Oil firms blame US regulations, high costs, for refinery shutdowns

19 March 2012 19:21  [Source: ICIS news]

WASHINGTON (ICIS)--US oil producers and refiners on Monday urged Congress and the Obama administration to rein in regulations that they said played a role in recent refinery shutdowns and put more domestic US fuels production capacity in jeopardy.

At a House hearing called to gauge the risk posed to US national security by recent refinery shutdowns and looming closures, industry officials noted that high crude oil costs, increasing foreign competition and declining US domestic fuels demand were instrumental in recent production closures.

But, said American Fuel & Petrochemical Manufacturers (AFPM) president Charles Drevna, also contributing to the shutdowns were new government regulations and an uncertain regulatory future that together “have created significant challenges for an already competitive refining industry”.

He said those regulatory burdens in part “led to the announced idling and potential closure of several East coast refineries”.

Drevna testified at a hearing held in Aston, Pennsylvania, by the House Subcommittee on Counterterrorism and Intelligence, part of that chamber’s Homeland Security Committee.

The hearing was called in the wake of near-simultaneous shutdowns of three major refineries in the US northeast. 

In actions initiated in September last year, Sunoco has shut down its 178,000 bbl/day Marcus Hook refinery, and ConocoPhillips has shuttered its 185,000 bbl/day Trainer refinery, both near Philadelphia, Pennsylvania.

Sunoco’s 335,000 bbl/day Philadelphia refinery also is set to be closed, unless the company can find a buyer before July, a sale that does not appear likely.

The hearing was to consider what impact those and other recent refinery closures might have on overall US national security.

“These closures are a tragedy,” Drevna told the House panel, arguing that in addition to high crude costs, a struggling US economy, lower US fuels demand and foreign competition, the US refining industry is “facing a blizzard of costly and in some cases conflicting regulations that threaten its competitiveness in a global marketplace”.

Citing a range of new environmental rules, increasingly stringent fuels formulation requirements, biofuels mandates and lengthy permitting delays, Drevna said that “While each of these regulations poses significant individual costs, many of these requirements conflict with one another, creating compliance issues and increasing fuel costs”.

He noted a Department of Energy report that “concluded that the cumulative burden of federal regulations was a significant factor in the closure of 66 petroleum refineries in the US in the past 20 years”.

Bob Greco, director of downstream and industry operations at the American Petroleum Institute (API), told the panel that “Excessive rules can raise costs and make it harder for our refineries to compete and stay in business”.

“Policies – such as those embraced by the current administration over the past three years – that limit crude oil production in the US or prevent ready supplies from being imported from Canada can help drive up crude oil prices that eventually affect refineries and those who consume the products they make,” he said.

He cited the Obama administration’s recent decision to further delay permitting for the Keystone XL pipeline.

“We’ve also asked the EPA [Environmental Protection Agency] in particular to reconsider a virtual blizzard of new poorly thought-out or unnecessary rules affecting our refining sector,” he said.

For example, he noted an EPA rule “that forces refiners to blend into gasoline – or pay a fee for not doing so – advanced biofuels that do not yet exist”.

As the hearing got under way, there was news of another shutdown of a refinery that feeds the US fuels market.  Valero Energy said was suspending operations at its 235,000 bbl/day refinery in Aruba because of financial losses.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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