Introduction
 Policymaker’s
View of the Refining
Industry
 Increasing Domestic Refining Capacity
 The Mid-terms
Policymaker’s View of the Refining
Industry
 Economics
Historically Cyclical -But Is The
Cycle Broken
Or Is the Industry Entering a
Golden Age?
Thousand Barrels Per Day
China's Oil Production and Consumption, 1986-2006*
8,000
Consumption
7,000
6,000
Net Imports
5,000
4,000
3,000
Production
2,000
1,000
0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Year
Source: EIA International Petroleum
*2006 is Jan-Aug only
China’s Growth
China’s energy consumption is
projected to 5 quadrillion Btu
higher than the U.S. by 2030
Source: EIA, IEO 2006 Outlook
Policymaker’s View of the Refining
Industry
 Economics
 Market
Distortions
Industry
“From 1994 to 2003, the industry spent
$47.4 billion to bring refineries into
compliance with environmental regulations
. . . by 2010 the U.S. refining industry will
have invested upwards of $20 billion to
comply with new clean fuel regulations . .”
Red Cavaney, President & CEO – American Petroleum Institute, Testimony before House Energy
and Commerce, 09-07-05 Red Cavaney, President & CEO – American Petroleum Institute,
Testimony before House Energy and Commerce, 09-07-05.
Regulators at EPA
“Approximately 100 permits have been issued to
refineries since 2000 . . . Approximately 60 of
the permit applications in 2000-2003 involved
projects to comply with Tier 2 gasoline
requirements and may not necessarily involve
increased production capacity.”
Brian Mannix, Associate Administrator, EPA. Testimony before Senate Environment and Public
Works, A legislative hearing on S. 1772, “The Gas Price Act of 2005,” 10-18-05
Tight Refining Capacity = Higher
Prices
“We need more refining capacity. One of the
reasons why you’ve got high prices is the
demand is greater than the supply. And
when demand is greater than supply, the
price goes up.”
President discussing refining capacity in Biloxi, Mississippi, 04-27-06.
Tight Refining Capacity = Higher
Prices
“If we don’t get more refineries built then
fuel prices could literally rocket to $US 100
to $US 200 (per barrel of oil) and the
world economy would come to a grinding
halt.”
Richard Branson, “Virgin’s Branson Wants Oil Refinery,” MSNBC, 09-13-05
Refining Capacity and Security
“Besides feared shortfalls in crude oil
capacity, the status of world refining
capacity has become worrisome as
well.”
Remarks by Chairman Alan Greenspan, Economic Club of New York, 05-20-05
Refinery Capacity and Security
“[T]he Refining system cannot shift quickly to
meet unexpected needs. With Refinery capacity
running at high utilization levels in many parts
of the world, including the United States,
product balancing is frequently done through
international trade, which means products must
travel long distances . . .”
Guy Carouso, Administrator – Energy Information and Administration, Testimony
before Senate Energy and Natural Resources, 09-06-05.
Global Security
 China
 Venezuela
 OPEC
Nations
Market Uncertainty Vs. Regulatory
Uncertainty
 Market
Uncertainty Limited
Government Role – Tax Policy (EPAct
2005)
 Regulatory Uncertainty
Uncertainty
“Uncertainty over regulations can delay
investment decisions and permitting
processes can add to investment lead
times. Both of these factors will slow the
industry’s response to bringing additional
supplies to the market.”
National Petroleum Council, “Observations of Petroleum Supply,” I-27, December
2004
Boutique Fuels
Streamlining Permits
“Streamlining should provide for
expeditious overall review and a clearly
defined process for obtaining a permit,
with agency roles and responsibilities
well-defined and specific deadlines for
making permitting decisions.”
National Petroleum Council, “Observations on Petroleum Supply,” I-27, December
2004.
Streamlining Permits
“NACS and SIGMA urge this committee and this
Congress to build on progress made through EP
Act 2005 in the following ways: - streamline
permitting and siting procedures for expanding
existing domestic refining capacity and for the
construction of new grassroots refineries . . .”
William Shipley III, Representing NACS, Testimony before Senate Energy and Natural
Resources, 09-06-05.
The Senate’s Answer
S.1772, The Gas Petroleum Refiner
Improvement and Community
Empowerment Act or Gas PRICE
Act
New Competition - Biofuels



Vote Counting -Forty-five States offer local
policies supporting ethanol fuel
Conservatively limiting the scope to the nine
ethanol producing states in the Corn Belt,
ethanol supporters command a decisive seventyseven electoral votes
In the 100 member U.S. Senate, there are at least
forty-three explicit fuel ethanol advocates
The Midterm Elections
 Status
Quo
 Democrats control House
 Democrats control Senate
Status Quo - Policy
 Increased
OCS production
 Refinery permit streamlining
 Improved regulatory certainty
 Lower taxes
Democrats Control House

Energy and Commerce Chairman Dingell –
supported President Carter’s energy proposals
including windfall profits tax, voted nine times
for higher gas taxes, and voted against refinery
expansion bills
Democrats Control House


Speaker Pelosi – Pelosi spokesman Drew
Hammill – “Expanding offshore drilling is
something she has historically opposed. It is not
included in any of the proposals on energy the
Democrats have put out there.”
Pelosi voted to increase gas taxes at least five
times.
Democrats Control
Senate
???
Democrats Control Senate


Environment and Public Works Chairman Boxer
– Supports command and control climate policy,
increased environmental taxes, voted for an
amendment that would give the EPA authority
to site, construct , and operate refineries.
Majority Leader Reid – 1 of only 19 Democrats
to vote against the 2005 Energy Bill, supported
increasing gasoline taxes.
Democrats Control Senate


Majority Whip Durbin – Sponsor of windfall
profits tax
Energy and Natural Resource Chairman
Bingaman – Supports mandatory climate policy ,
unlikely OCS compromise.
Thank You