A Vital Component of the Energy Renaissance
America’s world-leading refineries are a strategic national asset and a vital component of the energy renaissance. State-of-the-art refining facilities – with the majority of their production capacity located in the Gulf Coast region – have steadily increased capacity to keep pace with growing demand, reaching the highest capacity in nearly 35 years in 2015.
Although no new refineries with significant capacity have been constructed in nearly 40 years, investments to increase capacity and utilization within existing refineries have ensured the refining sector continues to provide the gasoline, jet fuel, diesel fuel, home heating oil and petrochemicals that Americans rely on. Medications, clothing, fertilizer, construction and automotive materials, medical equipment and plastics – countless items essential to the American economy and everyday life – are derived from refined petroleum products.
The refining industry supplies the over 130 billion gallons of gasoline and 60 billion gallons of diesel per year that fuel trucks, barges, ships and trains that bring us food, household goods and electronics while allowing Americans to travel to work, go on vacation, visit family and friends, and enjoy all the health and safety benefits of modern living made possible by energy.
The Gulf Coast region is also poised to expand its crucial role as an export hub. Long staples of America’s oil and natural gas production, Gulf states could soon be at the center of a new era in American energy leadership. The ability of U.S. refineries to supply 100 percent or more of our domestic needs for so many petroleum products has allowed the U.S. to become a net product exporter. The U.S. is the world’s largest exporter of petroleum products, and refined products are the top U.S. export by value. The expansion of exports of liquefied natural gas (LNG) represents additional opportunity for economic growth. Natural gas production has increased so significantly, courtesy of the hydraulic fracturing revolution, that Gulf Coast import facilities are converting to LNG export terminals. After surmounting numerous bureaucratic hurdles, a number of LNG export terminals are under construction and set to begin exports to American allies within months. Expediting the approval process for LNG export facilities will further strengthen America’s position as a global energy superpower while bringing significant economic growth to Gulf Coast states and the nation.
Refineries Keep America Running
The U.S. refining industry supports over 1.2 million jobs for highly skilled American workers across the country. Jobs directly within the industry or in the supply chain earn twice the national average.
The nation’s 140 operable refineries are among the most technologically advanced in the world. U.S. refineries invest billions of dollars each year to make cleaner fuels, enhance operational efficiency and meet stringent air quality standards. Between 1990 and 2013, U.S. refiners expended $149 billion on environmental improvements – contributing to a 69 percent reduction since 1970 in the six criteria air pollutants while population, energy use and GDP have all increased.
Over the last 12 years, refiners have removed 90 percent of sulfur from gasoline and implemented an ultra-low sulfur diesel standard across the entire nation. When used in modern vehicles, the cleaner fuels produced by the refining industry have contributed to emission reductions from the nation’s vehicles by over 99 percent since the 1970s.
The refining industry has contributed to emission reductions from the nation’s vehicles by over 99 percent since the 1970s.
Chevron’s refinery in Pascagoula, Miss., is just one example of many that illustrates the industry’s technological innovation and commitment to community.
The 52-year-old refinery is the 11th largest in the nation, and Chevron continues to invest in technologies to save water, conserve energy and reduce emissions while partnering with the Nature Conservancy and the Audubon Society. The refinery implemented a Clean Fuels project in 2003 to improve its manufacture of ultra-low-sulfur diesel. In 2009, Chevron built a new water treatment facility to recycle and return water used in refining processes to the Pascagoula River. In all, Chevron has spent $44 million in the past 20 years to achieve environmental progress while contributing more tax revenue than the next nine county taxpayers combined.
Regulatory Challenges for Refiners
Regulatory uncertainty and government mandates that ignore market realities and the tremendous environmental progress to date represent major challenges to the refinery sector’s ability to continue to provide the fuels and feedstock for other products Americans need.
New refinery sector emissions rules finalized in 2015 could cost refiners up to $1 billion to implement. Under voluntary programs and in compliance with existing regulations, companies have already invested billions of dollars to reduce emissions by installing flare gas recovery and flare minimization systems. EPA analyses, supported by extensive industry monitoring data, show that these efforts are working. Air emissions from refineries are already at safe levels, and air quality will continue to improve. Implementing the new regulations – without regard for these improvements – could result in added costs for delivering affordable energy to U.S. consumers.
As for E85, only 6 percent of the current vehicle fleet can use it, and demand has remained miniscule.
