[Senate Hearing 109-703]
[From the U.S. Government Publishing Office]
S. Hrg. 109-703
THE REFINERY PERMIT PROCESS SCHEDULE ACT
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HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
H.R. 5254
TO SET SCHEDULES FOR THE CONSIDERATION OF PERMITS FOR REFINERIES
__________
JULY 13, 2006
Printed for the use of the
Committee on Energy and Natural Resources
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD M. BURR, North Carolina, TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia KEN SALAZAR, Colorado
GORDON SMITH, Oregon ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky
Bruce M. Evans, Staff Director
Judith K. Pensabene, Chief Counsel
Bob Simon, Democratic Staff Director
Sam Fowler, Democratic Chief Counsel
John Peshke, Professional Staff Member
Deborah Estes, Democratic Counsel
C O N T E N T S
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STATEMENTS
Page
Allen, Hon. George, U.S. Senator from Virginia................... 2
Becker, S. William, Executive Director, STAPPA and ALAPCO........ 22
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 4
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Feinstein, Hon. Dianne, U.S. Senator from California............. 52
McGinnis, Glenn, CEO, Arizona Clean Fuels Yuma, Phoenix, AZ...... 15
Meyers, Robert J., Associate Assistant Administrator, Office of
Air and Radiation, Environmental Protection Agency............. 6
Natchees, Maxine, Chairman, Business Committee, The Ute Indian
Tribe of the Uintah and Ouray Reservation...................... 53
Pirog, Robert, Specialist in Energy Economics and Policy,
Resources, Science and Energy Division, Congressional Research
Service........................................................ 46
Salazar, Hon. Ken, U.S. Senator from Colorado.................... 5
Slaughter, Bob, President, National Petrochemical and Refineries
Association.................................................... 26
APPENDIX
Responses to additional questions................................ 57
THE REFINERY PERMIT PROCESS SCHEDULE ACT
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THURSDAY, JULY 13, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:14 a.m., in
room SD-366, Dirksen Senate Office Building, Hon. Pete V.
Domenici, chairman, presiding.
OPENING STATEMENT OF HON. PETE V. DOMENICI,
U.S. SENATOR FROM NEW MEXICO
The Chairman. Good morning, everyone. Welcome. Senator
Allen, welcome to you. This morning we're going to receive some
testimony and do some discussing on H.R. 5254, the Refinery
Permit Processing Schedule Act. We have four witnesses
scheduled.
At the outset, let me say that I believe one of the most
constructive things that Congress could do to ease some of our
energy woes would be to facilitate the construction of new
refineries and additions to capacity at existing refineries.
Now, quietly and unobtrusively, additions to capacity are
taking place, but clearly not in its totality the kind of
things America needs for our future. No new refinery has been
constructed in the United States since 1976.
In 1981 there were 324 operating refineries in the United
States. Today there are 149. While the number of refineries has
dwindled, we have maintained much of the domestic refining
capacity needed to meet our demand through efficiency
improvements and capacity additions at existing refineries.
There is no limit to how much we can accomplish in this manner,
and that continues year-by-year.
We are now on a path that means greater dependence on
imports of finished petroleum products like gasoline, diesel
fuel, and lubricating oil. The EIA estimates that refined
petroleum products are projected to grow from 7.9 percent of
total demand today to 10.7 percent of the total demand by 2025.
Furthermore, about 47 percent of the U.S. refining capacity
and 28 percent of our crude oil production is concentrated in
the Gulf of Mexico, which we have already experienced in terms
of how imprudent it is for that concentration to exist with us
doing nothing about it. Hurricanes Katrina and Rita
demonstrated how an act of God can cripple our ability to
produce fuels needed for our economy, at least in part because
of the way in which our basic infrastructure has been built.
Finally, increasing demand worldwide for finished products,
petroleum products, coupled with insufficient domestic refining
capacity, means that the United States must compete with
finished product on the world market.
Today we will have before us a bill that seeks to
streamline and accelerate our ability to site and build new
refineries. The committee is interested in the views of our
witnesses on H.R. 5254, as well as suggestions for addressing
this problem through this bill or similar legislation, or we
are interested in similar ideas that might be implemented in
one way or another.
Senator Bingaman will be here shortly, and has suggested
that we proceed in his absence because he too was delayed
because of Senate business here on the Hill.
With that, I would now yield to you, Senator, for opening
remarks or observations before we go to Mr. Meyers for his
testimony.
STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR
FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman. I very much commend
and appreciate your leadership on so many issues that are
important for the energy security of this country. This measure
here before us is one we need to move forward on.
I have introduced a measure, we call it ``Bolster Energy
Security for Tomorrow''--it's very similar--working with
Congressman Boucher as well as Congressman Barton. Senator
Inhofe has a measure over in his committee. I thought we ought
to have one as well. It's very similar in its purpose. There is
one difference, that as we move forward on this--if it is to
move forward--the request would come from a Governor. Having
been a Governor, I think it's important that you take into
consideration the views and the sentiments of the people in
communities.
And all the facts that you stated, Mr. Chairman, at the
outset are true. The overall situation, why we have high gas
prices, part is supply. We need a greater supply of petroleum
products. We need to develop more oil and natural gas in this
country. But even if you look at the increased supply of oil
worldwide, whether it's from Kazakhstan, Russia, countries in
Africa, South America and elsewhere, there is an increasing
supply. The demand is of course increasing, particularly with
free people in Central Europe and expanding economies in India
and China.
Our problem in this country, as you stated, is when
Hurricanes Katrina and Rita hit, they hit a concentrated area
of our refineries. Our refinery capacity is at its maximum.
It's stressed out. Every spring we see prices go up because
they're switching from winter fuel blends to the summer fuel
blends, and that affects the pipelines and refineries, and so
there's a restricted supply for the demand. And even though the
demand stayed high, as it did after Katrina and Rita, even with
the refineries back in line, we still have high prices.
So what's the solution? We need more refinery capacity in
this country. It's absolutely necessary. Everyone agrees that
this is essential. It will help reduce the price of gasoline,
which is so important for individuals, for families, for
businesses, for their trucks, their equipment, and their motor
vehicles.
There are going to be military bases being shut down. Why
not use those closed military bases, if it is the desire of the
people in those communities for refineries? So my measure, as
well as the one we're going to consider here, says that--and
the way my bill is, if the Governor petitions to the
facilitator that they would like that assistance for building a
refinery on that closed military base, that's the way that that
would be done. There would be three of them built: One would be
a biomass facility and two of them would be for petroleum
refining.
I could foresee certain jurisdictions, in places where a
military base has been closed because of the BRAC process, that
would say, ``Hey, this is a way to get in some investment, some
more jobs, some more vitality and opportunity in our
communities.'' And while we have a strategic petroleum reserve,
Mr. Chairman, America also needs to have a strategic refinery
capacity policy for our country. So I look forward to the
testimony of our witnesses here.
This is a measure that just makes a great deal of sense,
and I'm very hopeful that we can get this. Whether it's done as
a single bill or adopted with others, I think this is
absolutely essential for Americans, so that we have more energy
being refined here in this country for American jobs, American
competitiveness, and ultimately, of course, American security.
So I thank you for holding this hearing, for our witnesses,
and I hope that we can work on a bipartisan, bicameral basis to
get the job done for the American people. Thank you.
[The prepared statements of Senators Allen, Bingaman and
Salazar follow:]
Prepared Statement of Hon. George Allen, U.S. Senator From Virginia
Thank you, Mr. Chairman. I appreciate that the Chairman and Ranking
Member convened this hearing to consider this important issue. I very
much look forward to hearing the testimony of the witnesses today. I
strongly support this legislation because it addresses one of the
crucial bottlenecks in the domestic transportation fuel supply system
that has contributed to high gasoline prices in the last year: refining
capacity.
In the wake of Hurricanes Katrina and Rita people across the
country experienced the tight marginal capacity of the refining
industry within the United States. Because of the limited capacity of
the 150 or so\1\ domestic refineries, when many of the Gulf coast
refineries were knocked offline by the storms the remaining refineries
were unable to adequately increase production which resulted in an
insufficient supply of gasoline for the demand of Americans, for their
cars, trucks and equipment. Certainly it is understandable that two
significant natural disasters would increase the price of gasoline
regardless of the refining capacity in the country, but at some point
the price should stabilize and return to a reasonable level. We just
have not seen that yet.
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\1\ As of 2003 there were 149 refineries operating in the U.S.
(Petroleum Refining: Economic Performance and Challenges for the
Future, CRS Report, page 11).
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This isn't just a problem that threatens national security and
competitiveness when Mother Nature throws two enormous hurricanes into
the wheelhouse of our oil and natural production in America. The Energy
Information Agency (EIA) forecasts ``that refined products supplied
will increase from 19.6 million barrels per day in 2001 to 26.4 million
barrels per day in 2020 and 28.3 barrels per day in 2025.'' If those
projections are going to be met by domestic refineries we would need to
construct additional capacity of approximately 400,000 barrels per day,
per year.\2\ That means that every year the industry would have to
build a new refinery equal to the size of largest refineries currently
operating in the country. A new refinery of significant capacity
(200,000 barrels per day) has not been constructed in the United States
since 1977.\3\ The only viable alternative to meet this demand is the
increased importation of refined product from overseas, a solution that
makes the country even more dependant on the whims of foreign
governments.
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\2\ Petroleum Refining: Economic Performance and Challenges for the
Future, CRS Report, page 21
\3\ This was the Marathon refinery in Garyville, Louisiana. In
1993, a refinery with 38,000 barrels per day capacity was opened in
Valdez, Alaska by Petro Star.
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If the refining industry fails to meet increased domestic demand
the price of gasoline, jet fuel and other refined products are destined
to rise. Runaway fuel costs will stifle our domestic economy and
destroy the ability of American industries to compete on the world
market. High gasoline prices will force American's especially those who
live in rural areas and those with low to middle incomes, to make
choices between driving to work and being able to fully provide for
their families. As the country makes efforts to reduce our dependence
on foreign oil through clean coal technologies, biodiesel, corn-based
and cellulosic ethanol, advanced nuclear, nano-tech enabled lithium-ion
batteries and solar photovoltaics, Congress must do its part to ensure
that companies interested in increasing refining capacity can enter the
permitting process with certainty that their applications will be heard
and resolved in a timely fashion. Gasoline is already expensive enough
without the government limiting the amount a new capacity coming into
the market.
I have been working with my colleagues in the House to address this
very problem. I have introduced a bill similar (S. 3649) to Congressman
Bass' (H.R. 5254) that directs the President to appoint a federal
coordinator to facilitate the authorization of new refineries and
increased refinery capacity. Governors from interested States will be
able to request financial assistance to hire additional personnel to
assist the State with expertise in fields relevant to consideration of
federal refinery authorizations from the Administrator of the
Environmental Protection Agency (EPA). The legislation maintains all
existing environmental protection laws and is not a means of
circumventing any statutorily established review.
These refineries will not be limited to processing petroleum and
petroleum derivatives. This legislation includes biomass refineries,
coal to liquids refineries, as well as traditional refineries. These
advanced technologies are crucial to ending our dependence on foreign
energy sources. In my view diversity of supply is security of supply.
This must include increased domestic energy production both on private
and public lands--including American oil, and American coal (America is
the Saudi Arabia of the world in coal). We need energy produced and
refined IN America FOR Americans, American jobs, American
competitiveness and American security.
The legislation also instructs the President to designate at least
three closed military installations as potentially suitable sites for
the construction of a refinery. At least one of these sites must be
designated as potentially suitable for development of biomass refinery
aimed at producing biofuel. There is an opportunity--with the BRAC
mandated closing of military bases--to turn economically--depressed
areas into potential refinery areas if the local citizens support such
an initiative.
I again thank the Chairman for holding this important hearing and
the witnesses for taking their time to speak to us today. I look
forward to hearing your thoughts on this issue. I also look forward to
working with my colleagues on the Energy Committee to address the lack
of domestic refining capacity.
______
Prepared Statement of Hon. Jeff Bingaman, U.S. Senator From New Mexico
Good Morning. Thank you, Mr. Chairman, for holding this hearing
which enables us to talk about (a bill that lies before us on) the
topic of refining. I understand that the authors of H.R. 5254 are
seeking to increase refining capacity by way of their bill. I believe
there may be some reason to believe that it will not do exactly that
however.
Contrary to what we may hear here today, refiners do not appear to
be eager to build new Greenfield refineries in the U.S. I have not been
informed by any state permitting authority that they have received a
request for a permit to build a new refinery. As far as I know, the
most recent application is that of the Arizona Clean Fuels Yuma company
in Arizona.
We have heard from several experts that the reason we are facing
high prices at the pump stems from underlying supply issues. The amount
of global excess capacity to produce oil has declined. Experts claim
that it has entered `the red zone' and coupled with other threats to
energy output (Nigeria, Venezuela, Iraq and Iran), a `perfect storm'
has been created.
Certainly we saw the kind of an effect storms can have on our own
ability to refine oil last year with the damage sustained from
Hurricanes Katrina and Rita. Refineries were shutdown last year in July
as you may recall, adding pressure to supply and prices just before the
hurricanes hit.
In light of the effect that our already constrained domestic
refining system was under, and given the shutdowns with the hurricanes
(and potentially more such incidents this year), I think that it makes
sense to ask the Secretary to ask the EIA Administrator to conduct a
study of the impact refinery shutdowns have on the price of oil and
gasoline. I will ask the Secretary for this today.
While there are many problems (objectionable matters) with the bill
before us, I do not think that creating a special coordinator housed
within the administration with direct links to the President makes
sense at this time. The Department of Energy if anyone has a role to
play here in helping to oversee the supply of motor fuels. Thank you
Mr. Chairman. I look forward to what the witnesses here have to say.
______
Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
Thank you, Mr. Chairman and Ranking Member Bingaman. I appreciate
you holding this hearing today.
We have two refineries in Colorado, both in Commerce City, near
Denver, and they produce around 87,000 barrels of oil per day, some of
which is from Canadian oil sands, believe it or not.
I am pleased that we have this opportunity to explore what effect
the shortfall in refining capacity is having on gas prices. Hurricane
Katrina laid bare the vulnerabilities of our energy infrastructure when
it took 29% of our refining capacity off-line, pinching supplies for
months. Our refining infrastructure is still recovering from that
disaster.
But even when there are no disruptions from weather, American
refining capacity is 4 million barrels a day short of demand. This is
problematic because it leaves us vulnerable to future disruptions to
our refining infrastructure, and it can inflate prices at the pump.
I wish I could say that immediate investments in refining
infrastructure will help bring gas prices down right away, but,
realistically, it will take several years to expand domestic refinery
production. Expanding our refinery capacity is clearly not, as the
President claimed last week, a short-term solution.
Economists will tell you that the refining market will likely
respond on its own to the current high profits in the oil business, but
that it will respond slowly. Economists will also report that to really
lower gas prices in the short term, we need to be addressing the demand
side, not just the supply side, of the refining issue. An analyst with
Deutsche Bank recently testified in the House that, from a policy
standpoint: ``it would be better to address demand, which, if it could
be reduced, would alleviate the problems of U.S. refining.''
If we were to take some simple steps to reduce our oil
consumption--by driving less, by encouraging more fuel efficient
vehicles, by increasing biofuel production and use--American demand
would come back in line with refinery capacity, and gas prices would
come back under control. We need the President's leadership on energy
conservation, and we need the commitment of all Americans.
Nonetheless, over the long term, our refinery infrastructure will
need to grow and modernize. I am heartened to hear that energy
companies are promising significant investments in refinery
infrastructure and that new capacity will come on line within the next
2-3 years.
Congress, too, can play a role in assisting with refinery
expansion. Mr. Chairman, I think we took a positive step last summer in
the Energy Policy Act when we created a mechanism to improve
coordination among federal, state, and local permitting processes. We
lowered barriers for refinery expansion in a balanced way that upholds
environmental protections, the rights of states and local governments,
and the public's opportunity for comment.
The bill before us today, H.R. 5254, would abandon this section of
the Energy Policy Act. This seems hasty to me. Have we given the
refinery provisions in the Energy Policy Act enough time to yield
benefits? Has this section of the Energy Policy Act even been
implemented yet?
I agree that we should be coordinating local, state, and federal
permitting processes--but we should not do so at the expense of state
and local permitting authorities. Furthermore, I have questions about
the citing of new refineries at realigned military bases. Is this an
economically sensible approach, and will the local communities who may
be affected have a role in deciding whether a refinery should be built?
We should remember that expanding our refinery capacity is a long-
term, not short-term, goal, and we should be very wary of knee jerk
solutions that compromise environmental protections and the health of
local communities.
I think the Energy Policy Act includes some well-written and
balanced provisions that, when properly implemented, will streamline
and simplify the permit process. I am hesitant to abandon our good,
bipartisan work from last summer.
Thank you again, Mr. Chairman, for holding this hearing. I look
forward to hearing the testimony of the witnesses.
The Chairman. Thank you, Senator.
Now, Mr. Meyers, we are all aware of your expertise and
your role in government. Would you please give us your
testimony? Your remarks will be made a part of the record as if
you read them, and you use your own good judgment on how much
of them you want to use orally for the committee.
