US Sec. of Energy Spencer Abraham last week asked the National Petroleum Council to conduct and complete a study of US refining capacity by Sept. 30. He said the quick timetable was needed to help calm fuel markets.
"If there is one thing the market needs, it's accurate, timely, up-to-date information. And that's why I'm requesting that you complete these studies by Sept. 30. It is my hope this information can be put to use by the end of the year in a way that will help bring greater long-term stability to petroleum markets and a greater degree of certainty to American consumers."
Speaking at NPC's 113th meeting June 22, Abraham said that the Department of Energy's Energy Information Agency forecasts that US demand for gasoline will increase by 43% by 2025; diesel demand will increase by 48% by that same year.
"We will need 28 million b/d of crude oil to meet that demand, but our nation's refining capacity is forecast to be only 21 million b/d. The American people need to know how we are going to address these challenges," he said.
Why study is needed
Abraham cited the fact that US demand for finished products is outpacing projected domestic refining capacity as a key factor in commissioning a new study. NPC addressed refinery issues most recently in 2000 when it studied clean fuel supply and pricing issues. And in 1998, NPC considered refinery infrastructure challenges when it looked at inventory supply dynamics. Both those studies took more than a year to complete.
But Abraham said that a new study is needed quickly because world oil demand in the past few months has increased at a much faster pace than many analysts anticipated even 5 years ago. He noted in his keynote address to NPC that industry has been using a Lower Operational Inventory (LOI) level of 270 million bbl for a number of years. "But is that a number which accurately reflects the realities of the marketplace in 2004, and should it be updated? At the end of the day, our goal is to provide a figure that best serves, and provides stability for, the global petroleum market. Does the 270 LOI do that?"
The energy secretary said he wants NPC to determine the US's future demand for refinery products, domestic capacity to meet future needs, the barriers to meeting future demand, and the capital factors that will drive supply growth. He also asked NPC to examine how worldwide capacity will impact access to products by the US.
Industry reaction
The National Petrochemical & Refiners Association said it welcomed Abraham's request for a new study.
"NPRA looks forward to working with the NPC as it updates and expands the authoritative and highly influential refining study it completed in 2000.
"The need to increase US natural gas supply (the subject of an excellent 2003 NPC study) and the importance of a healthy, vibrant, and diverse US refining industry are two of the most important energy issues facing the nation today," the association said.
In addition, Abraham used the NPC speech as an opportunity to call on Congress to pass comprehensive energy legislation that includes opening a small portion of the Arctic National Wildlife Refuge to leasing.
Later with reporters Abraham declined to spell out what the White House would or would not accept in an energy bill, although he said in his view, both the House and Senate seem to be in agreement on most of the bill. Meanwhile, discussions continue, he said. House Republican leaders suggested this week they may seek a vote on ANWR next week; an ANWR proposal was pulled from consideration earlier in the month.
Although not successful with a separate vote on ANWR, the House last week did re-passed its own version of the energy bill. And in a separate action it passed a measure designed to streamline refinery permits. Neither piece of legislation is expected to pass the Senate in its current form, however.
