Bush backs refining plants

Energy firms warn expansions won't cut prices for years

October 05, 2005|By KNIGHT RIDDER/TRIBUNE

WASHINGTON - President Bush called yesterday for a serious expansion of the nation's refining capacity to make more gasoline and other fuels. Energy companies support the goal, but warn it won't make a dent in high pump prices for several years.

"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 during a White House news conference, echoing what officials of the Organization of Petroleum Exporting Countries have been saying for weeks. Bush pledged to support legislation being drafted in Congress that would make it easier to expand refineries and build new ones.

Insufficient refining capacity is partly to blame for today's high gasoline prices, which yesterday averaged $2.94 a gallon nationwide. Since U.S. refiners can't make enough gasoline to meet demand, the rest must be imported. Last year, 14 percent of all gasoline sold in the United States was imported.

Bush pledged to support financial incentives for an industry that hasn't built a U.S. refinery in 29 years. In 1981, there were more than 300 U.S. refineries; today, there are 148. National refining capacity is down to 17.1 million barrels a day from 17.9 million barrels a day in 1981.

Glenn McGinnis, chief executive of Arizona Clean Fuels LLC, welcomed Bush's call for action.

McGinnis' privately held company has been locked in a complicated state and federal battle over permits since 1999; it's hoping to construct a small refinery outside Phoenix with a capacity of 150,000 barrels a day.

"Someone needs to feel accountable for the schedule in issuing permits. It's not the fault of any individual agency, but none of them have a legislative mandate to manage the schedule," McGinnis said. He hopes to break ground next year on the nation's first new refinery since 1976 and begin operating in 2010.

Arizona Clean Fuels supports legislation pending in the House of Representatives that would make the Department of Energy shepherd the permit process for refinery expansions and construction.

But even with streamlined approvals, it would take four years or more before refinery expansions or construction could be completed. That's partly because refineries being built in Saudi Arabia, China and elsewhere have left the global market tight for the specialty materials needed to build them.

Those shortages are weighing heavily on the minds of executives at Motiva Enterprises LLC. It's a joint venture between Shell Oil Co. and Saudi Refining Inc., a division of the Saudi state oil company Aramco. Even before hurricanes Katrina and Rita decimated the Gulf Coast energy infrastructure, Motiva was weighing expansion.

Motiva President William B. Welte said yesterday that he expects to reach a decision within months about expanding capacity at its refinery at Port Arthur, Texas, by as much as 325,000 barrels a day. It produces 270,000 barrels a day now.

"Even if we put the 325,000- barrel capacity on line, I think the market is still going to be pretty tight," Welte said.

Valero Energy Corp., based in San Antonio and the nation's largest refining company, has increased its expansion plans. Spokeswoman Mary Rose Brown said Valero expects to expand its capacity of 3.3 million barrels a day by 406,000 more barrels by 2010. That will cost $5 billion.

"Valero would be in the camp that says anything the federal government can do to support investment in refining would be good," Brown said. She added that a lack of government incentives and high costs of compliance with environmental laws made for a poor investment climate in the 1990s.

The emirate of Kuwait is among those voicing interest in building a U.S. refinery. Kuwait's oil minister, Sheik Ahmed Fahd al-Ahmed al-Sabah, told the White House in September that he'd build if the process could be simplified. The offer remains on the table, according to officials in the Washington office of the state-owned Kuwait Petroleum Corp.

New construction in Asia, China and Saudi Arabia is leaving U.S. refiners at the back of the supply line.

With simultaneous expansions planned here, U.S. refiners will compete against each other for construction materials.

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