POLITICS: PennAve

Refineries cite shortage of light crude capacity to push for end of oil export ban

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PennAve,Energy and Environment,Zack Colman,Oil,Gas Prices,Oil Exports

To say no new refineries have been built in the United States in nearly four decades is a bit “misleading,” according to Charlie Drevna, president of the American Fuel and Petrochemical Manufacturers refinery trade group.

Sure, the last time anyone broke ground on one of the complex processing facilities, which churn out most of the nation’s gasoline and other petroleum products, from scratch was 1976. But that belies the fact that refining capacity is at record levels, even as the number of U.S. refineries has been cut by more than half since the 1970s to about 140 facilities. Existing plants have built additions, at a small fraction of the cost of new plants, and this in turn has provided breathing room for building new ones.

“If you look at total capacity in the country, we have more capacity now than compared with when that last refinery was built,” Drevna said. “These refineries have made the wherewithal to keep up with the environmental regulations, whereas some of the smaller ones didn’t.”

The ability of refineries to handle the nation's current shale oil boom has become an issue as some lawmakers and lobbyists argue that the United States' 39-year ban on crude oil exports should end.

One reason they say it should be killed is because there is a “mismatch” between the light, sweet crude flowing from the Bakken shale formation in North Dakota and Montana and the refineries along the Gulf of Mexico, which they say are outfitted to process heavier crude and can't handle the flow. In that camp are Sen. Lisa Murkowski, R-Alaska, the top Republican on the Energy and Natural Resources Committee, the U.S. Chamber of Commerce, the American Petroleum Institute, and Drevna's group, though he knows not all his members will agree.

But to say the refineries can’t process light crude isn’t true, said Bill Day, a spokesman for Valero, the largest refinery company in the United States Gulf Coast refineries have taken advantage of the boom by processing Bakken crude and shipping it overseas — the Energy Information Administration said exports of finished petroleum products, which aren’t banned, hit 2.95 million barrels per day in October, up from 1.44 million barrels per day in October 2008.

“They’re able to process a lot of different grades of crude. They were specifically designed and built with that equipment so they would be able to process heavier and more sour grades, so they can process pretty much everything,” he said.

Valero is looking to make sizable investments to process more of the crude coming from the Bakken. One would add 90,000 barrels per day of capacity to a Houston refinery, and another would boost a Corpus Christi refinery by 70,000 barrels per day — increases of 69 percent and 21 percent, respectively.

Still, consumers are becoming increasingly dependent on fewer, larger refineries that run at 90 percent capacity or higher. That means unplanned outages can more easily raise gasoline prices, which happened last summer when a shutdown sent prices above $4 per gallon in Minnesota.

That has attracted the interest of Senate Energy and Natural Resources Committee Chairman Ron Wyden, D-Ore., who has voiced concerns about the nation's refinery infrastructure. He has held a hearing on the matter and asked the Energy Information Administration for more information about outages. “They’re getting bigger and bigger and there’s fewer refineries,” a Democratic aide for the committee said.

The profits the refineries are bringing in are making it possible for the companies to buy rail cars for crude transport -- Valero purchased 5,320 for shipments between the fourth quarter of 2012 and second quarter of 2015. It's also building new facilities capable of handling deliveries from large, 100-car trains. It's a necessary trend, Drevna said, as the nation's pipeline infrastructure has failed to keep pace with rapid oil production.

“The refineries who have invested in the rail infrastructure, Lord bless them, because without their investment we wouldn’t be able to have the global competitive advantage that we have right now,” Drevna said.

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