STATEMENT OF ROBERT J. MEYERS, ASSOCIATE ASSISTANT
ADMINISTRATOR, OFFICE OF AIR AND RADIATION, ENVIRONMENTAL
PROTECTION AGENCY
Mr. Meyers. Thank you, Mr. Chairman. I will try to keep
things brief. I appreciate the opportunity to appear before the
committee today to present testimony concerning H.R. 5254.
The Bush administration strongly supports efforts to speed
up the process for refinery construction and expansion. Our
country now imports about a million barrels of gasoline every
day, and this means that about one out of every ten gallons of
gas that Americans buy at the pump is refined in a foreign
country.
In addition, as Senator Allen mentioned and the chairman
mentioned, following Hurricanes Katrina and Rita about a
quarter of our Nation's refinery capacity was shut down for a
period of several days, and even today part of our Nation's
production refining infrastructure is still being restored.
Therefore, there is a continuing need to think strategically
about our long-term refining needs, and the Bush administration
is committed to expanding domestic refinery capacity and stands
ready to work with Congress on this vital matter.
This issue is hardly new, as has been noted. It has been
repeatedly noted that the refinery construction of new
facilities has not occurred in over three decades. But
conditions in 2006 are a little bit different than those faced
in earlier years, as mentioned, with the global demand for
refinery oil products having grown, and with many refineries
operating at very high capacity levels right now. In layman's
terms, at this point in time, even though there are some
projects in the works, there is not much slack in the system.
So these conditions have naturally turned a focus to the
process requirements that are applicable to construction of
refineries. I won't go through all the detailed permitting
requirements, that would take a considerable amount of time,
but to summarize, in order to build a refinery right now,
requirements and permitting actions may be required under the
Clean Air Act, the Clean Water Act, the Resource Conservation
Recovery Act, and depending on circumstances, the National
Environmental Policy Act. In addition, States and localities
have their own authorities that are applicable in these
situations and may define substantive procedural requirements
applicable to refinery construction and modification.
In terms of the Clean Air Act, in terms of major programs
that would affect refineries, we have new source review permit
requirements, title V operating permit requirements, new source
performance standards, emission standards for hazardous
pollutants, and compliance assurance monitoring requirements.
With regard to the Clean Water Act, refineries, like other
facilities, may need to obtain a national pollution discharge
elimination system permit, and under RCRA, refineries can be
subject to other regulations depending on generation of
hazardous waste and maintenance onsite.
In most cases, the Federal environmental requirements have
been delegated to the States and implemented at the State
level. And as I mentioned, too, apart from just environmental
requirements, you can run into other local issues: conditional
use permits; local fire, building, and plumbing codes;
connections to sewer systems; and construction approvals that
are necessary, if you're going to build a facility that has the
magnitude of a refinery.
So, getting to the act that's before you, this bill sets
forth a number of provisions that are intended to coordinate
and expedite the refinery permitting process. My written
statement contains more detail in this regard, so I'll just
center on a few points.
Probably one of the major points of the bill is the
appointment of a Federal coordinator. The legislation specifies
on the request of an applicant seeking a refinery
authorization, the Federal coordinator must convene a meeting
of the relevant Federal and State agencies in order to
establish a memorandum of understanding setting forth the most
expeditious coordinated schedule possible. This MOU is then
established and the Federal coordinators ensure that the
parties carry out the MOU in good faith.
The legislation also specifies venue, standing review, the
remedy for civil actions brought under the terms of the
legislation, and the district court in which the refinery is
located.
In summarizing--and ending here, so we can get to any
questions the committee might have--I would say three things:
First, the President has repeatedly called on Congress to
simplify and speed up the refinery permitting process and to
reform the new source review regulations; second, the
administration has supported House passage of H.R. 5254, and is
also encouraging the Senate to act on refinery legislation;
and, third, the administration, as I said at the beginning,
stands ready to assist this committee and the Congress with
this legislation or other legislative efforts to provide
appropriate technical assistance.
[The prepared statement of Mr. Meyers follows:]
Prepared Statement of Robert J. Meyers, Associate Assistant
Administrator, Office of Air and Radiation, Environmental Protection
Agency
Mr. Chairman, members of the Committee, I appreciate the
opportunity to appear before you today and to testify on H.R. 5254, the
``Refinery Permit Process Schedule Act.'' I am pleased to be here
representing the Environmental Protection Agency. My testimony will
address EPA's statutory responsibilities affecting refinery
construction and expansion, some of the Agency's ongoing efforts to
streamline the refinery permitting process, and the legislation being
considered by the Committee.
It is self-evident that domestic refineries are a vital part of the
nation's energy infrastructure and a powerful contributor to the U.S.
economy. As last year's hurricanes demonstrate, however, the nation
needs to expand and diversify its modern refining capacity. Following
Hurricanes Katrina and Rita, about a quarter of our nation's refinery
capacity was shut down for a period of several days, and even today,
parts of our nation's production and refining infrastructure are still
being restored. The entire country felt the impact of the hurricanes on
retail gas prices. There were short-term shortages of fuel. Some
facilities received millions of dollars in damage. Although we have
largely been able to recover from these exceptional natural disasters,
the need remains to think strategically about our long-term refining
needs. One component of our approach should be investigating ways to
streamline the process for permitting construction of new refineries
and expansion of existing facilities.
The issue of domestic refinery construction, overall capacity and
the refinery permitting process is hardly new. Conditions in 2006,
however, are different from those faced in earlier years, as global
demand for refined oil products has grown as a result of increases in
both domestic and international demand. Many refineries are also
operating at such high capacity levels that additional disruptions
could lead to a rapid impact on consumer and industrial access to
affordable energy. New refining capacity would help alleviate the
strain on our current fuel system. While overall refinery capacity has
increased through facility modifications, as the Committee well knows,
no new refinery has been constructed in the United States in over 30
years.
As indicated above, domestic refining capacity has increased
through steady expansion of operations at existing refineries, even as
smaller, less efficient refineries have closed. Today, there are 149
refineries compared with 205 refineries in 1990. Total capacity over
this same period of time, however, has increased from 16.5 million
barrels per day to 17.3 million barrels per day.
refinery permitting
Because most permits are issued by state and local authorities, EPA
does not routinely track permitting activities for refineries and
cannot provide precise numbers concerning such activity. However, based
on information we currently have in technology clearinghouses and a
recent survey of refinery activities, we estimate that approximately
100 permits have been issued to refineries since 2000. Many of these
permits involved upgrades in order to comply with new EPA regulations
such as those requiring new sulfur limits for gasoline and diesel--
approximately 60 of the permit applications in 2000-2003 involved
projects to comply with Tier 2 gasoline requirements. Many of the
projects, however, also added to increased capacity, whether or not the
project was initiated or primarily designed to meet new fuel standards.
A broad scope of environmental issues may be present in siting a
new facility or expanding the capacity of an existing one. Such an
action may trigger requirements or permitting actions under authority
of the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the National Environmental Policy Act and other
federal, state and local environmental laws. Substantial ``up front''
work is also required regarding site and design factors prior to the
submission of an application for a new refinery. In addition, the
various approval processes usually are not coordinated, and often do
not occur at the same time, which adds to the overall time. While many
refinery permits can and have been issued in a matter of months,
depending on the complexity of the refinery and the issues involved in
siting, the permitting process can take between one and two years after
a complete application is filed. Not all of this time is consumed due
to requirements imposed by EPA or the states--those seeking to
construct refineries may revise their applications after they have been
submitted engendering some additional delays in the permitting process.
However, it is also apparent that administrative appeals during the
permitting process and judicial review of permitting decisions can add
substantially to the time before construction or expansion can begin.
States may also impose separate or additional requirements on
refineries that can be more stringent than those required for
compliance with federal law and regulations. Apart from the
requirements of federal environmental law, state and local decision-
making with respect to refineries and other large industrial and
commercial facilities can frequently involve land use and other local
issues, such as conditional use permits, local fire, building and
plumbing codes, connections to sewer systems and construction
approvals. Thorough and appropriate review of these matters obviously
can add to the complexity of the permitting process and has the
potential to involve further commitments of time on the part of the
applicant, relevant approval bodies and stakeholders.
clean air act
Currently, a number of Clean Air Act permitting requirements apply
to construction of a new refinery or major expansion of an existing
refinery, though most of these provisions are delegated to the States
and therefore implemented at the State level. For example, a New Source
Review (NSR) permit must be obtained before construction starts. States
typically take 12-18 months to issue NSR permits for large facilities,
although this time period can vary significantly and does not include
the additional time needed if an administrative appeal is filed.
Depending on the location of a refinery, the 12-18 month NSR permitting
process may include obtaining emission ``offsets'' based on the
facility's emissions.
A Title V ``operating permit'' is also required for a refinery that
constitutes a major source. This program was added to the Clean Air Act
in the 1990 amendments to consolidate in a single document all federal
and state regulations applicable to the source, but the program does
not create any new substantive requirements. Once it submits a complete
application, the facility can operate under an ``application shield''
while the Title V permit is being processed. States must take final
action on the permit application within 18 months. If the permit
applicant or an interested stakeholder disagrees with the permit terms
or conditions, they may file an administrative appeal or petition. This
adds additional time to the process, although the facility can continue
to operate during the appeals process.
Applicants for a new refinery would also need to comply with other
Clean Air Act regulations including New Source Performance Standards,
emission standards for hazardous air pollutants and Compliance
Assurance Monitoring Requirements. New Source Performance Standards, or
NSPS, set a minimum level of control for new or modified sources of air
pollution, and various process units within a refinery, including
sulfur recovery units, fuel gas combustion devices, or catalyst
regenerators, are subject to such standards. Another set of regulations
requires petroleum refineries, which are sources of toxic air
pollutants, to meet emission standards reflecting application of the
maximum achievable control technology, or MACT, for a given source.
Overall, air emissions from refineries have declined in recent decades.
It should be mentioned at this juncture that while EPA has taken
steps intended to help streamline the permitting process for refineries
and other industrial sectors, certain legislative measures would have a
more significant and beneficial effect in the long run. The President's
Clear Skies cap and trade approach to reducing air emissions from
electric generating utilities would give our states a powerful,
efficient and proven tool for meeting health-based air quality
standards for fine particles and ozone.
EPA has projected that Clear Skies, in conjunction-with Bush
Administration rules cutting diesel engine pollution by more than 90
percent and other Clean Air Act programs, would bring most of the more
than 500 nonattainment counties into attainment with the new standards
without having to take any new local measures beyond Clear Skies. Thus,
to the extent Clear Skies provided for attainment of Clean Air Act
health-based standards, states and local governments would have a
lighter burden in putting together their local control strategies to
attain the National Ambient Air Quality Standards (NAAQS). This could
result in an increased ability at the state and local level to
accommodate new or expanded manufacturing or refining activities within
plans to meet the NAAQS.
clean water act
Refineries, like other facilities, are required to obtain a
National Pollutant Discharge Elimination System (NPDES) permit if they
discharge pollutants from a point source into waters of the U.S.
Similar to our Clean Air Act programs, EPA has authorized states to
issue NPDES permits with a few exceptions. The state programs closely
mirror the federal program, but some have additional requirements such
as public notice and comment periods or technical requirements that go
beyond the federal requirements. The federal program provides a number
of permitting flexibilities.
Last year, EPA finalized the pretreatment streamlining rule, which
amends certain provisions of the General Pretreatment Regulations
regarding oversight of industrial users that discharge to Publicly
Owned Treatment Works (POTWs). The pretreatment streamlining rule. will
reduce the regulatory burden on both indirect industrial dischargers as
well as POTW Control Authorities without adversely affecting
environmental protection. It will also allow POTW Control Authorities
to better focus oversight resources on industrial users with the
greatest potential for affecting POTW operations or the environment.
The reduction in regulatory burden is applicable to both existing
industrial users and to any new Industrial Users, including any new
refineries which choose to discharge pollutants to a POTW, rather than
directly to surface waters via a NPDES permit. One change to the
regulations specifically benefits refineries and organic chemical
manufacturers. POTWs are allowed to use concentration-based standards
rather than calculate mass limits based on a facility's wastewater
discharge. This revision will make it easier for POTWs to implement the
standards and for facilities to monitor their own performance.
The changes EPA recently adopted also provide another type of
flexibility to POTWs by authorizing them to use general permits instead
of an individual permit in certain circumstances. General permits cover
multiple facilities within a specific category. This type of permit
provides a cost-effective option for POTWs and permitting agencies
because of the large number of facilities that can be covered under a
single permit. For example, a large number of facilities that have
certain elements in common may be covered under a general permit
without expending the time and money necessary to issue an individual
permit to each. of these facilities. In addition, using a general
permit ensures consistency of permit conditions for specific
facilities.
resource conservation and recovery act
Refineries and other regulated entities that generate hazardous
waste are subject to waste accumulation, manifesting, and record-
keeping standards. Facilities that treat, store, or dispose of
hazardous waste must obtain a permit either from EPA or, more likely,
from a state agency that EPA has authorized to implement the permitting
program. States may have more stringent requirements than the federal
Resource Conservation and Recovery Act (RCRA) program.
It has been the EPA's experience that more recent petroleum
refineries generally are designed to only store materials in secure
containers and tanks for less than 90 days, so that they are most often
classified as generators only, and thus are not subject to RCRA
permitting. However, a few petroleum refineries do have RCRA permits
and in circumstances where a refinery expansion results in a change in
hazardous waste management, a permit modification may be required. The
modification process depends on the significance of the modification
and obtaining a permit can take 1-2 years, depending on complexity. A
temporary authorization (to start constructing the changes while
awaiting the modification approval) may be allowable in certain
circumstances.
The Agency has already taken steps to streamline the RCRA
permitting process. Specifically, in September of last year, EPA issued
the RCRA standardized permit rule, which allows certain waste
facilities to submit an abbreviated permit application. These newly
streamlined permitting requirements result in a shorter permitting time
line and shorter time lines for any subsequent permit modifications. It
is estimated that the standardized permitting process will save the
states and industry more than three million dollars a year.
h.r. 5254, the refinery permit process schedule, act
The Refinery Permit Process Schedule Act sets forth a number of
provisions intended to coordinate and expedite the refinery permitting
process. Section 2 of the legislation, the definitional section, helps
to define the scope of the law. The bill defines a ``federal refinery
authorization'' to include any authorization required under Federal law
relating to the siting, construction, expansion, or operation of a
refinery and includes all permits, licenses, and other relevant
official approvals. ``Refineries'' are defined to include facilities
involved in the production, storage, and transportation of crude oil,
coal, and biomass to the extent they are used to make gasoline, diesel,
or biofuel.
Section 3 of the bill authorizes the EPA Administrator, upon the
request of a Governor, to provide financial assistance to hire
personnel with technical, legal, or other expertise relating to the
permitting process under a federal refinery authorization. The section
also provides that upon a Governor's request, a federal official with
responsibility for such processes shall assist the State with its
consideration of the refinery authorization.
Section 4 of H.R. 5254 requires the appointment of a ``Federal
coordinator'' who is then made responsible to carry out certain duties
associated with refinery permitting. First, the Federal Coordinator--at
the request of a party seeking approval of a refinery--is required to
convene a meeting of relevant federal and state agencies responsible
for permitting or otherwise approving the refinery project.\1\ Second,
the Federal coordinator, with the participants at the meeting, is to
establish a Memorandum of Agreement (MOU) setting forth the ``most
expeditious coordinated schedule possible'' for completing refinery
authorizations. Third, if a state or federal agency is not represented
at the coordination meeting, the Federal coordinator is to ensure that
the MOU schedule accommodates the necessary Federal authorizations.
Fourth, the Federal coordinator is to ensure that all parties carry out
the MOU in ``good faith.'' Finally, the Federal coordinator is required
to undertake certain administrative duties to include publishing the
MOU in the Federal Register and maintaining a consolidated record of
all decisions.
---------------------------------------------------------------------------
\1\ Federal and state officials are required to cooperate with the
Federal coordinator, however, section 4 (b)(2) contemplates the
possibility that not all such officials may participate in the
coordination meeting.
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Section 4 also authorizes the refinery applicant or a party to the
MOU to bring a civil action in federal district court if a federal or
state agency fails to act on a Federal refinery authorization in
accordance with the schedule in the MOU where that failure would
jeopardize timely completion of the entire schedule. If, after
reviewing the actions of the parties, the Court finds such a failure,
the section provides that the Court may establish a new schedule for
completion of the permitting process, ``consistent with the full
substantive and procedural review required by Federal law.'' The. bill
requires expedited review of any such civil action.
Section 5 of the bill instructs the President to designate at least
3 military installations as potentially suitable for construction of a
refinery, and requires that at least one of the sites be specifically
designated for development of a refinery that processes biomass into
biofuel. Section 6 of the legislation provides that nothing within H.R.
5254, if enacted, affects the application of any environmental statute
or other law or bars the commencement of litigation under any
environmental statute or other law. Section 7 provides that H.R. 5254
serves to repeal the refinery revitalization subtitle approved as part
of the Energy Policy Act of 2005.
conclusion
The Administration supports House passage of H.R. 5254. As part of
his four-part plan to confront high gasoline prices, the President has,
called on Congress to simplify and speed up the permitting process for
refinery construction and expansion. H.R. 5254 includes measures to
simplify and expedite the refinery permitting process while maintaining
strong environmental standards, although the Administration notes that
the bill does not include codification of New Source Review rules that
would enable accelerated investments in efficiency at refineries. The
Administration encourages Congress to continue moving forward on
refinery legislation, and EPA stands ready to assist the Committee and
its Members in its review.
