Introduction

1
Introduction

• Policymakers View of the Refining Industry
• Increasing Domestic Refining Capacity
• The Mid-terms

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Policymakers View of the Refining Industry

• Economics

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• Historically Cyclical -But Is The Cycle Broken
• Or Is the Industry Entering a Golden Age?

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Chinas Growth

• Chinas energy consumption is projected to 5
  quadrillion Btu higher than the U.S. by 2030
  
• Source EIA, IEO 2006 Outlook

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Policymakers View of the Refining Industry

• Economics
• Market Distortions

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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.

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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

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Tight Refining Capacity Higher Prices

• We need more refining capacity. One of the
  reasons why youve 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.

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Tight Refining Capacity Higher Prices

• If we dont 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, Virgins Branson Wants
  Oil Refinery, MSNBC, 09-13-05

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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
  

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Refinery Capacity and Security

• The 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.
  

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Global Security

• China
• Venezuela
• OPEC Nations

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Market Uncertainty Vs. Regulatory Uncertainty

• Market Uncertainty Limited Government Role Tax
  Policy (EPAct 2005)
  
• Regulatory Uncertainty

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Uncertainty

• Uncertainty over regulations can delay
  investment decisions and permitting processes can
  add to investment lead times. Both of these
  factors will slow the industrys response to
  bringing additional supplies to the market.
• National Petroleum Council, Observations
  of Petroleum Supply, I-27, December 2004
  

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Boutique Fuels
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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.

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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.
  

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The Senates Answer

• S.1772, The Gas Petroleum Refiner Improvement
  and Community Empowerment Act or Gas PRICE Act

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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 seventy-
  seven electoral votes
• In the 100 member U.S. Senate, there are at least
  forty-three explicit fuel ethanol advocates
  

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The Midterm Elections

• Status Quo
• Democrats control House
• Democrats control Senate

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Status Quo - Policy

• Increased OCS production
• Refinery permit streamlining
• Improved regulatory certainty
• Lower taxes

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Democrats Control House

• Energy and Commerce Chairman Dingell supported
  President Carters energy proposals including
  windfall profits tax, voted nine times for higher
  gas taxes, and voted against refinery expansion
  bills

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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.

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Democrats Control Senate

• ???

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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.

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Democrats Control Senate

• Majority Whip Durbin Sponsor of windfall
  profits tax
  
• Energy and Natural Resource Chairman Bingaman
  Supports mandatory climate policy , unlikely OCS
  compromise.
  

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Thank You