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An Overview of U.S. Refining Infrastructure and Domestic Capacity Challenges

The current state of U.S. refining infrastructure reveals significant challenges, with domestic refining capacity around 4 million barrels per day. Growing demand, estimated at 300,000 barrels per day annually, underscores the need for new capacity to prevent reliance on imports and off-shoring fuel supply. Over the past 25 years, the number of refineries has drastically decreased, leading to existing capacity being insufficient to meet consumption needs. Legislative efforts like the Refinery Revitalization Act aim to stimulate new investments and streamline regulatory processes to improve domestic refining capabilities.

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An Overview of U.S. Refining Infrastructure and Domestic Capacity Challenges

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  1. US Refining Infrastructure:An Overview Lawrence Kumins, Energy Economist Congressional Research Service U.S. Library of Congress

  2. Shortage of DomesticRefining Capacity • Has a convoluted history • Currently about 4 mbd • Includes 1 mbd of gasoline • Calling for that amount of imports • Grown over the past 20 years • With U.S. demand growing at 300,000 bd per year out to 2030 • New capacity needs to be added to avoid off-shoring fuel supply • Will it get worse? --WoodMac est 1.3 mbd adds by 2015

  3. US Product Demand 2030With Recent Refinery Capacity Demand 4 mbd gap Ref Capacity

  4. Refinery Capacity and Number of Plants: 1970-2004 mbd # # of plants Mbd capacity

  5. Refinery Capacity andNumber of Plants • Capacity and Plants added during 1970s and early 1980s • Result of oil price control program • Encouraged small refineries • Led to refining bust • Small Refineries were uneconomic • No economies of scale • Many could not make unleaded mogas • Not suitable for upgrading • Transport infrastructure lacking • Often located in depopulating areas

  6. Refinery Capacity andNumber of Plants • More total capacity than needed • Glut resulted in falling refiner profits • Numbers dropped • From 325 plants to 143 • Capacity declined • Never to reach old high

  7. US Refinery Capacity: 1985 - 2005 mbd US Total Total TX/LA Gulfs LA Gulf

  8. US Refinery CapacityConcentrated in Gulf • 7.3 mbd is in Gulf • 42% of total US • 4.9 mbd was off-line after Rita/Katrina • 29% of total US • 2.0 mbd off line on 10/10/05 • Obvious vulnerability • No discernable trend away • Gulf Coast Capacity has remained constant share of nationwide capacity

  9. Gulf Refining Capacity andProduct Demand: 1985 to 2006 mbd Product Demand Ref Capacity

  10. Consumption Exceeds Refinery Capacity • Even if refineries operated at 100% • US has deficit of over 3 mbd • Realistic operating rate is 94% • Effective deficit is 4 mbd • Nation imported 4 mbd in 2005 • No deficit in 1985

  11. Rate of Return in US Refining,1977 - 2004 %

  12. Look What Happened toRefining Profits • Mostly single digits • Few <negative> years • Big bounce in 2000 & 2004 • No figures for 2005 yet • Golden age or moment of success? • Historic prospective • Refining has always been low profit business

  13. Legislative Reaction • Started in 2004 • Recognized refinery capacity not keeping pace with consumption • No new plants in 25 years • Many abandoned facilities • Driven by high gasoline prices • Rising product imports • Concerns about supplies of gasoline and components • Successive iterations gain focus

  14. First Bill: Refinery Revitalization Act • Passed House by 1 vote • Coordination/fast review for any project needing “federal authorization” • DOE lead agency • Pre-application process • Consolidates state/local permitting • Sets deadlines • Revitalization Zone • Idle refinery + unemployment • Comply with all federal, state, local regulations; use BAT • If enacted, implementation would be work in progress

  15. EPAct05: Subtitle H(Refinery Revitalization) • Federal-state regulatory coordination • Agreement with Governor on check-list, schedule, streamlining • EPA designated lead agency • Financial assistance to state for hiring staff, technical, legal capability

  16. Refinery Permit Process Schedule Act (HR 5354) • Repeals EPAct05 Subtitle H • At request of Governor, provide technical and financial assistance • President appoints Federal coordinator • Federal/state agencies shall cooperate with coordinator • Within 30 days, Fed coordinator shall convene meeting of stakeholders

  17. Refinery Permit Process Schedule Act (HR 5354) • Coordinator to keep consolidated record • Memorandum of agreement • Within 90 days • Sets forth agreement on action items, schedule for Federal authorizations • U.S. District Court for proposed facility location granted jurisdiction • Closed military bases • Designation within 90 days of enactment • 3 installations suitable for new refinery, one of which for biofuel

  18. Arizona Clean Fuels,A Grass Roots Refinery • 150,000 bd • Initial financing in place • Permit applied for in 2003 • Ozone non-attainment expanded to original site • New site optioned • Air Permit transferred—2006 • Crude supply pipeline via Mexican port approved (internationally traded crude)

  19. Arizona Clean Fuels,A Grass Root Refinery • Pieces still needed • Extension of permit past Nov ’06 expiry • Institutional financing for land, engineering, construction • Close on site • Permits for crude supply pipeline • Begin constructions • Complete in 2011 • Will it get built?

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