Hatching a Refinery Plan

Senator targets high gas prices with oil refinery bill

SALT LAKE CITY -- At a downtown Salt Lake City gas station last Thursday, Senator Orrin Hatch (R-Utah) announced his intention to introduce legislation to would reduce gasoline prices by increasing capacity and production at U.S. refineries.

Hatch's bill, the Gas Price Reduction through Increased Refining Capacity Act, would provide for accelerated depreciation for new refineries or for refineries that are increasing their capacity. It would allow refiners that commit to starting construction on new refining equipment before 2007 and have new facilities [image-nocss] built by 2011 to completely write off their new equipment in the first year instead of the current 10-year depreciation schedule.

There's no questionIf we want to start solving our fuel needs, we have got to increase production, Hatch said. This bill, in concert with alternative-fuel initiatives like my CLEAR ACT, and domestic production initiatives like my proposed oil shale and tar sands legislation, will help put America on a path to energy independence. The sooner we act on this and other long-term solutions, the sooner we can see an improvement at the gas pump.

The economics of refining are so tough, said Hatch, that the United States has lost nearly 200 refineries since the last one was built in 1970, and now it is left with only 149 overworked refineries. Hatch noted that domestic refineries are unable to meet American demand, so the country is currently importing refined oil products to make up the difference.

We have a serious problem, and it's easy to point a finger at the energy companies for high gas prices, he said. But the reality is that government rules and regulations combined with a complete lack of a national energy policy and unfriendly tax rules are at the heart of our problem.

The refining bill is only one part of Hatch's three-prong energy strategy designed to encourage more affordable sources of energy and greater energy security. Last week, Hatch re-introduced the CLEAR ACT of 2005 (CLean Efficient Vehicles Resulting from Advanced Car Technologies), which would provide strong tax incentives for the purchase of alternative and hybrid vehicles, for new alternative fuel infrastructure, and for the retail sale of alternative fuels.

Within the next few weeks, Hatch also intends to introduce a comprehensive bill to promote the development of U.S. tar sands and oil shale reserves, which are found mostly in Utah, Colorado and Wyoming, and are estimated to have as much recoverable oil as the Middle East.

I wish there were something we could do to bring prices down immediately, but I can't promise that, Hatch said, standing feet away from pumps at a Salt Lake City Sinclair station, according to an Associated Press report. The legislation I'm proposing and policies that Congress is considering are long-term solutions, he said.

Refineries must invest in expensive new equipment to comply with regulations, which trump investments for equipment that would increase capacity. Rates of return in refining are lower than others in the petroleum industry, according to a National Petroleum Council (NPC) report.

Hatch said he hopes that providing financial incentives to increase refinery capacity would decrease the amount of refined petroleum products the country must rely on.

It's extremely important that we do everything we can to increase domestic supply and we can do that by increasing refinery capacity, said Bob Slaughter, president of the National Petrochemical & Refiners Association (NPRA).

American refineries are capable of producing about 17 million barrels a day, but demand is about 20 million barrels a day, Slaughter said. The value of petroleum and petrochemical products is increased during the refining process, and by decreasing the need to import refined gasoline, diesel and home heating oil prices would go down, he said.

Hatch's plan would focus mostly on encouraging investment in increasing production at existing refineries, although it does not exclude the building of new ones. Either way, it is unlikely that the country could produce all of the petroleum products used on a daily basis, Slaughter said.