The Chairman. Right, Mr. Meyers. Just back up and talk to
the committee just a minute. Now, what does this bill--how does
this bill work? Outline for us what happens.
Mr. Meyers. Essentially, under the bill, if an applicant is
seeking a Federal refinery authorization, which is defined
within the act, there are several mandatory measures that flow
from that. The Federal coordinator is required first to convene
a meeting of representatives from Federal and State agencies
who are responsible for the refinery authorization, and then at
the meeting they shall establish a memorandum of agreement
which is to set forth the schedule. And then, after that, this
memorandum is published in the Federal Register and a
coordinator ensures that the parties working under the
agreement operate in good faith.
So what's really, I think, intended by the legislation is
that you have a central focus for permitting. You have a
Federal official who--as I mentioned, we have a number of
multimedia requirements that are applicable to refinery
permitting and construction, so it gives us a central locus at
the Federal level for consideration of those permit
requirements and establishment of a coordinated schedule for
all those requirements, which should hold. And if it doesn't
hold, then there is a court remedy to seek enforcement of that.
The Chairman. Now, is the court remedy the part of it that
is contentious, because it's Federal court?
Mr. Meyers. It may be contentious, depending on your view
of the proper venue. I think it should be seen most probably as
a contingency measure. Theoretically there is no need to resort
to court if the Federal coordinator establishes a schedule and
everything goes as planned. It happens in cases where the
schedule is not being adhered to, that's what gets you into
court.
The Chairman. In your own view, would this have a real
potential for getting this job done?
Mr. Meyers. I think the administration has supported any
effort which would help coordinate the process and simplify the
process, so we support this bill and we think it would be a
helpful addition to the current state of affairs regarding
permitting.
The Chairman. Are any laws protecting health waived under
this act?
Mr. Meyers. The statute contains a savings clause in this
regard, to provide that they are not affected by the passage of
the legislation.
The Chairman. I didn't hear that.
Mr. Meyers. There is a savings clause, I think, under the--
section 6 of the bill says ``nothing in the act shall be
construed to affect the application of any environmental or
other law.'' So essentially I think that's an attempt to
preserve the vibrancy of the Federal environmental statutes.
The Chairman. So the answer to my question is, there is no
obvious intent to violate, vitiate, or alter substantially any
Federal laws?
Mr. Meyers. No, no. The entirety of the legislation does
not amend any black-letter Federal law. It doesn't amend the
Clean Air Act, it doesn't amend RCRA, it doesn't amend the
Federal water act, so it has no direct amendment. And in
addition to that, it contains a savings clause saying that it
should not be construed to--
The Chairman. Got you. Now, based on that conclusion right
up front, do you believe that time will be saved if this is
done, as compared with following the existing law?
Mr. Meyers. Yes, we are supportive. We believe it could
allow for expedited consideration of permitting actions. We're
talking about a very complicated process. Since we haven't had
a green field or a new refinery application before us--there is
an exception to that in Arizona, obviously, and you will hear
testimony on that.
The Chairman. Yes.
Mr. Meyer. But it's not like we have years of experience on
how long it takes to permit a new refinery. However, we do know
that major modification and NSR permits can take on the order
of 12 or 18 months. They can be shorter and they can be longer
than that period.
Senator Allen. Say again?
Mr. Meyers. A major Clean Air Act NSR permit for a major
industrial facility generally takes 12 to 18 months. Now, they
can happen shorter than that, and many do, and in some cases
they can happen after that, but the thing to understand is,
that's after the complete application is submitted, and in the
case of several facilities, the time period--the pre-
application process is very important. A lot of work goes on
before the application is even submitted.
So I guess my point would be this: One shouldn't judge how
long it takes to permit a refinery from the time at which a
complete application is received. You have to consider the
entirety of the period and the burden that's put on the
applicant from day one when they're seeking to comply.
The Chairman. Right. Now, Senator, you mentioned in your
remarks and observations that as an ex-Governor you felt a
favor toward the Governor being a kind of a representative,
seeing to it that the application's made, that he's the leader
in the application. Now, that's not a fact present in the House
bill that's before us, correct?
Senator Allen. That is correct, Mr. Chairman.
The Chairman. You would rather have us change that, I take
it?
Senator Allen. I think it's an added precaution to make
sure that you are--clearly whenever a base is closed down, what
usually happens is there is a redevelopment authority and
they'll have all sorts of different ideas as to what to do.
Generally the communities are devastated because they're losing
a lot of jobs.
The Chairman. Correct.
Senator Allen. But I think it's very important, since we
will be dealing with State agencies also, and sometimes working
with Federal agencies, and as you said, you defer to the States
or the States to actually enforce Federal laws, so I think if
the Governor is in favor of it and makes that petition, that
ensures that the Federal Government is not coming in and
running over or supplanting its will over the will of the
people in that State.
The Chairman. Let us make sure, Senator, for the record
here, that the bill before us, as contrasted with yours, is not
a bill that is primarily devoted to former military bases, so
we would have a merging of things here. We could have a
military base location, as per your desires, as one aspect of
this bill, and then we could have a general one which is not
military sites, but rather just locating a site, which is what
this bill is; correct, Mr. Meyers?
Mr. Meyers. This bill actually has both elements. It does
have provisions with respect to identification of military
bases.
The Chairman. But not exclusively?
Mr. Meyers. No, it's not exclusive. It has section 4, which
I have mentioned before. In terms of the Federal coordinator,
it is apart from the Federal military base provisions of the
bill.
The Chairman. In any event, Senator, if we got around to
this, we could accommodate your wishes, too, I would believe,
if that's what the committee wanted.
Senator Allen. I believe so, yes.
The Chairman. I now yield to you, Senator, if you have any
further questions of Mr. Meyers.
Senator Allen. Yes. Mr. Meyers, the chairman asked most of
the questions that I was going to ask; however, let me just
follow up on some of them.
This legislation--and you haven't probably had a chance to
read mine, but regardless, this legislation does not circumvent
or weaken any existing Federal environmental protections with
regard to refinery permitting or regulation; is that correct?
Mr. Meyers. H.R. 5254, yes, it doesn't directly amend, and
it has a savings clause.
Senator Allen. All right. On permitting and the promptness
of permitting and air permits--this is again as Governor, Mr.
Chairman--we were able to get and recruit a semiconductor
fabrication facility, billions of dollars of investment, into
Virginia. They needed to get an air permit. We were able to get
it done in 28 days. That mattered to them. If somebody has
billions of dollars to invest, to be waiting a long time--they
said the best they had seen before was 90 days in Texas, and
they said if we were in California it would have taken a year
and a half, maybe, to do so.
Now, one of the ways to reduce the permitting time--you
were talking about how it all is done sequentially, would you
envision, with this memorandum of understanding--let's assume
this is on a closed base and the community said, ``We would
like to have a refinery here.'' And the refinery, by the way,
would not be paid for by the Federal Government. The Federal
Government would not be running a refinery. The Federal
Government has no expertise or competence in running
refineries. It would be a private company that would invest on
that site, run the refinery, and there might be several
applications.
However, would you envision, as opposed to the sequential
way that a lot of permitting is done, that you could have a lot
of the permitting and decisions being made concurrently, as a
way of reducing the length of time for a permit while complying
with all environmental and health laws and regulations?
Mr. Meyers. In terms of H.R. 5254, I clearly think that's
the intent, is to have a coordinated schedule. I would say that
there is coordination now, depending, project by project, and
there is a more informal process. This sets up a specific
process with one locus, the Federal coordinator, to run that
process.
Senator Allen. I think, Mr. Chairman, as a practical
matter, if we get this passed and in effect, what you'll have
out of the regulatory agencies, State and Federal, working
together, rather than a--sometimes permitting processes are a
``gotcha'' approach. Somebody makes a proposal and they say,
``No, that doesn't make it.'' There will be more collaboration,
saying, ``To meet this requirement, you will need to do this,''
so that when their permits are done and the different
requirements are done in a concurrent manner, that really does
reduce the time for approval of a permit. As opposed to just a
hit-and-miss approach, this would be one where there is more of
a concerted effort.
In your written testimony, Mr. Meyers, you mention that
most permits for refineries are issued by State and local
authorities. In your opinion, does EPA have the resources that,
if shared with the States and localities, could significantly
expedite the technical aspects of the permitting process?
Mr. Meyers. A lot of the permitting actions obviously are
coordinated at EPA at the regional level. The regional offices
which are down in the area, you know, region 6, region 4, that
have a lot of the petrochemical facilities, have staff and
experience in that regard, and they currently work in
cooperation with the State agencies.
We don't have--since they're down at the regional level, we
don't have a full list to give you of all the permitting
actions. Our estimate in the last 5 years is about 100 permit
actions with respect to refineries that have occurred, and they
have occurred in cooperation at the State and regional level.
Senator Allen. Well, let's assume this happens. Does EPA
have the resources to assist?
Mr. Meyers. I guess I should have been more specific. We
have been able to address the workload of about 100 permit
applications in the last 5 years, so I would anticipate we
would be able to handle, on an ongoing basis, that workload in
the future.
Senator Allen. Thank you, Mr. Meyers.
Thank you, Mr. Chairman.
The Chairman. Mr. Meyers, we're finished with your
testimony. You are excused, and we thank you very much. We may
be looking to you for further advice as we move along.
Mr. Meyers. And, as I said, the administration stands ready
and would be happy to provide any technical assistance to the
committee.
The Chairman. We thank you.
Senator, let me just suggest to you that it's obvious to me
that your notion of more Governor involvement fits nicely in
this, and it's not in it now. Need not I talk about what you
should do, but clearly to me you ought to be prepared to
suggest how that might better fit if that's what you think the
bill ought to be. It makes pretty good sense to me. I'm willing
to listen, so right off, let me tell you that would be--to me
it seems like to have a Governor in it right up front in some
strong capacity would be good. That's what you're saying,
right?
Senator Allen. Exactly, exactly. I think that the request
would come from the Governor. Seeing how as these are State
agencies that have the responsibility, I think that would make
a stronger memorandum of understanding as well.
The Chairman. OK. Now we're going to go on to the next
witnesses. Again, I want to thank the witness from the Federal
Government who just left us, and go on to panel two: Glenn
McGinnis, CEO of the Arizona Clean Fuel Yuma, Phoenix, AZ; S.
William Becker, executive director of STAPPA/ALA--how do we say
that?
Mr. Becker. ALAPCO.
The Chairman. ALAPCO, Washington, DC. Mr. Becker, welcome.
And Bob Slaughter, president, National Petrochemical and
Refineries Association. Thank you, all three.
First, I want to welcome the very broad-shouldered Mr.
McGinnis. Not really, but I say it figuratively, right? You're
the one who has been trying to build some new facilities, and
that makes us happy. Whether you succeeded yet or not is
another question, but we're going to listen to you today about
the bills and about the problems out there. So you're first.
Let's be as brief as we can, so we can talk a little. We'll
start with you, Mr. McGinnis, and then we're going to go right
on to you, Mr. Becker, and then to you, Mr. Slaughter, from the
National Petrochemical and Refineries Association.
Mr. McGinnis.
STATEMENT OF GLENN McGINNIS, CEO, ARIZONA CLEAN FUELS YUMA,
PHOENIX, AZ
Mr. McGinnis. Thank you very much, Mr. Chairman. First of
all, I'd like to thank the committee for providing the
opportunity to provide both written testimony and the
opportunity to address the committee and clarify my company's
position on two issues: First, on the chronology of events
related to the issuance, in April 2005, of the air permit for
our proposed refinery; and, second, on the key points addressed
by H.R. 5254, which is the subject of the committee's
deliberations today.
In my written testimony I address the critical issues
related to the development and approval of a new oil refinery
project, those being economics, technology choices, public
acceptance, and the permitting process. I will address only one
of these: namely, the process of permit review and approval
today.
First, let me address the chronology of the air permit for
our project, since I understand that there has been some
confusion on this item. A predecessor company of Arizona Clean
Fuels Yuma, the Maricopa Refining Company, developed a project
in the late 1980's and was issued an air permit for a small oil
refinery near Phoenix, AZ, in January 1992. For various
reasons, including changing fuel product standards, crude oil
pipeline supply issues, demand growth increases, and market
uncertainty, this permit was allowed to lapse.
During the mid and late 1990's a different and larger scope
project was developed for a site near Mobile, AZ. Discussions
with the Arizona Department of Environmental Quality began in
1998, and culminated in the submission of the initial permit
application in December 1999. This is the event that triggered
the extensive technical reviews and negotiations involved in
the development of the permit.
Identification of best available control technology for
each potential emission source, modeling of the ambient air
impacts of these potential emissions, and agreement on the
level of each identified pollutant is a lengthy process for a
facility with many potential emission sources, including large
furnaces, compressors, storage tanks, pumps, and even every
valve in some specific services. This process took until
September 2002, when the Arizona Department of Environmental
Quality deemed the permit to be administratively complete.
In the summer of 2003, the ADEQ advised the company that a
draft permit was nearing completion and would be issued
shortly. During this period, the extent of the ozone
nonattainment area for the Phoenix metropolitan region was
under review, and in the late summer of 2003 the Environmental
Protection Agency and the Arizona Department of Environmental
Quality expanded it to include large portions of Maricopa
County, including the proposed refinery site. This decision,
coupled with the growth of population in and around the town of
Maricopa, led the company to look at alternative locations for
the refinery.
In late 2003 the company proposed an alternative site and
agreed with the Arizona department to relocate the refinery to
Yuma County. The ADEQ agreed to transfer the bulk of the permit
work to date to the new site, and the company updated all of
its air modeling and airshed impacts for the new proposed site.
In April 2004 the company granted an extension in the
permitting time to ADEQ, who again deemed the technical
revisions and data complete. The company then documented all of
the final agreed-upon bases in the final permit application.
The draft permit was issued in September 2004, public meetings
and hearings held during the fall, and the Class I operating
permit issued in April 2005.
As I hope this demonstrates, there are several stages to
the application and permit development process that require
extensive technical reviews and negotiations among all of the
parties involved. The resulting permit is a complex document of
specifications, controls, monitoring requirements, and
reporting and compliance obligations. Throughout this entire
process, the ADEQ consults with many other Federal and State
agencies for input, reviews, and approval of the permit
requirements.
The Arizona Clean Fuels Yuma permit process was lengthy and
complex, but to be fair to those involved, it was extended by
mutual agreement between the company and the ADEQ due to the
relocation of the refinery site.
The second issue I would like to address briefly is the
content of the proposed bill, H.R. 5254.
During the development and finalization of our air permit,
the ADEQ consulted with and requested comment and approval from
many other agencies, Federal, State, and local. These agencies
also have full-time activities related to day-to-day
requirements, and review of a permit as complex and lengthy as
a new refinery air permit does not necessarily receive the
highest priority. Although the ADEQ attempted to coordinate
these inputs and reviews in a timely manner, many were delayed.
Also, the ADEQ's prime mandate is one of permit content.
That is, they must ensure compliance with all of the
requirements of the Clean Air Act, and local and State statutes
and considerations. Focus on the schedule of permit development
is not the primary function of any agency at this time.
As in any complex work process, having an individual
responsible for the process, its scheduling and resourcing, is
critical to success. The proposal within this bill to provide
this schedule focus through appointment of a Federal
coordinator and mandating a 90-day period for agreement to a
schedule will substantially improve the process of developing
and issuing permits. Certainly, although it is not spelled out
in the bill, it is assumed that the permit applicant and its
consultants are a party to the commitment to the schedule and
also carry obligations to meet these commitments.
The second key issue addressed in the bill is the need for
establishing and providing the resourcing required at the State
level. This provision of either funding or direct capability
will significantly help State agencies deal with conflicting
priorities when their staff time and experience are limited,
and will improve the State's ability to meet its schedule
obligations.
Finally, the provisions for enforcement when the schedule
and therefore the project are in jeopardy should provide
accountability to the process.
This proposed bill, H.R. 5254, includes these key
provisions which will improve the processes used to develop and
issue Federal permits related to new refinery projects in the
United States, and our company, Arizona Clean Fuels Yuma,
strongly endorses these provisions. Thank you.
[The prepared statement of Mr. McGinnis follows:]
Prepared Statement of Glenn McGinnis, CEO, Arizona Clean Fuels Yuma,
Phoenix, AZ
new refinery project permitting considerations and issues
The objective of this paper is to briefly highlight the key
considerations and issues involved in the corporate, government and
public decisions that must be made prior to the implementation of a new
oil refinery project in the U.S. and will focus on the process for the
development and issuing of Permits. Arizona Clean Fuels Yuma strongly
endorses the proposals in the Bill H.R. 5254, specifically:
1. The appointment of a Federal Coordinator who will act as
``Project Manager'' during the permitting process.
2. A mandated period of 90 days for establishment of a
schedule for the permit development work involving all agencies
with the Federal Coordinator ensuring compliance to this
schedule.
3. Analysis of the resources required by both Federal and
State Agencies to perform the required development and reviews
within the schedule--and the provision of Federal financial
support for agencies to meet their schedule obligations.
