Below are highlights from the American Fuel and Petrochemical written testament to the Subcommittee on Energy and Power.
“The US is in the midst of an energy boon that few predicted even a few years ago. As we now know; however, innovation and entrepreneurship in the energy sector have reversed that trend and the mere fact that Congress is holding this hearing is evidence that previous paradigms are no longer relevant. Led by new technology, US crude oil production increased an incredible 72% increase since 2008 and is projected to increase further in the coming years. Of course, these projections are also based on assumptions about future conditions. Issues such as prices, geology, regulatory uncertainty, and technology uncertainties will all impact future production.”
“AFPM is aware there are ongoing questions about whether US refiners are capable of handling new US production. The questions are driven by a key misconception that the existing refining configurations are ill suited to absorb more light sweet crude. In reality, however, the refining industry is dynamic and is constantly shifting crude slates to maximise efficiency and to meet consumer demand. The facts show that US refiners have plenty of room to accommodate new, domestic supplies of light crude oil, with room to spare.
“Refiners have already started to adapt to increased domestic production by reducing imports, increasing utilisation, changing the crude mix, and investing in additional refinery changes. The US has reduced crude oil imports from outside North America from 46% in 2007 to 23% in 2014. Given favourable economies, refineries along the Gulf Coast will continue to back out imports further and invest in equipment to process more light ends. In fact, this investment is already occurring. However, changing dynamics in domestic and global markets for crude oil and petroleum products, combined with the regulatory environment, create an increasingly uncertain future for many US refineries.”
“In addition to climbing the list of major crude oil producers, the US is also home to the world’s largest and most advanced refining industry. In total, our members produce more than 15 million bpd of finished petroleum products, primarily gasoline and diesel, making the US the world’s leader in refinery throughput and accounting for more than 20% of global fuel manufacturing. Since 2009, US refineries have been able to run at very high utilisation rates to meet the needs of the domestic market, while also becoming a net exporter of finished petroleum products, let by diesel exports to Europe and South America. The boon in US crude oil production has been a significant factor in keeping US refineries competitive in an increasingly competitive global market.”
“During the 1980s many refineries, particularly along the Gulf Coast, made investments in order to process heavy, high sulfur crudes from growing production in nearby areas such as Mexico and Venezuela. Similarly, albeit more recently, some mid continent refiners have added additional capacity to handle heavier oils from Canada. However, these investments do not preclude those refiners from processing additional light crude oil. Refiners typically run different types of crude oil with different qualities through their processing units. In fact, refiners have already started to adapt to increased domestic production by reducing imports, increasing utilisation, changing the crude mix, and investing in additional refinery changes.
“First, the domestic crude boom has helped reduce US crude oil imports from 66% of US refinery inputs in 2007 to about 45% of refinery inputs in 2014. When one removes Canadian and Mexican crude imports, the US has reduced crude oil imports from outside North America from 46% in 2007 to 23% in 2014. Given favourable economics, refineries along the Gulf Coast will continue to reduce imports and invest in equipment to process more light ends. In fact, this investment is already occurring.”
“US refineries are increasingly utilising international markets. For example, US export of distillate to Western Europe and Latin America grew by more than 500% between 2000 and 2014. Refined product exports allow US refineries to add value to crude oil and maintain the infrastructure that ensures the US has the ability to produce as much product as it consumes. However, international markets are not stagnant and are quickly adapting. Other nations have been expanding their refining capacity and compete with US for global market share. For instance, Saudi Arabia expanded its refining capacity nearly 19% between 2012 and 2013. Likewise, Brazil and China have increased refining capacity by 4.6 and 5.6% respectively. Much of this investment is being driven by growing demand in non-OECD countries, which account for nearly all the new growth in petroleum product demand. The US is well positioned to capture international market share provided US policy is structured to allow refineries to effectively compete globally. Unfortunately. US refineries are also the target of increasingly onerous and conflicting regulations.”
“The enormous growth in US crude oil production has naturally led to questions about whether it is time for the US to readdress portions of EPCA, and in particular the crude oil export ban. AFPM believes that the free market should drive all energy policy, and does not oppose lifting the ban. However, the refining industry also believes that a more holistic energy strategy is needed to ensure all barriers to free and functioning markets are addressed. In particular, allowing the export of crude oil without addressing other policies, including the RFS, and the Jones Act, will create disparate regional impacts and could disadvantage some domestic refiners against global competition.
“Policymakers should be aware of these issues, seek to mitigate those possibilities, and endeavour to understand the full, fact based picture as they make decisions of such major import. For example, there is no evidence that the US is currently on the verge of hitting a refining wall where it risks shutting in US crude oil production. The refining industry is also investing billions of dollars to handle new domestic production.
“Again, AFPM does not oppose lifting the crude oil export ban, but urges Congress to base decisions on the facts while readdressing a suite of anti free market policies contemporaneously. Enacting this type of comprehensive energy policy will avoid the mistakes of the past, which have bred a balkanised and conflicting set of priorities and policies that ultimately disadvantage US consumers.”
Edited from testimony by Claira Lloyd
Read the article online at: https://www.hydrocarbonengineering.com/refining/05032015/afpm-testimony/