The Renewable Fuel Standard (RFS) remains an ongoing source of uncertainty for refiners and potential economic harm for consumers. The EPA’s repeated failure to meet its statutory deadline for finalizing yearly biofuel volume requirements has generated significant uncertainty for refiners and contributed to market volatility for Renewable Identification Numbers, or RINs, the federal credits refiners use to demonstrate compliance for blending renewable fuels.
In November 2015, the agency released ethanol volume mandates for 2014, 2015 and 2016. Although EPA used its authority to waive down ethanol mandates below the targets set by the 2007 law, continued implementation of the RFS as written threatens an inevitable collision with the blend wall – the point at which the RFS requires blending more ethanol into the gasoline supply than can be used as E10 (10 percent ethanol volume) by the vehicle fleet.
EPA’s latest volume mandates are based on assumptions that refiners can accommodate rising volume requirements by producing greater quantities of higher ethanol fuel. However, 90 percent of vehicles are not approved by manufacturers to use fuel blends higher than E10. Extensive testing by the Coordinating Research Council found that E15 fuel blends can cause damage to engines and fuel systems that automakers warn may not be covered by warranty. As for E85, only 6 percent of the current vehicle fleet can use it and demand has remained miniscule with annual volume in 2014 equivalent to less than a tenth of 1 percent of annual gasoline demand. Drivers reject the fuel in part because it is less energy dense than gasoline; a gallon of E85 gasoline will not drive your car as far.
A 2014 Congressional Budget Office study noted the problem and projected rising fuel prices, stating, “Given the design of the RFS, the cost of encouraging additional sales of high-ethanol fuel falls on the producers and consumers of gasoline and diesel.” Unless EPA reconciles ethanol mandates with these market realities, a 2015 study by NERA Economic Consulting projects “severe economic harm.” To avoid risking damage to vehicles not compatible with ethanol blends higher than E10, refiners could be forced to reduce their RIN obligations by decreasing volumes of the nation’s gasoline and diesel supplies by as much as 30 percent – with spillover effects that ripple through the transportation sector and overall economy.
The American energy resurgence has accomplished many of the goals the RFS was designed to achieve, from falling import levels to lower gasoline prices to emissions reductions courtesy of cleaner-burning natural gas. Reducing the total renewable fuels volume requirement to reflect market realities could prevent significant economic harm, avert supply disruption and preserve the availability of ethanol-free fuels that consumers demand.
Global Energy Leadership
The United States has a valuable, historic opportunity to capitalize on our position as the world’s leading producer of oil and natural gas by exporting a portion of our abundant resources. Natural gas production increased by 36 percent since 2005, and the U.S. Energy Information Administration (EIA) projects the United States will become a net exporter by 2017. Updating federal export policy to match America’s 21st century energy reality promises major economic and geopolitical benefits.
America’s LNG Opportunity
Harnessing the economic and energy security potential of LNG exports involves overcoming federal obstacles. Applications to export LNG to non-free trade agreement nations – including Eastern European allies dependent on Russia for up to 100 percent of natural gas supply – must be approved by the Department of Energy, and facility environmental reviews must be completed by the Federal Energy Regulatory Commission (FERC) or the Maritime Administration, in a process that can take years. LNG exports could contribute up to 452,000 jobs, add up to $74 billion in annual GDP growth and generate as much as $40 billion in government revenue between 2016 and 2035, according to a 2013 study by ICF International.
Even some non-producing states could see economic gains as high as $2.6 billion to $5 billion due to demand for steel, cement, equipment and other goods used in natural gas development. A 2012 Energy Department commissioned study by NERA Economic Consulting projected net economic gains across all export-level scenarios, with the updated 2014 version further confirming “the greater the level of exports, the greater the benefits.”
Multiple studies find that higher export levels stimulate even more production, thus dispelling concerns that LNG exports could jeopardize low prices here at home. A 2014 Columbia University study found that the global supply increase resulting in large part from U.S. LNG exports “will allow for more competition in the global market, putting downward pressure on prices and giving gas-importing nations more leverage with traditional suppliers.”
U.S. allies from around the world have repeatedly implored U.S. officials for greater access to American energy. In a letter to Congress, Eastern and Central European ambassadors wrote, “Energy security is not only a day-to-day issue for millions of citizens in our region, but it is one of the most important security challenges that America’s allies face in Central and Eastern Europe today.” While more than 48 competing LNG export projects are currently planned or under construction in other nations, the Department of Energy has granted final approval to fewer than 10 U.S. facilities in four years, and nearly 30 applications remain pending. Faster approval promises to generate thousands of jobs, add billions in economic activity to communities around the country and support American security interests around the world.