Background
The refining industry has successfully gone through a major effort
over the past decade to respond to changes in product fuel quality
mandated by Clean Fuels requirements. During this time, the industry
has met the growing domestic demand for petroleum products by limited
capacity expansions of existing refineries, and by imports. No new
major refineries have been built in the U.S. in over thirty years and
product imports have reached over 3.5 million barrels per day. Economic
growth in other countries has reduced the availability of products to
U.S. consumers and increased competition for imports. Major natural
disasters, such as Hurricanes Katrina and Rita of late summer 2005, can
have a major impact on the domestic supply and distribution of products
resulting in both shortages and price increases. Recent petroleum
product prices have reached and sustained record highs, driven by a
growing world-wide shortfall in petroleum products supply. There are a
number of reasons that this shortfall is a major concern for the U.S.,
most of which have been documented in abundance recently in the press.
It is perhaps sufficient to state that shortfalls create economic
hardship and slow the economy. It is also a strategic issue for the
U.S. as the growth in imports increases the threat of shortages and
embargos.
One of the major solutions to this growing shortfall is to provide
additional domestic refining capacity. The Energy Policy Act of 2005
provided economic incentives for domestic refiners to both expand
existing refineries and to develop new refineries. The Bill under
consideration by the Senate Committee on Energy and Natural Resources
(H.R. 5254) addresses the key issue of permit development and approval
which will assist in the advancement of new projects.
The problems and impediments preventing the growth and investment
for new refining capacity in the U.S. are significant and will be
discussed briefly below with particular focus on permitting and the
current proposed Bill. Despite this, a new refinery project, the
Arizona Clean Fuels Yuma (ACFY) project, has been under development for
many years and is currently finalizing engineering design consistent
with the final Air Quality Class I Permit issued by the Arizona
Department of Environmental Quality in April of 2005. This project will
be used below to highlight specific costs and permitting requirements.
New Refinery Construction Considerations
There are four general areas of consideration that drive the
feasibility and timing of new refining projects:
1. Overall Project economics driven by product values,
feedstock costs, operating costs, and the uncertainties
introduced by long lead times for engineering, permitting and
construction,
2. Technology choices driven by crude slate, target product
mix, legislated and target product quality requirements (and
projected changes)--a lengthy process of project development,
engineering and construction,
3. Public Acceptance--significant reluctance in most areas of
the U.S. to allow a new refinery ``in my back yard''. Public
communication and hearings processes are lengthy and often
confrontational,
4. Permitting processes for environmental permits, access
permits, construction permits and zoning, etc.--driven by
federal, state, and local legislation and zoning.
Refining Economics
Long term historical refining margins in the U.S. have, on average
and in general, not been adequate to support new refinery construction.
Returns on Capital Employed have been in the 5% to 7% range. Capacity
expansions and modifications have been economic due to leverage on base
infrastructure and facility investments. Recent refining margins 2 have
been significantly above the long term averages with the impacts of the
hurricanes of 2005, but especially because of the world-wide
competition for refined products. Current and proposed projects in the
U.S. and world-wide are expected to increase supply and may reduce
refining margins in certain areas in the medium to long term.
Refineries are, by their nature, very costly facilities which
require long lead times for engineering, permitting and construction.
The uncertainties of timing and cost, the major investments in planning
and early engineering, and concerns over protracted permitting process
and public opposition have deterred most companies from considering new
refinery projects.
The proposed Arizona Clean Fuels Yuma refinery which will produce
about 150,000 barrels per day of gasoline, diesel, and jet fuel
products, will cost over $2.5 billion with an additional $600 million
required for crude oil and product pipelines. Rapidly growing demand
for petroleum products in the southwestern U.S. and limited supply
alternatives make this project economic.
Technology Choices
The refining industry is not traditionally viewed as ``high tech''.
However, the need for high quality products and significant flexibility
to process wide ranges of crude oils, and the need to implement state-
of-the-art environmental controls, has led to the development of very
sophisticated processes. There are several process licensors and
choices for each type of facility that a refiner needs. Also, due to
the high cost of each process facility, extensive studies and
comparisons are required to match a refiner's products and processing
objectives.
One area where the industry has led in major technology
developments is in the ``Best Available Control Technology'' for
emissions as defined in and required by the Clean Air Act. Every
refinery modification and new process unit has required the development
and application of specific control technology.
The development of the Arizona Clean Fuels Yuma project included an
extensive analysis of emission sources and inclusion of the Best
Available Control Technology. This will be the first refinery where all
sources will be addressed at the same time in this manner.
Public Acceptance
A major hurdle to the construction of a new oil refinery is to
overcome the historic negative public perceptions of oil refineries and
to obtain public acceptance. Generally, the public has a ``not in my
back yard'' attitude to facilities such as oil refineries. Certainly,
refineries of the past have, to some extent, earned this reaction from
the public. Modern facilities have overcome the shortcomings of these
previous refineries. The refining industry has developed and
implemented emissions controls, operating practices, and outreach
programs to address the concerns of both government agencies and the
public. Certainly these programs and projects have increased costs, but
have been viewed by the industry as necessary.
Refineries have significant benefit to the public by generation of
both direct and indirect jobs and economic activity. Local communities
can benefit significantly from the operation of a refinery.
A new refinery, such as the Arizona Clean Fuels Yuma project, with
the control and monitoring required by current regulations will have
minimal impact on the surrounding environment with permitted emissions
less than half those of the best current refinery in the U.S. The
proposed location in Yuma County, Arizona, is remote from population
concentrations. The project has gained support from local and state
politicians and business leaders.
Permitting Processes
Certainly the most-often noted issue in new refinery construction
is that of the extensive permitting that is required. Generally,
permits are required from multiple agencies at the federal, state and
local levels. Also permits are required not only for the refinery but
also for pipeline and utility services to and from the site. The
permitting processes are lengthy and costly. Project developers are
also not in control of the pace and timing of permit review and issue
and this uncertainty can lead to project delays, cost escalation, and
uncertainties in financing.
The most extensive and important permit is often the ``Air Permit''
that is usually issued by the relevant state agency and outlines all
requirements for compliance to the Clean Air Act and New Source
Performance Standards with emission levels, reporting and Best
Available Control Technology requirements. The extensive scope of this
permit requires detailed air modeling, technical review of all
facilities, and agreement on the Best Available Control Technology. For
example, the Arizona Clean Fuels Yuma permit application was submitted
to the Arizona Department of Environmental Quality on December 22,
1999, and the Final Permit issued on April 14, 2005--a time period of
over five years. This period was protracted by both the extensive
reviews and negotiations for the permit and by a relocation of the
project site. The following timeline demonstrates the complexity of
both the siting decisions and permit reviews that were involved.
Timeline of the Arizona refinery project:
Summer 1998: work began on a Class 1/Title V air permit for a large
oil refinery to be located near the community of Mobile, Arizona. The
Arizona Department of Environmental Quality (ADEQ) was advised of the
work and negotiations began.
December 23, 1999: Arizona Clean Fuels Yuma submitted the initial
air permit application to ADEQ.
1999-2002: Negotiations on all the technical details of the
application (e.g. Best Available Control Technology, emission modeling
basis and requirements, performance monitoring and reporting) occurred
between Arizona Clean Fuels Yuma and ADEQ and their consultants.
September 4, 2002: ADEQ deemed the application to be
``administratively complete.''
Summer 2003: ADEQ advised Arizona Clean Fuels Yuma that work on the
application and a Draft Permit was nearing completion.
Fall/Winter 2003: State of Arizona expanded the ozone non-
attainment area for metropolitan Phoenix and included the area of
Mobile and the proposed refinery site in the expansion. As a result of
the expansion and new population growth, Arizona Clean Fuels Yuma
agreed with ADEQ to relocate the proposed refinery to a new site in
Yuma County, Arizona and transfer the bulk of the permit work that was
begun in 1999.
April 6, 2004: Arizona Clean Fuels Yuma agreed with ADEQ to extend
its permitting process and that the technical revisions and new data
for the Yuma site were complete. The company submitted the Final Permit
Application documenting all of the technical basis, air quality
monitoring results, and control technology as agreed with ADEQ.
September 14, 2004: ADEQ issued a draft permit and began a public
hearing and review process. Meetings and Hearings were held in Phoenix,
Yuma and Tacna, Arizona during the October to December, 2004 period.
April 14, 2005: ADEQ issued the final permit.
As the above demonstrates, the process of preparing such an
extensive permit as that required for a major oil refinery is lengthy.
Also there were factors involved with this specific project that
extended the time period even further.
One of the key issues in the development and finalization of an Air
Permit for a major facility is the review of the proposed project
emissions, controls, and impacts by other federal and state agencies.
For example the EPA, the U.S. Forest Service, the National Park
Service, the Bureau of Land Management, and the Arizona State
Department of Historical Preservation were consulted by ADEQ.
Fortunately many of these federal and state agencies review and comment
on the permit and project coincident with the preparation of the Final
Air Permit. However, all of these agencies have seen increased demands
on their time and reviews don't always meet the expected timeframes
thereby extending the permitting schedule.
In the western United States, for example, EPA Region IX
encompasses the most dramatic growth seen anywhere in the country.
However, large projects that would support and provide jobs and energy
supplies for that growing population can be held up for years by the
air permitting process alone. This Regional EPA office has a limited
number of technical staff members who must review and approve the air
permits for every project in California, Nevada, Arizona, Hawaii, and
Guam. Similarly, the National Park Service, Bureau of Land Management,
and U.S. Forest Service must compete for the services of only a few
federal staff members who have the technical expertise and
responsibility to review all proposed major source air permits for
projects across the entire western half of the country. This coupled
with the lack of regulated or recommended timing requirements for
permit issue leads to significant delays.
Finally, although industry recognizes the statutory requirement for
these agencies to ensure compliance with all regulations, there often
appears to be more attention paid to the concerns of a small minority
of constituents rather than a balanced review.
Although the Air Permit is one of the most important permits for
any project, there are many other rigorous permits that must be
obtained for both refinery and pipeline projects from a multitude of
agencies. For example:
NEPA Compliance from a controlling agency such as the Bureau
of Land Management
Land Use Permits from controlling agencies and jurisdictions
National Historic Preservation Act Compliance with reviews
by the State and related tribes
Access permits from Bureau of Land Management, U.S. Army
Corps of Engineers, and State Land Commissions as well as
private land owners.
Military Agency approvals if military facilities involved.
A listing of permits required by the Arizona Clean Fuels Yuma
refinery and pipeline projects shows about thirty permits required
excluding local zoning, access and construction permits. The majority
of these permits are not initiated until the Air Permit is issued,
since this permit finalizes the basis for the project. The timing of
these can be extensive and is estimated to be about eighteen to twenty-
four months. Although design engineering can be done in parallel to
these permitting activities, no significant construction can begin
until they are in place. Construction of a large refinery such as ACFY
proposes takes about three years. This sequential process results in
long lead times for project development and completion.
Specific Observations on H.R. 5254
With the above as background, the key observation is that the
permitting processes are extensive and involve multiple agencies at
various government levels. Several critical issues have been addressed
by the proposed bill and Arizona Clean Fuels Yuma strongly endorses the
following:
4. The appointment of a Federal Coordinator who will act as
``Project Manager'' during the permitting process.
5. A mandated period of 90 days for establishment of a
schedule for the permit development work involving all agencies
with the Federal Coordinator ensuring compliance to this
schedule.
6. Analysis of the resources required by both Federal and
State Agencies to perform the required development and reviews
within the schedule timeframe--and the provision of Federal
financial support for agencies to meet their schedule
obligations.
Conclusions
The refining industry in the U.S. has not constructed a new grass
roots refinery for over thirty years. Refining economics have generally
not supported new refinery costs and the industry has focused on
expansions of existing refineries. Major investments in Clean Fuels
production and regulatory programs have also absorbed much of the
industry capital. The total capital cost of an economically-sized
facility of about 150,000 barrels per day is approaching $3 billion.
The complexity of the refining processes and technology choices
results in lengthy project development times which can be one to two
years. Following this project definition, corporate strategic
decisions, public reviews, local government discussions, and multi-
level permitting process typically take four to five years before a
final ``go-decision'' can be made. Expediting these permit processes by
ensuring timely development and review is critical to progressing these
final decisions to meet the growing energy needs of the U.S. The
proposed Bill, H.R. 5254 will provide a focus on the schedule and
resource requirements to ensure timely completion of Federal permits.
The Chairman. Thank you very much, Mr. McGinnis. I'm having
a little bit of difficulty following you.
Mr. McGinnis. Sorry.
The Chairman. I don't know why that is. It's probably my
fault.
Now, Mr. Becker, will you talk into the machine and talk as
loud as you could, please?
STATEMENT OF S. WILLIAM BECKER, EXECUTIVE DIRECTOR, STAPPA AND
ALAPCO
Mr. Becker. Good morning, Mr. Chairman, Senator Allen. I am
Bill Becker, executive director of STAPPA and ALAPCO. These are
two national associations of clean air agencies in 54 States
and Territories and over 165 major metropolitan areas across
the country. We are very pleased you're having this hearing
today on H.R. 5254, since this marks the first time that
Congress will hear stakeholders' views on this bill, especially
from State and local governmental agencies responsible for
issuing permits to refineries.
While our associations understand the Congress's desire to
take swift action of some kind to address high fuel prices in
this country, we strongly believe that environmental permitting
requirements have been wrongly targeted.
The Chairman. Have been what?
Mr. Becker. Have been wrongly targeted.
The Chairman. In this bill?
Mr. Becker. In this bill. Not only is new legislation not
needed for expediting the permitting of refineries, we are very
concerned that the bill could have the opposite result and
delay the issuance of permits, as well as present other serious
consequences. Accordingly, Mr. Chairman, we oppose its passage.
Before addressing our specific concerns with H.R. 5254, we
wish to make two observations. First, we must challenge the
premise of this bill: namely, that State or local air pollution
permitting requirements are preventing new refineries from
being built or existing refineries from expanding. We believe
the facts prove otherwise.
According to the results of a recent survey, no State or
local agency has received a major air permit application for a
new refinery in the last 10 years, and according to EPA, only
one refinery has sought an air pollution permit in the last 30
years, and we've heard a little about that. With respect to
existing refineries, the survey found that once agencies
received complete applications, all but two of the major permit
actions for refinery expansions were completed within 1 year,
and half were completed within just 7 months.
These findings are consistent with those of the
Environmental Council of the States, which stated recently--and
I'm quoting--it was ``unaware of any credible report that
concludes that the time States take to review environmental
permits has been, or is, a significant impediment to the
issuance of refinery permits. We do not believe such
documentation exists.'' And even the refinery industry has
testified that environmental regulations are not interfering
with the construction of new, or the expansion of existing
refineries, and I have cited examples in my written testimony.
What the evidence appears to substantiate is that the
reason that new refineries are not being built in this country
is because of economic considerations, not environmental
permitting processes. In fact, the industry's preferred choice
for increasing refinery capacity is to expand existing
refineries, and as noted above, State and local agencies are
issuing permits for expansions in a matter of months, not
years.
Our second observation, Mr. Chairman, is that Congress just
11 months ago took steps to address perceived refinery
permitting issues in title II of the Energy Policy Act. Yet
rather than allow this new program the chance to work, H.R.
5254 repeals most of its provisions.
I'd like now to offer some of our specific comments on the
bill. First, we are deeply troubled by the bill's new layer of
permitting bureaucracy under section 4, and believe it could
undermine the State and local permitting process and delay our
review and approval of refinery permits, perhaps by many
months.
For example, the bill requires the President to appoint a
Federal coordinator who is allowed to take up to 3 months just
to negotiate a schedule for issuing a permit. And because the
schedule is judicially enforceable, State and local agencies
will need to devote many more staff and involve several other
offices, including the attorney general, in developing an
appropriate timeline, which could further delay permit
issuance.
In addition, if a party misses one of the judicially
enforceable milestones in the agreement, rather than working
the issue out cooperatively, as is typically done at the State
and local level, the bill encourages a cause of action to be
filed before the U.S. District Court, leading to a new court-
ordered schedule. This will undoubtedly create an adversarial
environment and lead to more delay and uncertainty.
All of these unnecessary procedural requirements will take
away time that refinery and agency staff could otherwise be
spending on the substantive issues of the refinery permit.
Second, we are very concerned that the bill preempts State
and local authorities, particularly providing the Federal
district courts, rather than the more appropriate State courts,
with exclusive jurisdiction over civil actions for failure to
meet a schedule.
Section 5 of the bill, which authorizes the President to
designate at least three closed military bases as potential
sites for constructing a refinery, also presents significant
problems. At issue is the extent to which the bill allows the
Federal Government, in this case the Secretary of Defense, to
force communities to accept construction of a refinery when the
community objects. We believe the decision to place an oil
refinery must be determined by the community, not the Federal
Government.
In conclusion, H.R. 5254 is unnecessary, will delay the
issuance of refinery permits, preempts State and local
authorities, and forces new refineries in communities that may
not want them. We oppose this bill, and urge you to do so as
well.
Thank you. I will be happy to answer your questions.
[The prepared statement of Mr. Becker follows:]
Prepared Statement of S. William Becker, Executive Director, State and
Territorial Air Pollution Program Administrators and the Association of
Local Air Pollution Control Officials
Good morning, Mr. Chairman and members of the Committee. I am Bill
Becker, Executive Director of STAPPA--the State and Territorial Air
Pollution Program Administrators--and ALAPCO--the Association of Local
Air Pollution Control Officials--the two national associations of clean
air agencies in 54 states and territories and over 165 major
metropolitan areas across the United States. Our associations' members
are responsible for achieving and sustaining clean, healthful air
throughout the country and hold primary responsibility under the Clean
Air Act for implementing our nation's air pollution control laws and
regulations.
