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Thread ID: 20583 | Posts: 1 | Started: 2005-10-09
2005-10-09 13:44 | User Profile
Atlanta Journal-Constitution
A kink in the energy pipeline Proposed refineries face roadblocks Bob Keefe - Cox Washington Bureau Sunday, October 9, 2005
Tacna, Ariz. --- This dusty speck of a town about 100 miles west of Phoenix isn't known for much.
But as the country continues to struggle with oil and gas shortages, few places outside the battered Gulf Coast are attracting as much attention from the energy industry as this one right now.
On a vacant desert plain below the Mohawk Mountains here, a group of investors is planning a 150,000-barrel-a-day refinery that would pipe crude oil in from nearby Mexico and transform it into gas, diesel and jet fuel.
It would become the nation's first new refinery in nearly 30 years and would make at least a tiny dent in the national shortfall of refining capacity that President Bush said last week must be addressed in the face of soaring energy prices.
"It ought to be clear to everybody that this country needs to build more refining capacity to be able to deal with the issues of tight supply," Bush said at a news conference. As he spoke, about 20 percent of the nation's refinery capacity remained shut down because of the Gulf Coast hurricanes.
Yet while the strategically named Arizona Clean Fuels project represents a move toward more refining capacity, it also illustrates just how hard it is to start a new refinery in America.
Investors have been working on the project for more than a decade and have already spent an estimated $33 million and countless hours on permit applications and meetings with regulators, citizen groups, financiers and others. In April, they finally reached a milestone, getting an air emissions permit that lets them move forward.
Still, there's plenty to do, including raising most of the $2.6 billion needed to build the refinery and adjoining pipelines and completing negotiations with the Mexican government for crude oil.
Even then, construction isn't expected to start until late next year, with completion in 2010.
"It's a lengthy process that's very complex and has lots of requirements," said Arizona Clean Fuels Chief Executive Glenn McGinnis, adding that negotiations --- and fund-raising --- have gotten easier in the wake of hurricanes Katrina and Rita.
Before joining the project 1 1/2 years ago, McGinnis was general manager of El Paso Corp.'s refinery in Aruba until its sale to San Antonio-based Valero Energy Corp.
The hardest part of getting government approvals for the new refinery, McGinnis said, was getting regulators to work with any sense of expediency.
"It's just slow-moving," he said. "They have other things to do ... and there's really no legislative requirement for a timetable."
Some lawmakers want to change that.
Legislative efforts
Several bills proposed after Katrina and Rita shut down about 20 Gulf Coast refineries and sent gas prices skyrocketing are now making their way through Congress.
A bill that narrowly passed the House of Representatives on Friday would, among other things, make it easier to build and expand refineries, designate closed military bases and other federal lands for new refineries, and limit the number of gasoline blends refineries would have to produce.
"Hurricane Katrina taught us some harsh lessons," Rep. Joe Barton (R-Texas) said in a statement proposing his "Gasoline for America's Security Act of 2005" last month.
"If we expect gasoline to remain affordable for America's working people, we absolutely must build additional refinery capacity."
But while some politicians and the oil industry blame the lack of new refineries on arduous permitting processes and stiff environmental rules, critics disagree.
Tyson Slocum, a research director at the liberal watchdog group Public Citizen, said oil companies could have added or expanded refineries at any time in the last three decades if they wanted to.
But "they had no financial incentive to create surplus capacity," Slocum said. By adding more refining capacity, oil companies would increase supply and decrease prices --- and in turn, their profits, he said.
Oil industry representatives, not surprisingly, disagree.
"That implies some sort of conspiracy, and I just don't believe that's the case," said Ron Planting, an economist at the American Petroleum Institute, a trade group.
"Fact is, if you and your company think you can make money by building a new refinery, you would," he said.
There's little disagreement that --- at least until recently --- it was hard to make money with refineries.
In the 1980s, the country had too much refining capacity, in fact. As a result, parts of some refineries sat idle or churned out gas and other products with little profit.
"It was not a good business to be in," said Joanne Shore, senior analyst at the federal Energy Information Administration. "Rough returns were in the 4-5 percent range --- well below what other industries were making."
