The U.S. is facing a problem that most people have not thought about, other than to complain that prices at the pump are up – supply of petroleum fuels and their prices. I mention this because there is an exodus of domestic refineries under way.

There are reasons for this, and they are of great concern. Slightly more than 300 refineries operated in the U.S. in 1982 with a combined capacity of 17.9 mbpd (million barrels per day). Only 149 were operating in this country with a combined output of 17.6 mbpd in 2010. There are 124 currently running, not counting 13 others that only produce lubricants and asphalt.

Complex events drove refiners to this situation. Consumption began to decline in 2008 – 99 million gallons of gasoline annually (mga) versus 2007. Consumption dropped another 10 mga in 2009 at the same time the U.S. imported 81 mga more gasoline and infused 256 million (mandated) barrels of ethanol into gasoline use. All this time refining capacity, although maintained and upgraded, aged and deteriorated. On top of this is a political imposition of onerous regulations that has supplied a killing blow. The Department of Energy reported in 2011 that “the compounded burden of federal regulations was a significant factor in the closure of 66 petroleum refineries in the U.S. over the past 20 years.”

It is necessary to remember that crude oil is a world-priced commodity, sold to the high bidder and not the nearest bidder, so it excludes the cost of transportation from source to the refinery. Further, crude comes in varied forms (sweet and sour, heavy and light), and each refinery is configured for specific product categories. Historically, refineries were built to convert unique supplies to products, but the refinery sector was always least profitable of this energy-supply continuum. As domestic refineries have aged, most sites are near end-of-life. Then add new requirements and astronomical costs in meeting EPA regulations (many of which conflict) to this condition.

For example, the Energy Tax Prevention Act increased costs in order to prevent greenhouse gas (GHG) emissions, which the EPA admits does nothing to reduce global GHG concentrations. There is a legislative litany of these laws and policies (some are shown in the sidebar) instituted over the past decade that drove out the oil-refining industry and others to more hospitable business locations. Do you get my drift?

Let’s bore in further about environmental over-regulation and its burdens. Tier 3 gasoline sulfur regulations limit amounts of sulfur in gasoline. Tier 2 rules have reduced sulfur 90% from an average 300 ppm in 2004 to 30 ppm today. Technology used to reduce sulfur content (hydrotreating) from 30 to 10 ppm requires energy consumption for processing that results in more GHG and other pollutant outputs than are derived from all gasoline produced for consumption. In another example straight from an EPA study of its own regulations, the “renewable fuels standard” that currently mandates special gasoline blended with 10% ethanol in specific regions of the U.S. now wants to impose an E15 (15% ethanol version) that, according to a National Renewable Energy Laboratory study, results in possible engine damage in older engines.

Being specific about current events, Sunoco announced on Sept. 6, 2011, plans to sell (and has closed) two Pennsylvania refineries at Philadelphia and Marcus Hook. The impact on the local economy is more than the 1,500 jobs lost, 1,000 of which are USW union employees. ConocoPhillips cited five refineries as “non-core assets,” including the 185,000-bpd and 348-acre Trainer, Pa., facility (now idle with 400 jobs lost) and the Bayway, N.J., refinery. Valero has exited the refining business altogether on the East Coast (selling or closing its sites at Paulsboro, N.J., and Delaware City, Del.), switching operations to the Pembroke refinery in England.

The result of all this bureaucracy is that U.S. refineries, which produced 9.1 mbpd of gasoline in 2011 – outpacing domestic demand of 8.5 mbpd and exporting the difference, a net export for the first time since 1949 – are in the process of coming to a screeching halt. The oil-refining sector is leaving America for many reasons, not the least of which is the U.S. government making our country an inhospitable business environment for petroleum processing. Please remember all of this when you go to the pump and pay $12/gallon for gasoline made in a country like Venezuela, where Uncle Hugo knows how to spell the word “sucker.” IH   

Laws/Policies Hurting the Oil-Refining Industry

a.) H.R. 392, Boutique Fuel Reduction Act of 2009

b.) Energy Policy Act of 2005 – created the Renewable Fuels Program

c.) Energy Independence and Security Act of 2007 – increased use of ethanol

d.) Food, Conservation, and Energy Act of 2008 – tax breaks favoring ethanol

e.) PL 110-161 – EPA-issued mandatory GHG reporting rule

f.) H.R. 2454, American Clean Energy and Security Act – a form of cap-and-trade