STAPPA and ALAPCO commend you for convening this hearing to examine
H.R. 5254, the ``Refinery Permit Process Schedule Act,'' recently
passed by the House of Representatives. We are pleased you are having
this hearing since this marks the first time that Congress will hear
stakeholders' views on this bill, especially from state and local
governmental agencies responsible for issuing permits to refineries. As
you know, the House passed this bill without holding public hearings on
this issue.
While our associations understand the Congress' desire to take
swift action of some kind to address high fuel prices, we strongly
believe environmental permitting requirements have been wrongly
targeted. Not only is new legislation not needed for expediting the
permitting of refineries, we are concerned that H.R. 5254 could have
the opposite result, and delay the issuance of permits, as well as
present other serious consequences. Accordingly, we oppose its passage.
Before addressing our specific problems with H.R. 5254, we wish to
make two observations.
First, we must challenge the premise of this bill, namely that
state or local permitting requirements are preventing new refineries
from being built or existing refineries from expanding. We believe the
facts prove otherwise.
According to the results of a recent survey (June 1, 2006) of state
and local air pollution control agencies conducted by Congressman John
Dingell, Ranking Member of the House Energy and Commerce Committee,
``the environmental permitting process is not preventing new refineries
from being built or existing refineries from being expanded.'' Based
upon responses from 20 states, representing 77 refineries--or about
half of those in the United States--the survey summary revealed that:
None of the State and local agencies . . . had received a
major air permit application for a new refinery in the last 10
years. This is consistent with previous information from EPA.
EPA previously said that they were aware of only one proposed
refinery seeking an air permit in the last 25 years. According
to information from the Arizona Department of Environmental
Quality, two air permits have been issued for this proposed
facility. The State issued the initial air permit in 1992, but
the applicant let it lapse when financing could not be
obtained. The State issued a new air permit in April 2005, nine
months after a complete application was filed for the refinery
at a new location in Yuma, Arizona.
With respect to existing refineries, 12 of the 20 states reported
receiving requests for approximately 35 major New Source Review permits
for expansions to their refineries in the past 10 years. Once the
agencies received complete applications, ``all but two of the major
permit actions for refinery expansions were completed within one year .
. . and half were completed within seven months.'' This is also
consistent with previous EPA testimony (House Government Reform
hearings, September, 2000) that half of major permit modifications for
refineries were issued within five months and most others within a
year.
The Environmental Council of the States has reached similar
conclusions. In a letter (May 9, 2006) to Chairman Barton of the House
Energy and Commerce Committee, ECOS indicated it is ``unaware of any
credible report that concludes that the time States take to review
environmental permits has been, or is, a significant impediment to the
issuance of refinery permits. We do not believe such documentation
exists'' (May 9, 2006).
Even the refinery industry has testified that environmental
regulations are not interfering with the construction of new or the
expansion of existing refineries. In Senate testimony before the
Congress (November, 2005), the Chief Executive Officer of Shell stated,
``We are not aware of any environmental regulations that have prevented
us from expanding refinery capacity or siting a new refinery.'' In
addition, Conoco's CEO testified, ``At this time, we are not aware of
any projects that have been directly prevented as a result of any
specific Federal or State regulation.'' Finally, BP's CEO-concluded
``it does not believe that any Federal or state environmental
regulations have `prevented us' from expanding refinery capacity or
siting a new refinery.''
We believe the reason that new refineries are not being built in
this country is because of economic considerations, not environmental
permitting processes. In fact, the industry's preferred choice to
increase refinery capacity is to expand existing refineries, and as
noted above, state and local agencies are issuing these permits in a
matter of months, not years.
The second observation is that Congress, just ten months ago, took
steps to address this issue. Subtitle H of Title III (Refinery
Revitalization) of the Energy Policy Act authorizes the EPA
Administrator, at the request of a Governor, to enter into a refinery
permitting cooperative agreement with the state. Each party would be
responsible for identifying steps, including timelines, which it will
take to streamline the consideration of Federal and state environmental
permits for a new refinery. The new law allows the Administrator to 1)
accept from a refiner ``a consolidated application for all [EPA]
permits,'' 2) enter into agreements with other federal agencies to
consolidate refinery permits, and 3) enter into an agreement with a
state under which federal and state review of refinery permit
applications will be coordinated and concurrently considered. According
to Energy Secretary Bodman, (World Energy, Volume 8, No. 3) this new
Title of EPAct ``eases the constraints that have strangled new refinery
construction.'' Yet, rather than allow this Subtitle the chance to
work, H.R. 5254 repeals most of its provisions.
Now I will turn to H.R. 5254.
Section 4 of the bill appoints a ``Federal coordinator'' for
refiner permitting. This person is responsible for convening a meeting
of all federal and state agencies responsible for a refinery permit and
establishing a schedule for reviewing and taking final action on the
refiner's permit application, whether it is for a new refinery or a
modification to an existing one. The bill also requires the Federal
coordinator to maintain a complete consolidated record of all decisions
made with respect to the refinery. The bill provides the federal
district court in which the proposed refinery is located ``exclusive
jurisdiction'' over any civil action resulting from failure to meet a
deadline within the prescribed schedule.
STAPPA and ALAPCO have several concerns with this section of the
bill.
First, we are deeply troubled by the bill's new layer of permitting
bureaucracy and believe it could undermine the state and local
permitting process and delay our review and approval of refinery
permits, perhaps by many months. For example, Section 4 requires the
President to appoint a Federal coordinator who is allowed to take up to
three months just to negotiate a schedule for issuing the permit. And
because the schedule is judicially enforceable, state and local
agencies will need to devote many more staff and involve several other
offices (e.g., attorney general) in developing an appropriate timeline,
which will cause additional and substantial delay to the issuance of
permits. Furthermore, if a party misses one of the judicially
enforceable milestones in the agreement, rather than working the issue
out cooperatively--as is typically done at the state or local level--
the bill encourages a ``cause of action'' to be filed before the U.S.
District Court, leading to a new court-ordered schedule. This will
undoubtedly create an adversarial environment and lead to more delay
and uncertainty. All of these procedural requirements will take away
valuable time that refinery and agency staff--managers, professional
and legal--could otherwise be spending on the substantive issues of the
refinery permit.
Second, we and other state and local organizations are very
concerned with the preemptive elements of this bill. Last fall, for
example, six groups--the National Conference of State Legislatures, the
National Association of Counties, the National League of Cities, the
U.S. Conference of Mayors, the Council of State Governments, and the
International City/County Management Association--wrote the House
Energy and Commerce Committee asking that ``any proposed energy
legislation exclude provisions that would preempt state and local
governments' permitting processes for energy facilities and related
infrastructure, including refineries.''
Unfortunately, H.R. 5254 preempts state and local governments in at
least two areas. First, as described above, the bill provides the
Federal district courts, rather than the more appropriate state and
local courts, with ``exclusive jurisdiction'' over civil actions for
failure to meet a schedule. In addition, the bill preempts state and
local governments by establishing that memoranda of agreements setting
forth the coordinated schedule be ``consistent with the full
substantive and procedural review required by Federal law,''
irrespective of state or local procedures. If, for example, an existing
state or local law or regulation provides for a slightly longer public
comment period than the Federal coordinator deems appropriate (e.g., 60
days vs. 30 days), the state or local requirement would be preempted.
We are also concerned with Section 5 of H.R. 5254, which authorizes
the President to designate at least three closed military bases as
potential sites for constructing a refinery, and requires the local
redevelopment authorities to consider the feasibility and
practicability of siting a refinery on the installation. At issue is
the extent to which this bill allows the federal government--in this
case the Secretary of Defense--to force communities to accept
construction of a refinery when the community objects. We support the
statement of the Association of Defense Communities (May 25, 2006) that
H.R. 5254 ``does not give deference to the community's choice. H.R.
5254 makes no distinction between communities that would like an oil
refinery and those that don't. The decision to place an oil refinery
must be determined by the community, not the federal government.''
In conclusion, STAPPA and ALAPCO believe that environmental
permitting requirements have been wrongly blamed for preventing new
refineries from being built or existing refineries from expanding.
Congress just recently enacted provisions under EPAct to help expedite
the permitting of refineries and should give the new law a chance to
work. Our associations oppose the passage of H.R. 5254 because it is
not necessary, will delay the issuance of refinery permits, preempts
state and local authorities, and forces new refineries in communities
that may not want them.
Thank you for this opportunity to testify and I will be happy to
answer your questions.
The Chairman. Thank you, Mr. Becker.
We have about 5 minutes or 6 minutes before we have to
vote, before the votes close, but we're going to see if we can
get you in, Mr. Slaughter, before we recess and come back and
then inquire of all three of you. So would you proceed, please.
STATEMENT OF BOB SLAUGHTER, PRESIDENT, NATIONAL PETROCHEMICAL
AND REFINERIES ASSOCIATION
Mr. Slaughter. Sure, I will. And thank you, Mr. Chairman,
for the opportunity to be here today. Senator Allen, Senator
Salazar. NPRA is a trade association of the Nation's refiners.
Our members are basically all U.S. refiners, plus petrochemical
manufacturers.
We support this bill. We agree with you that the Nation
needs more refining capacity. We believe that the committee
should approve this bill. It's a modest but significant step
toward increased U.S. refining capacity.
I would just point out that the industry has had a lot on
its plate. We have redesigned all of our fuels. We have spent
billions of dollars for environmental improvements. At the same
time, although no new refinery has been built, we have added a
significant amount of U.S. refining capacity in the last 10
years. We have added 1.4 million barrels per day. It's the
equivalent of adding 10 average-size refineries over that
period. That has been added as expansions at existing sites
because you can do that more cheaply and economically and have
the product available earlier than you can with a new refinery.
We believe that the Government should do everything
possible to encourage people who want to take the risk to build
new refineries, and we're very happy that Mr. McGinnis and his
company are proceeding to do just that. One of the things I
will just say is there has been a lot of controversy about
issues affecting the refining industry this year. I have
testified at many hearings. But there is a general consensus on
the point that we need new refining capacity, which is what
this bill directly addresses.
I know you know as well, Mr. Chairman and others, that the
industry has already announced plans to bring on 1.8 million
barrels of additional capacity in the United States. Some say
it will be as many as 2 million barrels. Those are the plans at
this time. That will be a 12 percent increase, at the highest
number, of our U.S. refining capacity. Those additions at
existing sites will have to be permitted.
It seems prudent to us that reasonable action be taken to
discourage unnecessary delays in permitting new capacity
additions. This will encourage investment and speed its
completion. We think the important point isn't to debate
whether permitting delays have actually stopped projects. They
have slowed them.
The important thing is that there is room for improvement
in this business of granting permits, as there is in any
business, and it would be very helpful to have a statement from
the Congress that the national interest really requires
additional refining capacity, and there should be encouragement
for efficiency and timeliness in granting permits. That's
essentially what we're for. Several of our members have told us
of times in which they were trying to do things to expand
capacity, even put in an ethanol tank to comply with the
mandates now in reformulated gasoline, and faced significant
delays.
The good thing, as you have pointed out, is this bill does
not override State authority and does not change existing
environmental requirements. It is an optional procedure. If a
person trying to build a refinery or add capacity does not
choose to trigger this mechanism, it will not be triggered.
It's optional.
Two other points I would just mention very quickly. One,
the Governor certainly has to be involved, but I would ask you
to question whether Governors should have an outright veto
authority over use of this. They should be major participants,
particularly over the siting on military bases, but somewhere
the Federal interest in having additional refineries needs to
be placed before the States, and there has to be something done
to push that process along.
I look forward to your questions, Mr. Chairman.
[The prepared statement of Mr. Slaughter follows:]
Prepared Statement of Bob Slaughter, President, National Petrochemical
& Refiners Association
Chairman Domenici, Senator Bingaman and other members of the
Committee, NPRA, the National Petrochemical & Refiners Association,
thanks you for the opportunity to appear today to express our support
for H.R. 5254, the Refinery Permit Process Schedule Act. I am Bob
Slaughter, NPRA's President. The Association's members include
virtually all U.S. refiners and petrochemical manufacturers. As you
know, H.R. 5254 passed the House of Representatives on June 7, 2006, by
a bipartisan vote of 238-179 and has been referred to this committee.
NPRA believes that this committee should approve the bill, which takes
a modest but still significant step towards increased domestic refining
capacity.
NPRA also appreciates the bipartisan efforts of the Committee to
enact S. 2253, legislation that instructs the Department of the
Interior to sell oil and gas leases in Lease Area 181. Lying 100 miles
off the Florida coast and comprising 2.9 million acres, this area is
anticipated to provide the addition of much-needed domestic petroleum
and natural gas production. The nation's refiners and petrochemical
producers rely on predictable supplies of oil and gas to carry out
their operations, and increased supplies of domestic energy will help
provide natural has for use in refineries as fuel and in petrochemical
plants as feedstock. NPRA believes the Committee has approved a
sensible approach to offshore leasing that will increase domestic
supplies of oil and gas for the benefit of all the nation's consumers.
a recap of recent events
During the past few years the refining industry has been the focus
of much greater attention than ever before from federal, state and
local policymakers, as well as the media and general public. Most of
the public seems to be aware of the fact that our nation's demand for
refined petroleum products has grown considerably as a result of the
widespread economic expansion that has characterized our economy for
more than a decade. The fact that the nation's ability to meet this
increased demand from domestic resources has declined is also well
appreciated. Many congressional hearings have heard testimony from
various stakeholders discussing the reasons for the resulting tight
supply/demand balance in fuels market. Those who testified have also
recommended various policy changes that might address public concerns
about refined product supplies and prices.
At the same time, a multitude of state and federal investigations
have exhaustively reviewed gasoline market activities, either in whole
or in part, to ascertain whether any relevant price and supply concerns
can be attributed to illegal industry practices. They have found no
such behavior. The results of these studies have been controversial,
and policymakers have mostly taken sides according to their preexisting
views of the petroleum industry. Policymakers' views about the wisdom
of continued reliance on market mechanisms to assure sufficient energy
supplies have greatly affected their reaction to the investigative
findings.
Today marks the twelfth time that NPRA has appeared at
congressional hearings regarding fuels market in the past year and one-
half. We have also participated in many media and third-party
discussions of the nation's energy problems. Based on that experience,
I would like to share on behalf of the association a few observations
about fuels issues. They seem highly relevant to your consideration of
H.R. 5254.
market forces at work
First, the overwhelming number of federal and state investigations
into gasoline market activities at various times and in various places
over the past few years have reached the same conclusion: adverse
market conditions result from situations beyond industry's control.
Most often, price movements and supply concerns have been attributed to
(1) the impact of the international oil market on crude supply and
prices, (2) refinery equipment or pipeline outages, or (3) acts of
nature such as last year's two destructive hurricanes. Sometimes one
factor has been identified, often several. But these studies and
investigations have unanimously found that industry engaged in no
illegal activity. Exceptions are extremely rare and usually involve
isolated behavior by individuals at the retail level.
industry faces many challenges
Second, thorough consideration of the role of the refining industry
in these hearings and investigations has led to a general understanding
that the industry has greatly exerted itself to manufacture vast
quantities of refined products such as gasoline and diesel for the
domestic market while facing many challenges. What are these
challenges? For example, strong economic growth in this country over
the past decade and one-half has led to significantly increased demand
for transportation fuels and continues to do so. At the same time, the
industry faced a need for massive capital investment to meet
environmental regulations requiring emission reductions at our
facilities. The industry also had to launch the equivalent of a modern
Manhattan Project to redesign the entire fuel slate, resulting in
significantly cleaner fuels with sharply reduced emissions.
Many tens of billions of dollars have been invested in the U.S.
refining industry in the past two decades to meet increased demand and
achieve these important environmental objectives. Especially in the
decade of the 1990s, massive investments were made despite the fact
that the expected return on investment was only 5 to 6% at best, with
even less or no return on many environmental expenditures to meet
environmental requirements. New environmental specifications also
result in reduced volumes of products and higher refining and crude
costs.
As indicated on the attached charts, the industry still faces a
``regulatory blizzard'' of significant proportions in this decade as it
continues its contribution to environmental progress. NPRA estimates
that the industry will spend at least $21 billion this decade to meet
the environmental requirements on these charts. (Attachments 1 and 2)*
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* All attachments have been retained in committee files.
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industry has added significant refining capacity
Despite these challenges, and very slim returns on investment
compared with other industries, U.S. refiners added significant
capacity in the past decade. Between 1996 ands 2005, U.S. refining
capacity increased by 1.4 million barrels per day, the equivalent of
adding 10 average-sized refineries over that period. This capacity was
added in the form of capacity expansions at existing sites, which can
be constructed with much greater certainty and in a shorter period of
time than a new grassroots refinery. The latter requires many more
years to obtain necessary regulatory approvals, and investors must be
able to count on a much higher rate of return to offset the regulatory
uncertainties and delays that face such a project. The experience of
Arizona Clean Fuels (ACF) in this regard will be extensively discussed
by Glenn McGinnis at this hearing.
ACF is the only current new refinery project in the United States.
