refineries,” said Rep. Rick Boucher, D-Va., but the GOP bill “is simply not the answer. ... Environmental permitting is simply not a problem.”

Democrats maintained that the proposed streamlining would weaken state and local officials’ ability to consider environmental impacts and allow the federal government to dictate a schedule for refinery approval. They also worried that a community may have a refinery forced on them at a nearby closed military base.

“It preserves all environmental statutes,” countered Barton, who also said local authorities would have a say on the use of a military base.

Democrats proposed, instead, creation of a string of government-run refineries that would be used to supply the military in normal times, and supplement commercial refining activities if there is a disruption or other energy emergency.

But Republican leaders barred amendments to the bill. An attempt to force a vote on the Democratic proposal failed 223-195.

The bill’s proponents noted repeatedly that no new refinery has been built in the United States in 30 years. But Democrats contended the oil companies had made financial decisions not to pursue new refineries, opting instead to expand existing refineries.

“The oil companies themselves have told us environmental regulations themselves are simply not the problem,” said Boucher.

While scores of small refineries have been closed since the 1980s, new refineries have expanded.

Oil companies have increased U.S. refining capacity by 2.2 million barrels a day — equal to 10 fairly large new refineries — since the mid-1990s, oil industry consultant Daniel Yergin recently told a House hearing.

Opinions differ as to why no new refineries have been constructed for 30 years, but some cite uncertainty in the regulatory process.

At the same hearing, the American Petroleum Institute, the major oil companies’ trade group, said at least 1.3 million barrels a day of new refining capacity is planned over the next five years through expansion, bringing total domestic refining to 18.5 million barrels a day.

The country uses about 21 million barrels a day of oil. The difference is made up by imports.