So big oil companies, which already had plenty else to keep them busy after a series of mega-mergers swept through the industry, quit building them. The last "grass-roots" refinery was built in Garyville, La., in 1976.
As of Jan. 1, there were 144 operating refineries in the country, according to the Energy Information Administration --- down from a peak of 324 in 1981.
Different picture
But while nationwide refinery capacity declined about 10 percent from two decades ago, demand for gasoline has risen by about 45 percent.
Today, when they're all up and running and at full capacity, American refineries can turn about 17 million barrels of oil per day to gas, diesel and jet fuel. Americans use about 25 million barrels per day. The rest currently is made up from imported gasoline, mainly from Europe.
In contrast to the 1980s, oil companies in recent years have been hitting record profit levels with their refining operations. That prompted some companies to start considering expansions even well before the Gulf Coast hurricanes hit.
Valero has been the most aggressive. In the past eight years, North America's biggest refining company has added 380,000 barrels per day of capacity at its 18 plants around the world.
Recently, it announced it will add an additional 320,000 barrels per day of capacity over the next five years at newly acquired refineries in Tennessee and Delaware, as well as in Port Arthur, Texas, and Lima, Ohio.
Most of the nation's new refining capacity is likely to come through those sorts of additions to existing operations, not from new refineries, said Shore, of the Energy Information Administration.
That's because expansions cost less money, are easier to get permitted and also typically result in less outcry from neighbors who don't want smelly refineries nearby, she said.
Local controversy
Here in Tacna, where there are only about 500 residents, public opposition has been minimal, according to Casey Prochaska, chairman of the Yuma County Board of Supervisors. Tacna is in her district.
Many here are hoping to land one of the 600 or so $20-an-hour jobs the refinery expects to create, Prochaska said.
"NIMBY [Not In My Backyard] is not part of their vocabulary," Prochaska said of locals. Besides, she added, "people here realize that we're dependent on refined fuel ... and they're not afraid of change."
That's not entirely the case.
A local group called Yuma County Citizens for Clean Air, backed by a California organization called the Refinery Reform Campaign, has lobbied against the new operation. Among other things, the group claims state regulators didn't fully analyze the potential emissions of the plant when they granted its permits.
Others also worry about what the refinery might mean to the region's substantial broccoli and cauliflower farms and other agricultural operations.
At the Basque Etchea restaurant here, owner and longtime resident Fidel Jorajuria, 74, said he knows a few people who are against the refinery. But he's not one of them.
"There are more people driving every day," he said. "You've got to do something about it."
His daughter, Marie Rico, who runs the family restaurant, said she worries some about what the refinery might do to her hometown. But with the project site still vacant after all these years, she has her doubts whether a refinery will ever be built here.
"I'll believe it when I see it," Rico said.
U.S. REFINERIES Biggest states for refining, with number of refineries: Texas,........25 California,...22 Louisiana,....17 Alaska,........6 Georgia's only refinery, in Douglasville, closed in July 2004, according to the Energy Information Administration. Source: Energy Information Administration Total operating as of Jan. 1: 144
DAMAGE About 20 refineries in Texas, Louisiana and Mississippi were damaged by hurricanes or shut down in advance of them. Eleven remain shut down (as of Wednesday), accounting for about 20 percent of the nation's refining capacity.
ONLY PART OF THE ANSWER At full capacity, America's 144 refineries can turn 17 million barrels of crude oil per day into gas, diesel and jet fuel. America consumes about 25 million barrels of oil per day. The rest of America's gas needs are imported, mainly from Europe. For the week ended Sept. 30, the country imported 1.4 million barrels of gasoline per day --- the highest weekly average on record.
IMPORTS AT RECORD LEVEL For the week ended Sept. 30: Crude oil inputs into U.S. refineries were the lowest since March 1987. U.S. imports of gasoline averaged 1.4 million barrels per day --- the highest weekly average on record. Average gasoline price jumped 12.5 cents for the week and was up 99 cents from a year earlier. Average diesel fuel price increased 35 cents for the week and was up $1.09 from a year earlier. Sources: Energy Information Administration, American Petroleum Institut [url]http://www.ajc.com/today/content/epaper/editions/today/business_34844b70946020fc0004.html[/url]