NPRA believes that public policy should help, not hinder, the efforts
of any entrepreneur who assumes considerable risk in seeking to build a
new refinery. But it is also necessary to recognize that capacity
additions at existing facilities offer a more predictable method to
provide greater supplies of transportation fuels in a reasonable time
frame.
increased demand resulted in higher prices
In recent years explosive economic growth in much of the world,
particularly Asia, has led to sharply increased demand for crude oil,
resulting in tighter worldwide supply and near-elimination of excess
crude production capacity. This factor, together with geopolitical
uncertainties affecting many producing countries, has resulted in
sharply higher crude prices over the past year.
Because the price of crude is responsible for roughly 55-60% of the
cost of making gasoline, the rise in crude prices has led to
significantly higher prices for gasoline as well. This fact, combined
with continuing strong demand for gasoline and other fuels in the
United States, has resulted in a tight U.S. gasoline market and a
higher price level for gasoline and diesel than has been the case in
recent years. The U.S. market has also been affected by logistic al
difficulties involved with the replacement of MTBE by ethanol in most
reformulated gasoline areas; ethanol prices that are significantly
higher than projected, and in the case of diesel, uncertainties about
the smoothness of the transition to new ultra low sulfur diesel (ULSD)
that began June 1. (Attachment 3)
The domestic refining industry confronting these challenges is one
that is still recovering from the effects of hurricanes Katrina and
Rita on the Gulf Coast heartland of our industry. Those storms
adversely affected operation of nearly one-third of the U.S. refining
capacity over the past year. As of January 1 of this year, 800,000
barrels of capacity were still idle due to the impacts of the
hurricanes. Some of the damage remains to be totally repaired, although
the industry has been largely successful through Herculean efforts to
return refining operations to normal.
profits in perspective
Higher product prices have resulted in significantly increased
profits for refiners in 2005 and 2006. Transportation fuel demand is
relatively inelastic, meaning that it is difficult for consumers to
reduce demand or find substitutes for those products, even when prices
increase. Studies show that consumers will eventually reduce demand in
response to higher prices, but it takes some time for this response to
kick-in. Analysts disagree as to how much, if any, reduction in demand
for transportation fuels we are seeing now or will see as a result of
current price levels. But given the size of the U.S. gasoline market,
the most important result is that transportation fuel demand has
remained quite strong and may remain so.
Higher profits for refiners and other sectors of the petroleum
industry have met with a firestorm of controversy, they do not appear
to be a subject of this hearing. Suffice it to say that NPRA believes
that the increased profitability of the refining sector in the past two
years will encourage new domestic capacity additions and help the
industry maintain its role as a major contributor to environmental
progress. This will involve highly desirable, but expensive, refinery
upgrades and expected fuel reformulations.
a consensus of opinion supports u.s. refinery expansions
Given these events, which have generated considerable controversy
and interest among policymakers and the public, it has been difficult
to identify a consensus of opinion on any issue--with one significant
exception. NPRA believes that there is a widespread consensus that the
U.S. needs more refining capacity, and that public policy should
encourage capacity additions. The remainder of our testimony
concentrates on that subject
increasing u.s. refining capacity
The refining industry is responding to the current supply situation
as well as significantly improved industry economics during 2005 and
2006. Refining companies have announced plans to add considerable
additional capacity to U.S. refineries in the near future. Secretary of
Energy Bodman recently stated that he expects at least 2 million
barrels per day of new capacity to be added to U.S. refineries.
Industry estimates are currently closer to 1.8 million barrels per day,
still a very significant number. This clearly indicates a likely
increase in U.S. capacity of between 8 and 12%, the latter of which
would bring total U.S. refining capacity to 18.6 million b/d. Much of
this capacity could be on line by the end of 2010. (NPRA has attached a
chart showing projected capacity increases and a list of announced
capacity additions. See Attachment 4
Interestingly, 18.6 million b/d was the total U.S. refining
capacity in 1981, when 341 refineries operated here, compared to 148
today. (Attachment 5) Don't be fooled by the higher 1981 numbers,
however. Most of the refineries that have closed since that time were
inefficient, unsophisticated facilities. Many of the small refineries
operating in 1981 were unable to produce any significant supplies of
gasoline because they lacked more sophisticated units needed for this
purpose. These facilities continued to operate only so long as the
1970's crude oil allocation and price control system was in effect. The
U.S. abandoned that program in 1981. The modern refining industry has
undergone extensive renewal since that time, fueled by billions of
dollars in new investment. And the current average refinery size is
roughly 115,000 b/d, compared to an average refinery size of about
55,000 in 1981.
In addition to new investment in capacity expansions, refining
investments also enable other significant projects. Some of these allow
facilities to handle sour and heavy crudes. These feedstocks are more
prevalent than light, sweet crude in today's market and result in cost
savings that can be reflected in product markets. Other investment in
processing units increases the yield of highly desirable products like
gasoline, jet fuel and diesel from each crude barrel
the domestic refining industry is committed to adding capacity
The high level of refining investment in the past decade and
planned refinery expansion projects demonstrate the commitment of the
U.S. refining industry to serving American consumers. Given this fact,
it is strange that some have accused the refining industry of a lack of
commitment to industry expansion. The truth is that the companies that
own U.S. refineries have spent and will continue to spend many billions
of dollars to expand their ability to use those facilities to provide
an adequate supply of transportation fuels to consumers at reasonable,
market-based prices.
Given the demonstrated commitment of the industry to expansion of
U.S. facilities and the consensus that exists regarding the need for
increased capacity as soon as possible, the question remains whether
anything can be done to further those objectives. Modest encouragement
for increased expansion and other investment, even perhaps in new
refineries, is clearly in the national interest. Additional U.S.
capacity, whatever form it takes, increases the supply of secure,
domestically-produced products to the American consumer.
Although product markets are increasingly global in nature, there
is a high probability that domestically-produced gasoline and other
fuels will be used in the United States. Currently only about 2 million
of the 20.5 million barrels of product consumed daily in the U.S. comes
from imports. The current points of origin for most of these are the
Caribbean, South America and Western Europe. These are relatively
secure sources of supply. In the years to come, however, many countries
around the world will experience higher rates of demand growth for
petroleum products than the United States. This will put considerable
pressure on the world market for petroleum products, leading to a
situation similar to that we face in today's crude market, where the
U.S. faces vigorous competition from China, India, and others for a
limited supply of available crude.
In the future, the U.S. will rely at least partially on imports of
gasoline and other refined products from the Middle East, particularly
Saudi Arabia, to meet demand. That country is currently planning to
construct two 400,000 b/d refineries, at least some of the output of
which will be sent to Europe and the United States. Obviously, Saudi
Arabia could easily decide to sell its products elsewhere, since it is
also well located to serve Asian markets. This possibility is just one
illustration of why it makes sense to retain a significant amount of
refining capacity in the United States, limiting our need for gasoline
and diesel imports. It is probably not necessary or advisable to meet
all U.S. product demand from U.S. refineries. But maintaining U.S.
refinery production adequate to meet between 80-90% of U.S. product
demand could prove a challenge in coming years, depending on the rate
of growth in demand for gasoline, diesel and jet fuel.
action is needed to streamline the permitting process
Given these considerations, it seems prudent that reasonable action
be taken to discourage unnecessary delays in permitting new capacity
additions or refineries. This will both encourage investment in new
capacity and speed its completion. Current uncertainties about the time
it takes to permit and actually construct refinery additions do affect
investment decisions.
Some steps have already been taken to eliminate uncertainties about
New Source Review (NSR) requirements that have had a chilling effect on
U.S. refinery investment in the past. EPA's 2002-2003 reform package
offered significant relief to refining projects with no increase in
actual emissions. Plant-wide applicable limits (bubbling), appropriate
treatment of repair and maintenance projects and adoption of a more
realistic test for measuring emissions impacts are important components
of that NSR package.
nsr reforms could help add capacity
Unfortunately, the se provisions are still subject to judicial
challenge, limiting their positive impact to date. Concern about NSR
interpretation still has an adverse impact on energy supply. For
example, opportunities to increase gasoline supply are lost because the
12-18 month NSR permitting timeframe is too long to allow companies to
take advantage of opportunities that arise to construct additional
product units during turnarounds. A major refinery in a non-attainment
area will have to seek approximately 2-4 major NSR permits a year.
These permits are necessary for preventative maintenance projects such
as replacing a tank or a pump, and may take 3 to 9 months to obtain.
More significant projects such as process debottlenecking and major
unit upgrades can take 2 years or longer to obtain the necessary
permit. Thus, a continuing commitment to NSR reform is necessary to
facilitate and encourage refinery expansions and other improvements.
a timely permitting process is essential
Considerable discussion and debate has taken place regarding the
importance of timely permitting to the refining industry and whether or
not precious time is lost due to bureaucratic delays during the
permitting process. Obtaining permits on a timely basis is essential to
the business of running a refinery, as it is to making improvements or
expansions or even building new facilities. The important point is not
to debate whether permitting delays have actually prevented completion
of certain projects. There is obvious room for improvement in the
permitting process, as in many government activities. The time required
to obtain a permit greatly impacts the cost of a project, first when
the project is under consideration by the company and later after the
decision to go forward has been made and the permitting process
actually unfolds.
It would be very useful to insert into the permitting process a
recognition of the fact that it is in the national interest to enable
refinery expansions and other projects to be implemented on a
reasonably expedited basis. Encouraging an efficient process makes
sense, especially when it can be done without changing any existing
environmental requirements and with due respect to the rights of state
and local government, as in H.R. 5254.
In our opinion, H.R. 5254 strikes the appropriate balance between
respect for federalism and encouraging efficiency in handling
permitting applications. Under this legislation anyone who has decided
to move forward with a refinery expansion project or even a new
refinery project may decide to take advantage of the federal
coordinator's help--or not to do so, as he or she chooses. The
coordinator merely acts as an expediter, establishing a reasonable and
coherent schedule for handling federal, state and local permitting
requirements for that project if asked.
States and localities cannot be forced to participate if they
choose not to do so. The coordinator cannot force any regulator to
decide whether or not a permit should be issued.
The coordinator also maintains a consolidated record to facilitate
judicial review of the activities undertaken pursuant to the agreed-
upon schedule. If a complaint pertaining to a particular schedule is
brought in federal district court, the behavior of all parties to the
MOU come under review, including that of the applicant. The court can
do no more than establish a new schedule if it agrees with the
complaint after reviewing the consolidated record.
a final note--please do no harm
As previously stated, the refining industry is striving to add
significant capacity in efforts to meet the ever-increasing consumer
demand for refined products, and this body is contemplating legislation
to perhaps streamline those and similar efforts. It must be noted,
however, that any additional costly and unnecessary burdens placed on
the refining industry will negate any benefits from permit
streamlining. More specifically, attempts to either increase the volume
of the renewable fuel standard (RFS) or accelerate the time frames for
compliance as enacted in the Energy Policy Act of 2005 would create
more uncertainty in an already volatile marketplace. Blending 7.5
billion gallons of renewables into the gasoline supply requires
considerable modification of the nation's supply, transportation and
distribution structure. The refining industry has already committed
significant resources and efforts into compliance with the government
mandate, and much more needs to be accomplished in the very near
future. Moving the goal posts and/or shortening the time periods is
neither sound policy nor fair.
In addition, requiring inclusion of E-85 pumps throughout the
nation's retail gasoline centers through legislative mandate as some
have suggested is simply bad public policy. The limited supply of
ethanol in today's market has resulted in rapid and significant
escalation of ethanol prices. See attached chart. When combined with
the many logistical and technical concerns of E-85 that must be
addressed before any widespread use is feasible, NPRA urges the
Committee to use extreme caution before requiring such a sweeping
policy change.
h.r. 5254 helps ensure a reasonable permitting process
To summarize, the process established by this bill appears quite
reasonable to us. It may well be the irreducible minimum that can be
done if Congress is to take any action to demonstrate concern about and
support for additions to domestic refining capacity. We note as well
that a portion of the House bill would require the President to
designate three closed base sites as possible locations for new
refineries (including one biorefinery). The Local Redevelopment Agency
in question is required to do a feasibility study of having such a
refinery on the site, but the clear intention of the legislation is not
to force refineries on areas that do not really want them.
It is unlikely in any case that a refinery owner would want to
locate a facility worth several billion dollars in an area in which the
facility is unwelcome. NPRA does not view this provision of the bill as
troublesome. Rather, it appears merely to emphasize the importance to
the nation of an increased supply of domestically-produced petroleum
products. In NPRA's opinion, the House-approved bill requires no one to
perform an action that either faces significant opposition or makes no
economic sense.
The nation's energy security can be advanced by encouraging
timeliness in decisions affecting refinery permits, even at the local
level. One NPRA member waited 14 months to obtain city approval of an
ethanol tank that was needed for a new fuels project. The process
required 5 public hearings, 3 of which were appeals. And the use of
ethanol in this instance was required by federal law, clearly
necessitating the ethanol tank. This is but one situation clearly
demonstrating that polite and respectful encouragement of responsible
and timely permitting could pay important dividends in the form of
increased energy supply. Accordingly, NPRA recommends and hopes that
this Committee will approve legislation similar to that recently passed
by the House.
I look forward to answering your questions.
The Chairman. Yes. Senator, did you want to ask a question
now, before we recess?
Senator Salazar. I think I had better go vote.
The Chairman. All right. We're going to do that. I think
Senator Allen will return before we do because of the way he
has planned it. If he does, he has permission to get started.
It may take us a little longer. In my case, I must attend an
off-the-floor meeting to vote, but I will return. In case I
don't and you come, you proceed. Is that all right with you?
Senator Salazar. Yes, Mr. Chairman.
The Chairman. All right. Thank you all, and please stay
here because we have to finish out our record with a few
questions. Thanks very much.
[Recess.]
Senator Thomas [presiding]. We will try and get started
again. As you know, we're being interrupted by this voting
business. I can't imagine why. In any event, why don't we go
ahead. Senator Allen has been here, so why doesn't he go ahead
with his questions, and then we'll move forward.
Senator Allen. Thank you, Mr. Chairman.
Mr. McGinnis, in your testimony you were giving the
perspective of a business investor, and I know you are
supportive of the legislation. If you, from your perspective,
and not all business investors think alike, but if this were
signed into law, this measure or something close to it, do you
think that potential industry investors would be more likely to
construct new domestic refining facilities?
Mr. McGinnis. I think it would help remove the
uncertainties. Mr. Meyers from the EPA mentioned earlier, one
of the key issues has always been the economics, and the
economics are driven by not only the marketplace as it exists
today but also people's perception of what it would be in the
future when they get their facility completed. And these
facilities take a long time to engineer, develop, construct, et
cetera, and the permitting process as it becomes protracted can
extend that period, and just increases the uncertainty.
So the more that can be done to reduce the time period
between the decision to actually consider a refinery project
and complete it, the less the uncertainty, the more probable
that someone, a business organization or person, is going to
consider actually spending the billions of dollars required to
put in these facilities. So it's not the onerous task of
developing the permit, it's the uncertainty around the time
it's going to take to reach a conclusion on the permit and
actually be able to progress to the next step.
Senator Allen. Mr. McGinnis, one of the other reasons
undoubtedly, and I think you have kind of mentioned it, was one
of the four factors to deter construction of a new refinery
project was people simply didn't want them near where they
live. To put a refinery near a residential area, people are not
going to want to have a refinery near a residential area. They
are probably more likely to be accepted in a place where it's
not residential or it's not developed.
The measure that I have introduced focuses on designating
military bases that are closed through the BRAC process, and
with the Governor applying and so forth, and one of the things
about the sites of military bases--not all military bases, but
many of them usually have the roads in place, they have
infrastructure to facilitate the base. The redevelopment
authority for a closed military base may want to negotiate a
long-term lease. They may want to maybe even deed the land
over. But some of the costs would be less.
And in some cases, not all, where the military bases have
been closed, the military base, particularly in some cases that
was a major economic factor and impact in a community that has
supported the base, and now they're concerned--what is this
going to do to jobs in their area? It can affect everything
from stores to restaurants to everyone in the whole community.
Do you think that if a BRAC community received a
designation as a potential site from the President, again in
accordance and agreement with the Governor that they really
wanted to have that there, a well-managed, environmentally-
responsible refinery, do you think that that sort of an
approach would draw interest from investors to say, well, here
is a facility in whatever the town is, a nearby town in such-
and-such a State--do you think that that would draw interest
from investors?
Mr. McGinnis. I think it would. I mean, to me the decision
to site a refinery in a specific location is not based on the
price of the property or whether it's available or not. Usually
it's based on a lot of other criteria, one of which is
obviously the impact on the local community and acceptance.
Military bases tend to be large facilities, so that the
actual property near a refinery on that kind of facility can be
controlled in terms of not having people build right next to
refineries, which from personal experience they do, and then
they complain about the refinery being there. So having some
control over the local property around the facilities is
worthwhile.
The economic impact is obviously very beneficial. If people
have lost a significant economic opportunity through that, from
my point of view, they could or should perceive that there is
an economic opportunity in this.
Certainly the technology exists today to build a very, very
environmentally acceptable refinery. We have one of those
permitted in the permit here. It's a very low emission facility
and is very acceptable.
The key concern or the key issue that comes up with
military sites is, the decision to locate a refinery is based
on logistics and market accessibility, not land being
available. It needs pipeline access, it needs rail access, it
needs the ability to acquire and house skilled people to
operate the facility, et cetera. It's more the logistics and
the accessibility to marketplace that drives the location.
