Why aren’t there more oil refineries in the US?

by Stuart Hampton, December 26th, 2007, 6:40 am

With gas pump prices sitting at $3 or more a gallon, a question keeps coming up. Why aren’t there more refineries in the US?

According to the Energy Information Administration, the US had more than 300 operating refineries in the early 1980s. By 2007 the number of refineries in the US had been cut in half (down to 149). From 1975 to 2000, the US Environmental Protection Agency received only one permit request for a new refinery. A new refinery has not been built in the US since 1976.

Why the dearth of activity? The answer is about as divisive as other hot-button political issues in this election season — the Iraq War, gun control, abortion, illegal immigration, and the national budget. In one corner, the oil companies and their free market supporters bewail the myriad environmental regulations that make the costs of building new refineries or expanding older ones onerous. The demands of the Clean Air Act and the 50 separate gasoline blends required by the Federal and State governments to meet various air pollution reduction schemes have meant refits of many aging refineries are too cost-prohibitive for many companies. Oil companies have chosen to close inefficient, highly-polluting refineries in favor of expanding the capacity of fewer, more cost-efficient ones. A nationwide NIMBY (not in my back yard) mood — would you want a new refinery in your neighborhood? — has also crimped plans for new refineries.

In the other corner, environmentalists and consumer advocates point to greedy corporate entities that have intentionally reduced the number of refineries, and deliberately built no new ones. Through industry consolidation, a few major acquisitive companies have limited competition and reduced refining output, which in turn has jacked up prices at the pump, bringing misery to the motoring masses and megabuck profits to the oil companies.

According to Public Citizen, the largest five oil refiners in the US (Exxon Mobil, ConocoPhillips, BP, Valero Energy, and Royal Dutch Shell) control more than 56% of US oil refinery capacity; the top 10 refiners control 83%. According to CorpWatch, because of upgrading and expansion operations, refining capacity during the last 30 years has shrunk only 10% from its peak of 18.6 million barrels a day. At the same time, gasoline consumption has risen by more than 45%. The American Petroleum Institute, which represents oil and gas companies, would beg to differ with most of the above statistics and their causes.

Whatever side you come down on in this debate, the good news is that there is a renewed spate of activity going on in the refining sector. Here are three recent events:

• On December 10, US Energy Secretary Samuel Bodman praised the planned $7 billion expansion of a Motiva Enterprises oil refinery in Port Arthur, Texas. Motiva, a joint venture between Royal Dutch Shell and Saudi Aramco, is doubling the size of the refinery’s capacity to 600,000 barrels per day. Expected to be completed by 2010, the facility will become the largest oil refinery in the nation.
• On December 11 it was reported that Valero was considering an overhaul of its refinery portfolio, focusing on 10 refineries that process oil more cheaply and divesting its others. In making this move Valero was following the lead of integrated oil companies such as Royal Dutch Shell and ConocoPhillips in reducing their refining capacity. Valero is looking to focus on big refineries (on the East Coast, the West Coast, and the Gulf of Mexico) that have greater access to oil and are capable of processing oil that is tougher to refine and therefore cheaper to purchase.
• While major refiners are considering increasing production by up to 2 million barrels a day by 2010, perhaps Exxon Mobil has a model for the future of refineries with its plan for a floating refinery. The company has announced plans for a $1 billion floating liquid natural gas refinery 20 miles off of New Jersey’s coast. The project, due to open by 2015, would supply natural gas to about 5 million residential customers in New York and New Jersey.  A key selling point — the plant will not be visible from the shoreline. Maybe ”out of sight, out of mind” gives the US refining industry, enviromentalists, and disgruntled neighbors a common way forward.