Certainly there are many, many military establishments in
this country. There must be some that meet those kinds of
criteria, and when they are found, I think they should be
identified and investors given the opportunity to do that.
Senator Allen. Thank you, Mr. McGinnis.
Mr. Slaughter, let me ask you the same question I did Mr.
McGinnis. In your opinion as a representative of the refining
industry, will this legislation, if it were signed into law, or
something close to it, make current refiners and potential
industry investors more likely to construct new domestic
refinery capacity?
Mr. Slaughter. Yes, I believe it will, Senator. It removes
some uncertainties in the process. The problem now is that you
undertake tremendous risks if you want to build a new refinery.
You don't know--you get your investors together, there are up-
front things you have to do with your money, and you don't know
whether you are going to get a permit and be able to have a
refinery built for 10 years or more. And the schedule that is
put together under this process will eliminate some of the
uncertainties, and should be an encouragement.
Senator Allen. Now let me refer back to the--
Senator Thomas. Your time has expired.
Senator Allen. My time has expired? All right. Well, on the
second round, then, I guess.
The Chairman. Senator Thomas?
Senator Thomas. Thank you. Mr. Slaughter, I have a couple
of questions for you. You discussed the successful efforts of
increasing the capacity despite closing a quarter of the
refining facilities; do we run into a diminishing return at
some point? What are the upper limits of what we can do with
the current operational sites?
Mr. Slaughter. Well, you know, technological change is a
marvelous thing, and some folks in the industry think there's
almost an unlimited amount of things you can do in an existing
site, but obviously I think you would have to say it is limited
at some point.
But the difficulty with getting new sites for new
refineries has been significant. One of the things that I
mention in my testimony is, a new refinery you know is going to
be worth $3 to $5 billion. It's very difficult to put something
like that somewhere where the public doesn't want it.
So a lot of these things have to be taken into account. But
I do point out in my testimony, Senator Thomas, that the
refineries we have today, albeit fewer in number than we had in
1981, are far more sophisticated, the most sophisticated
refining industry in the world. But we think also that you
should be able to build refineries in the United States if
you're willing to take the risk and do so, as Mr. McGinnis has
been willing to do that, and we think public policy should
encourage it.
Senator Thomas. Good. Well, I hope so. I think the fact is
that, according to one of these charts, the capacity in 1981
was greater than it is now.
Mr. Slaughter. That's correct.
Senator Thomas. And the demand is much higher, and it's
having some impact, for instance in Wyoming, selfishly. It's
having something to do with the cost of producing and selling
the oil that we have available. And part of it is the capacity
of pipelines, part of it is the capacity of refineries.
Mr. Slaughter. Yes. You know, the industry, as I mentioned
in my testimony, has announced about 1.8 million barrels a day
in new capacity that they plan to bring on. That will take us
right back up to that 18.6 million barrels per day capacity
that we had in 1981. We had a lot of spare capacity then
because our demand wasn't nearly that high. And that was a less
sophisticated industry and wasn't able to do what our
refineries can do today. But clearly I think it shows that we
do need additional refining capacity, whatever form it takes.
Senator Thomas. Right. I think so. I think in his testimony
Mr. Becker cites the lack of applications for new refining
construction. Do you believe that's an accurate measure of the
desire to build these facilities?
Mr. Slaughter. I don't think it is. I think that if there
were a feeling that there was a process that was more
responsive to the needs of someone who wanted to take that
risk, some more applications would be filed. I've been around a
long time. I remember people were trying to build a Hampton
Roads refinery in the 1970's. Public opposition killed that,
really. And then there was a long hiatus because it's just--I
mean, the feeling has been that it is impossible to site large
industrial facilities in much of the United States.
Senator Thomas. Yes. My understanding is part of it was
that there were less environmental restrictions on expanding
than there was on a new plant.
Mr. Slaughter. That might be true in some cases, but most
of the expansions are going to have the best available control
technologies. A new plant, certainly like Mr. McGinnis's, will
be completely modern, the very latest.
Senator Thomas. Sure.
Mr. Slaughter. But the industry takes very seriously the
responsibility to have the latest controls on the capacity
expansions.
Senator Thomas. Are there opportunities to stimulate
construction, perhaps, that are not included in today's
legislation? Can you give us some examples of regulatory or tax
or financially related measures that would be more conducive to
refinery building?
Mr. Slaughter. Well, one of the big problems has been what
do you do that is in keeping with federalism requirements and
also environmental restrictions. I mean, we have suggested
other things. People have always said we don't want
environmental restrictions to be waived, and we want the role
of the States to be taken into account. That limits you in what
you can do, and perhaps this legislation is as much as you can
do in that regard.
Now, as part of the Energy Act of 2005, there was a
provision in that that allows expensing of investments in
refining for a limited period, which is very helpful.
Senator Thomas. Yes.
Mr. Slaughter. And that, with this provision, should do a
lot of good.
Senator Thomas. You know, one of the frustrating things for
some of us is we hear, and properly, about the cost of energy
and the cost of oil, but the fact is we have some oil being
produced, we have oil that can be produced at less expense than
what we're seeing on the marketplace, and it's because of
restrictions on pipeline capacity and refining capacity. We're
able to produce more, and much of it in our State is selling
for much less than that market price that you see because
there's not a process for doing it. So that's kind of a
challenge, it seems to me. If we look at what's causing the
price to be as high as it is, you have to consider that some of
it is the operations between production and retail.
Mr. Slaughter. Yes, sir, and I think the point you made
earlier, that the fact that no permit applications have been
made for a new refinery really doesn't indicate that one would
not be if there were a better environment for them.
Senator Thomas. For the permitting.
Mr. Slaughter. Regulatorily. Yes, for the permitting.
Because, for instance, Motiva, one of our members, is going to
add 325,000 barrels a day at its existing facility in Port
Arthur, TX. That is the biggest of all the capacity additions.
It's the equivalent of building a whole new refinery.
And just this week, three environmental groups in that area
announced that they were going to challenge the petition. The
fellow behind it, his quote is, ``Permit approval is quite a
long process without a challenge. With a challenge, the permit
just goes to the bottom of the pile and stays there for a long
time.''
Senator Thomas. Yes, understood.
Mr. Slaughter. I think that speaks volumes.
Senator Thomas. It does. Thank you, sir. Thank you, Mr.
Chairman.
The Chairman. It looked like you wanted to comment, Mr.
Becker.
Mr. Becker. Thank you, Mr. Chairman. I can't let this
conversation end without addressing this issue of uncertainty.
The Chairman. Of what?
Mr. Becker. Of uncertainty, as Mr. McGinnis and Mr.
Slaughter have mentioned. There is an uncertainty with refinery
expansion and construction concerning public health, and it's
incumbent upon government, not just the Federal Government but
State and local governments, to ensure that the air that the
public breathes is safe. That is why you all passed an
incredibly successful Clean Air Act in 1970 and in 1977 and
1990, and included in it a process that required industries,
only if they increased pollution significantly--only if they
increased pollution significantly--to go through a process that
the data--not rhetoric, but the data--shows takes months, not
years.
The reason that the Yuma facility did not go forward was
not because the agency didn't act promptly on the permit, it's
because the industry yanked the permit. It's because the
industry didn't have an appropriate air quality analysis. And
once the State received all the appropriate information
required under the Clean Air Act, the State proceeded very
quickly.
And if I can just quote one article, a newspaper article,
Mr. McGinnis was quoted as saying in the newspaper article in
Arizona that the Arizona Department of Environmental Quality
``has been very cooperative in working with us to make sure the
project does proceed,'' and the article quoted Mr. McGinnis as
saying, ``The biggest delay has been securing title to the
land.'' And so it's really not fair to say that there is
evidence that permitting new refineries or permitting
expansions is interfering with this industry's expansions.
One final point, if I may. The biodiesel industry hasn't
had the problems that the refining industry here has had. They
have built. They have permitted 18 new expansions in the last 2
years. They have gone through the same process that the
industry would go through, and they were successful because
they came in with the appropriate applications and the States
responded accordingly.
The Chairman. Now, Mr. McGinnis, in your testimony you
indicate that the long-term historical refining margins in the
United States have, on average and in general, not been
adequate to support new refining construction. We all
understand that. That had been the case for a long, long time.
That has also been the case in many other aspects of the
industry on the down side, but that has changed. That condition
is changing, is it not?
Mr. McGinnis. Yes. Current margins--
The Chairman. Are economic conditions more favorable now to
the investment in new refineries?
Mr. McGinnis. Very much so, yes.
The Chairman. So that's no longer--for those who say--as we
look for some reasons to expedite, that's no longer an excuse,
that we don't need them or that the economics aren't there.
That's gone, so we're now looking head-on to what is holding
them up aside from that; right?
Mr. McGinnis. Well, the fundamental issue is, margins are
good today. They were not good 10 years ago, and they may not
be good 10 years from now when the facilities startup. I mean,
it's again the timing risk associated with the uncertainty of
what will be the future.
The Chairman. All right. Now, in your discussion of
``public acceptance''--public acceptance, which is the whole
issue--you state that your project has gained support from
State and local politicians and business leaders. Do you
believe that you also have the support of the general public?
And if so, how did you go about achieving that so-called
acceptance which is so necessary?
Mr. McGinnis. Well, we have had a lot of public meetings in
Yuma County. The local community worked with the business
leaders, worked with the local farm community, et cetera. When
we held public meetings, people came to the meetings wearing
buttons that said ``I support the refinery.'' The majority of
speakers speak in favor of the refinery.
We have pointed out very clearly the economic benefits. We
have also pointed out the fact that this is the cleanest
refinery ever designed. We have stated very clearly we accept
the responsibility to build it in compliance with the permit
and to operate it in compliance with the permit.
We have, with the ADEQ, done a complete analysis of the
impacts of our facility and its potential emissions on the
local agricultural community, which is one of the big concerns
they have there. We have addressed the public concerns very,
very openly, at all of the public meetings that we have had.
That doesn't mean everyone stands up and cheers. There are
people who are against having an oil refinery in that area, but
the majority of people speak in favor of our project.
The Chairman. So, through a process of getting the facts
out as to what's going on, you have convinced what you think to
be the majority of the people that this is a good economic add-
on, just like any other growth adds to the economic environment
of that area; is that correct?
Mr. McGinnis. That's correct.
The Chairman. Now, how are you proceeding at this point?
Can you report to the committee how things are going?
Mr. McGinnis. Yes. The air permit that was issued last year
is being reissued by the Arizona Department of Environmental
Quality.
The quote that Mr. Becker said that I made around the land
is true, but that was a quote of several months ago related to
a situation that developed after the permit was issued. We have
been unable to secure the property because of a delay in its
transfer from the Federal Government to the local irrigation
district. That is still not completed, and it should have been
completed many years ago.
The DEQ has been very cooperative with us in reviewing the
permit. It has been completely rewritten, gone through again,
all of the requirements have been resubstantiated, and it will
be reissued hopefully by the end of September. We had a public
hearing in the local community last week. The majority of
people spoke in favor of the permit renewal at that point in
time. So that process is underway.
We are currently in negotiations, discussions with several
groups to fund the project. We've completed our technical
updates, and we're proceeding toward engineering next year and
start-up in 2011.
The Chairman. Doesn't it seem like an awful lengthy, long,
extended process at best, sir?
Mr. McGinnis. It is a major undertaking. I've had the
opportunity to do something similar to this, previously. I
rebuilt a refinery in Louisiana, a project where we completely
refurbished and restarted a facility in the late 1990's. It's a
major undertaking. We had the finance community behind us, and
we had the local community behind us. We were able to secure
the kind of people we needed to execute the project and build
it, and today that's a highly successful refinery. So it is a
very lengthy and extensive undertaking.
The Chairman. Are you confident you're going to get there,
sir?
Mr. McGinnis. I am, yes.
The Chairman. Nonetheless, can you, as an experienced hand,
look at the proposed new law and suggest to us whether it might
be helpful if we had this new law in existence instead of the
one you had to operate under?
Mr. McGinnis. Well, as I said, to me the key issue is
commitment to the schedule.
The Chairman. Commitment of what?
Mr. McGinnis. Commitment to a schedule for the issuing of a
permit. There are a lot of obligations in the Clean Air Act and
all the other acts that need to be reviewed for permits that
need to be issued. And what's critical to industry, and I
believe critical to government agencies, is ensuring that there
is certainty around what's going to happen, who is going to do
it, and when.
To me, that is a failing of the process today, that there
is nobody who acts as project director, project manager, who
drives the schedule. That doesn't mean compromises will be made
in the requirements. That's not the intent behind the law.
That's not the intent behind my support, our industry's support
for this bill. It's very clearly support that we believe that
someone needs to be accountable for driving the process to
ensure that it's done in a timely manner.
The Chairman. Now, having heard that, Mr. Becker, why would
you oppose that?
Mr. Becker. Because Mr. McGinnis--and I don't think he's
doing this intentionally--seems to be suggesting, or one might
infer that this uncertain process is almost totally due to
State and local permitting uncertainty.
And if I may, Mr. Chairman, I would like to submit a
chronology. I'm not an expert on his refinery, or I hadn't been
until the last 6 weeks, but I now have a chronology of events
from the very beginning until now that not only documents the
amount of time that the permitting authorities have spent on
this permit, but it also documents the amount of time that the
refinery--for very good reasons, for securing financing, for
securing land, for doing things that have nothing to do with
your bill--have spent on this.
And I know Mr. McGinnis isn't directly suggesting that
these delays are entirely on the shoulders of permitting
authorities, but we don't need Federal legislation to deal with
the kinds of permitting issues--not land or other issues, but
environmental permitting issues--that this does.
So, if I may, I would like to submit this for the record,
because I think it really is helpful in understanding where the
delays are actually occurring.
The Chairman. Of course.
[The information referred to follows:]
CHRONOLOGY OF DOCUMENTS FOR ARIZONA CLEAN FUELS (A.K.A. MARICOPA
REFINING COMPANY)
------------------------------------------------------------------------
Document Title Issuance Date
------------------------------------------------------------------------
Air Quality Installation Permit Number January 16, 1992
1228.
Synopsis: Permit issued to Maricopa
Refining Co. (a.k.a. Arizona Clean
Fuels) allowing construction and
installation of equipment.
Class I Permit Application Cover Letter... December 23, 1999
Synopsis: Cover letter from Dames and
Moore (now URS Corporation,
a.k.a.Arizona Clean Fuels'
contractor, applying for a new air
quality installation and operating
permit.
Permit Application Incompleteness Letter.. January 31, 2000
Synopsis: Letter from Arizona ADEQ time: 39 days
Department of Environmental Quality
(ADEQ) to Arizona Clean Fuels
requesting additional information in
support of the December 23, 1999,
permit application.
Memorandum Regarding Preliminary BACT March 17, 2000
Review.
Synopsis: Comments from RIP ACF time: 46 days
Environmental Associates TP), ADEQ's ADEQ time: 46 days
contractor, to ADEQ, Arizona Clean
Fuels and URS regarding the Best
Available Control Technology (BACT)
review performed in the December 23,
1999, permit application.
Revised Sections of Permit Application June 29, 2001
Cover Letter.
Synopsis: Letter from URS to Arizona ACF time: 469 days
Clean Fuels and ADEQ responding to
some of the comments in RTP's March
17, 2000, memorandum.
Memorandum Regarding Preliminary BACT August 2, 2001
Review.
Synopsis: Additional comments from RTP ADEQ time: 39 days
to ADEQ, Arizona Clean Fuels, and URS
responding to IRS's June 29, 2001,
submittal.
Permit Application Addendum Cover Letter.. October 31, 2001
Synopsis: Cover letter for a new ACF time: 90 days
application addendum submitted by (639 days since
URS, containing some responses to 1/31/00)
RTP's August 2, 2001, comments, as
well as some information requested in
ADEQ's January 31, 2000,
incompleteness letter.
Permit Application Addendum Cover Letter.. November 16, 2001
Synopsis: Cover letter for a new ADEQ time: 116 days
application addendum submitted by
URS, containing additional responses
to RTP's August 2, 2001, request for
information.
Permit Application Addendum Cover Letter.. March 14, 2002
Synopsis: Cover letter for a new ACF time: 118 days
application addendum submitted byMIS, (773 days since
containing additional responses to 1/31/00)
RTP's comments, as well as some
information requested in ADEQ's
January 31, 2000, incompleteness
letter.
Response to Comments Letter............... April 24, 2002
Synopsis: Letter from URS to RTP ACF time: 41 days
supplementing the October 2001,
November 2001 and March 2002 permit
application addendums.
Permit Application Completeness Letter.... September 4, 2002
Synopsis: Letter from ADEQ to Arizona ADEQ time: 133 days
Clean Fuels, indicating that, based
on all the information received on or
before August 23, 2002, the
application was deemed complete.
Letter Regarding Predicted Impacts on September 5, 2003
Nearby Community.
Synopsis: Letter from Gallagher and ADEQ time: 366 days
Kennedy, Arizona Clean Fuels' Work stops at ACF's request
attorneys, explaining the company's
willingness to relocate a local
school and community center in order
to minimize predicted impacts on the
nearby community.
Draft Permit ready for proposal by ADEQ... September 5, 2003
Letter Regarding Relocation of Proposed October 30, 2003
Refinery.
Synopsis: Letter from Gallagher and ACF time: 55 days
Kennedy to ADEQ explaining Arizona
Clean Fuels intent to relocate the
proposed project to Yuma, Arizona,
and that a new, site-specific permit
application would be resubmitted in
the future.
Letters Regarding Licensing Time Frames... April 5-6, 2004
Synopsis: Letters between ADM Arizona ACF time: 159 days
Clean Fuels, Office of the Attorney
General, and Gallagher and Kennedy,
agreeing to restart the permitting
timeframes upon receipt of a new
permit application.
New Application Cover Letter.............. July 14, 2004
Synopsis: Cover letter from URS ACF time: 99 days
Corporation on behalf of Arizona
Clean Fuels, submitting a new
application for an air quality
installation and operating permit.
Letter Regarding Public Notice of Proposed September 10, 2004
Permit.
Synopsis: Letter from ADEQ to ACF ADEQ time: 58 days
notifying the company that the start
date of public notice would be
September 14, 2004. The letter
indicates that the end of the public
notice would be November 29, 2004. In
response to public request, the
public notice period was subsequently
extended to January 10, 2005.
E-mail Transmitting Proposed Permit to EPA February 4, 2005
Synopsis: E-mail transmitting the ADEQ time: 25 days
permit and supporting documentation Public Notice: 118 days
to EPA for the 45-day review period.
Commitments for ACF Air Quality Permit March 18, 2005
Number 1001205.
Synopsis: Letter from ADEQ to EPA EPA time: 45 days
Region IX committing to make changes
the permit as discussed during the 45-
day review period.
Letter Regarding Issuance of Permit....... April 14, 2005
Synopsis; Letter from ADEQ to ACE ADEQ time: 27 days
notifying the-company that the permit
has been approved.
------------------------------------------------------------------------
The Chairman. Well, Mr. McGinnis, you make a very good
point. In fact, you win the day when you suggest that even
though you have been able to proceed, that the value you see is
that we need somebody in charge of scheduling and seeing to it
that we will meet the schedule.
And obviously when we say that, nobody is suggesting that
the schedule cannot be changed even under those kinds of
circumstances when required by the facts. It's just that you
have the reverse of what you have now. The facts are not,
obviously, there to be changed. The schedule is there to be
met. And that's what you're saying, maybe that would be
helpful, and maybe that's what is missing, if I read into your
testimony. Am I reading you correctly?
Mr. McGinnis. Yes, I think that is correct. I would agree
with Mr. Becker, there are a lot of other issues that come up
in developing something this complex.
The Chairman. Sure.
Mr. McGinnis. This is only one of them. But this needs to
be addressed, and the others need to be addressed as well.
Mr. Becker. And just a quick comment. I hadn't thought of
this until we sent the bill out to one of our members, a
Western conservative member, and the comment on the coordinator
and the timing negotiation came back as: ``Why in the world
would the industry want this? Because it's going to force us,
the State, to hire attorneys. If we are going to be engaged in
a judicially enforceable schedule and be sanctioned, if somehow
a deadline is delayed, why would we do this? Why would the
industry want this? We're going to have to build extra time
into this just to cover ourselves. We're going to have to hire
more attorneys. It's going to be passed on to the permitting
fees of the industry. And things are working pretty darn well
now. We don't need it.''
And this came from a very conservative Western State. And I
thought, good question. Why is it necessary, when it seems to
be working now? The data, the evidence shows that it's being
done in a matter of months, not years.
The Chairman. Senator, do you have anything further?
Senator Allen. Yes, I do, Mr. Chairman.
The Chairman. Please proceed.
Senator Allen. Let me follow up with Mr. Becker there. This
was from a--who was the source of this commentary?
Mr. Becker. It was one of our Western State permitting
agencies.
Senator Allen. OK. Let me ask you this, then, Mr.
Slaughter. In the event that our domestic industry, refining
industry, does not increase capacity to meet the demands in
this country, and Senator Thomas and Senator Domenici and all
of us recognize that the refining capacity is presently not
meeting demand, what will happen to the price of gasoline?
Let's just get to, instead of all this process, what's going to
happen to the price of gasoline and other refined products.
Where are we going to get it from, if things stay the way they
are right now?
Mr. Slaughter. We don't like to make price projections, but
let me just say that you----
Senator Allen. I'm asking you, what's going to be the
impact?
Mr. Slaughter. What happens is--the impact is, we become
more and more dependent on products that have been refined
somewhere else.
Senator Allen. And how much more is that than if it's
refined domestically?
Mr. Slaughter. Well, you are subject to the vagaries of the
world market. And the illustration, I think, Senator Allen, is
what has happened in the crude oil market today, where we face
intense pressures from folks like India and China, people who
are developing their economy. Imports in China--we saw numbers
today--went up 15 percent.
We're having to compete voraciously against these other
people for crude in today's market. We will be doing the same
thing for gasoline and diesel in the future if we don't build
more domestic capacity. A lot of the other areas in the world,
for instance, their demand for gasoline, particularly diesel,
is going to increase much more than the United States. They're
going to be bidding for the same products in that international
market that we will, and that obviously has an impact on price.
Senator Allen. Higher prices, right?
Mr. Slaughter. Your words, not mine, Senator.
Senator Allen. Well, you're the witness here. In the event
that we continue the path that we're going in this country--and
it's not just presently, we've seen it for the last several
decades--will that not result in higher prices for gasoline?
Since we do not have the refining capacity to meet the demand
of this country, much less process the crude that we get from
overseas, which is increasingly from another country other than
here, would that not just--it's just basic economics that the
price of gasoline will be higher.
Mr. Slaughter. Because we will be competing against other
countries for a set supply of crude, of products, you would
assume that prices would go up, yes, Senator.
Senator Allen. All right. Now, Mr. McGinnis, in your quest
to build this refinery, you say that the land title issue has
been solved. One thing on a military base--not that you are
always going to have those titles on a military base set, but
generally the Federal Government has been on that, whether it
has been the Army or the Marines or the Air Force on a base,
and possibly a naval facility would be closed as well--you
would end up with the title probably being easier to solve on
such a matter, but not always the case.
Generally speaking, the military bases are very big.
They're thousands of acres in many cases. What is the
footprint--if we were going to get a significant refinery
sited, what is the footprint of a 200,000-barrels-per-day-or-
more refinery? Can you state it in acres, what you need, not
just for it, but what you need for all the peripheral aspects
of it, and also the added need for security, and what
infrastructure would be important, whether it's roads, rail,
pipelines, or security? I'm trying to just get an idea of what
the requirements would be. I know you're not building on a
military base, but that's one of the options for siting that
we'd like to be advocating.
Mr. McGinnis. A 200,000-barrel-a-day refinery would require
750 acres, something like that, for the facilities, plus the
tankage, tank farms, blending facilities, et cetera, required,
the buildings and all of those kinds of facilities. You
obviously need road access for people and goods and materials
to come in. You would need pipeline access for crude oil to
come in and products to go out. There is no other economic way
to move finished products than by pipeline.
You need electrical supply systems which use a lot of
electricity, so you have high voltage supply lines which bring
with them their own siting and environmental concerns as they
get sited. You need rail access for some of the goods or some
of the materials that come and go. You need to really think
through all of the logistics of those kinds of things.
The security, I think today there is expanded security
attention at all facilities, existing refineries. A new
facility would be laid out, I would suggest today, a little
differently than the facilities that were laid out 30 or 40
years ago when security was much less of an issue in terms of
who could enter what areas and how controlled environments
would be established and regulated and controlled, which would
dictate some of how the rail and road access works, et cetera.
Senator Allen. Thank you. All of those will be important as
we are talking about it. Some facilities may or may not meet
all those criteria. In others, pipelines could be added to it,
or electricity. Security generally is pretty good at military
bases, so that would be a saving. So I could imagine some base
having a refinery in it, and planting white pines or trees all
around it so you actually would have it fenced off with more
land in residue.
Mr. Becker, I very much respect the rights and prerogatives
of the people in the States, and you also have obviously become
conversant and you are knowledgeable about this issue. In your
judgment, are the new refineries that are being--there aren't
any new refineries being built. Mr. McGinnis is going through
his very long procedures. But as far as new refineries compared
to refineries when they were last built--what was it the
chairman said, 30 years ago?--and even the additions that are
being put on, are the technologies that are now being
incorporated and utilized cleaner than the old methods of
refining petroleum?
Mr. Becker. Yes, and that's because the Clean Air Act
demands it, and it's because of the permitting processes and
the air quality analyses that are required of it. So yes, they
generally are much cleaner than they were 30 years ago.
Senator Allen. All right. Just a final question to you, Mr.
Becker. It seems that one of the essential or paramount--you
have several concerns, but one of the essential ones--these are
just jurisdictional issues or concerns that you have, and that
of your association--is that the legislation, that the House
measure preempts State and local governments.
And I know you haven't had a chance to read the legislation
I have just introduced having to do with refineries, but would
some of your concerns be addressed if the Federal coordinator
that is proposed in all this legislation would only become
involved at the request of a Governor of a State? Would that
not mean that the Governor who was elected by the people of
that State says, ``We want to go through this process. We want
to have this opportunity in our State or our Commonwealth.''?
Mr. Becker. It would be an improvement, but I was listening
carefully to your justification in your bill, which I had not
read, as to why you thought it was inappropriate for the
Federal Government to intrude into State jurisdiction with
regard to locating a refinery at a military base, and I
thought, ``What about that poor community who had the same
concerns about the Governor making that unilateral decision and
not consulting, perhaps, with the local community?''
Senator Allen. Well, you would have to. Just so you
understand, you would still work with the local redevelopment
authority. When a base is closed, what is created is a local
redevelopment authority, and those people are very important.
But since you're going to be dealing with the State, and maybe
the State will deal with local, but for the most part you're
dealing with a department of environmental quality for an
entire State, and they may have regional folks in different
parts of the State.
But if the Governor agrees--you were talking about all the
litigation, some of this--if the Governor signs off, and it's
only done with the Governor petitioning or agreeing or making
the request, it would seem that at least, you said, there would
be an improvement. I think that that would cure some of those
jurisdictional concerns that you have.
And of course you could say, ``Gosh, these are
controversial,'' and public servants, elected leaders, are
elected to make tough decisions and determine what's in the
best interests of the people of their State or their
communities, but I think having an elected person doing it, a
Governor of a State, would be, from my perspective, an
appropriate respect for the rights and prerogatives of the
people in the States and the State agencies that serve in that
administration.
Mr. Becker. I direct an association of not only the State
permitting authorities but the local permitting authorities,
and I know a number of them who may not agree if the Governor
requested the coordinator, because they would lose the
jurisdiction of issuing a permit themselves. So it's an
improvement, but it's still not necessary.
Senator Allen. Not enough to get you on board?
Mr. Becker. It's not necessary.
Senator Allen. Well, at least you said it was an
improvement, and I appreciate that.
And I appreciate this hearing and all our witnesses, and I
look forward, Mr. Chairman, to working with you and our
colleagues to get this improvement made.
The Chairman. Thank you. We'll do something in this area.
Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman.
The Chairman. Thank you for coming, Senator. We're glad to
have you.
Senator Wyden. I thank you for your thoughtfulness, Mr.
Chairman. This is just, even by Senate standards, a hectic day
with all of the committees. I thank you, and my apologies to
the witnesses for being tardy.
I wanted to start, if I could, with you, Mr. Slaughter.
First, I think it's all understood that we need more refinery
capacity. Nobody questions that. The folks at Arizona Clean
Fuels deserve a lot of credit in terms of being able to
expedite things through their process, I gather, in 9 months.
I think what I would like to do with you, Mr. Slaughter, is
begin through a new report that the Congressional Research
Service gave me this Monday, because I think it relates to some
of the comments that you have made in the past. And what I
asked the Congressional Research Service to do is essentially
tell me where they think the industry is putting this big
gusher of money that has come in in the last few years.
And what the Congressional Research Service found is that
the return on equity of the major oil companies has gone up
about six times in the last few years. The amount of cash
reserves at the major companies have gone up, over the same
period of time, six times. But the amount of money that has
been devoted to exploration and capital investment has only
doubled. So what you have is equity up six, cash reserves up
six, and essentially exploration only up a third of that.
Now, you wrote us on September 9 that--I will just quote
here--``The refineries have made and will make significant
investments in expanding capacity at existing refineries.''
Given what the Congressional Research Service found Monday,
that the industry is only putting a fraction of this big gusher
of money that has come in, do you want to make a change in that
September 9 statement? Because it certainly doesn't seem to me
to square with what the Congressional Research Service has
said.
Mr. Slaughter. Thank you for the question, Senator Wyden.
As I mentioned in the testimony and earlier in my remarks, the
industry has announced roughly 1.8 million barrels a day in
additional refining capacity in the United States that it
intends to add over the next several years. That represents a
significant commitment of investment dollars.
At the same time, many participants in the refining
industry also are participants in exploration and production
and other parts of the business. They basically have got to
make allocation decisions for their investments, as to what the
investment is that makes the most sense at that time. Many of
the exploration and production investments, for instance, may
take years to mature.
And you know the other thing that corporations do with
money: some money has been returned to stockholders. I know
that the ExxonMobile Corporation has returned I think $55
billion to stockholders in the last 2 to 3 years. A similar
number is probably true of a number of the other bigger players
in the industry.
So it's difficult, I think--I understand your point and I
appreciate it, but I think it's difficult to take any snapshot
in time and say that this indicates what the industry is going
to do, when our projects are long-term projects that take many
years to plan and to implement.
Senator Wyden. I would just ask, Mr. Chairman, if the
Congressional Research Service report to me that looked at
equity and cash reserves over the last 6 years could be made a
part of the record.
The Chairman. Absolutely.
Senator Wyden. I thank you, Mr. Chairman.
[The information referred to follows;]
Congressional Research Service Memorandum From Robert Pirog, Specialist
in Energy Economics and Policy, Resources, Science and Industry
Division
This memorandum is written in response to your request for
financial data for selected oil companies for the period 1999 to 2005.
The companies for which you requested data are ExxonMobil, BP, Shell,
Valero, Chevron, ConocoPhillips, Sunoco, and Total SA. The analysis is
complicated by reason of mergers and acquisitions among the selected
firms, differences in U.S. and international accounting standards,
currency exchange rates, differences in the size of the selected
companies, and differences in the extent to which the selected
companies participate in all aspects of the oil business.\1\ The likely
effects of these factors will be noted in the appropriate sections of
this memorandum.
---------------------------------------------------------------------------
\1\ Total SA reports its current and historical financial data in
Euros. For this memorandum, the Euro/dollar exchange rate of 1.28
dollars per Euro, observed on July 3, 2006 was used.
---------------------------------------------------------------------------
profit rates
Profit rates are usually expressed as net income as a percentage of
a relevant base; usually revenue, shareholder equity, or assets. Each
profit rate provides a different measure of the success of the firm.
Profit relative to revenue shows how well the firm translates revenue
into net income. Profit relative to shareholder equity shows how
effective the firm is in utilizing the capital invested in the firm by
its owners, the shareholders. Profit relative to assets shows how
effective the firm is in utilizing its total asset base to generate net
income.
Table 1 shows the average return on revenue and the return on
equity for the eight selected oil companies. The averages are simple
averages; they do not assign weights to account for the different sizes
of the firms in the group. ExxonMobil, the largest company in the
group, has total revenues over ten times as large as Sunoco, the
smallest company in the group. However, a weighted average would still
not account for the fact that the sample of eight companies is only a
fraction of the industry. For example, the Oil and Gas Journal includes
over 130 companies in its oil and gas firms' earning report.\2\
---------------------------------------------------------------------------
\2\ Radler, Marilyn, and Bell, Laura, ``Price, Production Increases
Boost First-Quarter Earnings,'' Oil and Gas Journal, Vol. 104.23, June
19, 2006, p.19.
Table 1.--RATES OF RETURN FOR SELECTED OIL COMPANIES
[Percentages]
------------------------------------------------------------------------
% Return % Return
Year on Revenue on Equity
------------------------------------------------------------------------
1999............................................ 2.88 4.64
2000............................................ 5.79 24.85
2001............................................ 5.36 16.67
2002............................................ 3.89 8.11
2003............................................ 5.23 18.47
2004............................................ 6.45 26.18
2005............................................ 7.10 29.38
------------------------------------------------------------------------
Source: Security and Exchange Commission Forms 10-K and 20-F, Company
Financial Reports.
Over the seven year period, the average return on revenue was
5.24%, while the average return on equity was 18.32%. Both profit
measures increased when the recent increases in the price of oil began
in 2003. Two of the companies in the data set, Valero and Sunoco, are
refiners and marketers with no crude oil production. These two firms
were not, therefore, positioned to benefit directly from increases in
the price of crude oil.
cash reserves
Companies might accumulate cash reserves in anticipation of a major
merger or acquisition, before a share re-purchase, or before a capital
investment expenditure. In the case of the selected oil companies,
these reasons might be augmented by the rapid expansion of sales
revenues associated with the increases in the prices of crude oil and
products from 2003 through 2005. Large investment projects take time to
plan and execute, and it may be that the rapidly increasing revenues
these firms realized could not be efficiently allocated in the
available time.
Both upstream (exploration and production) and downstream (refining
and marketing) investments in the oil industry tend to cost billions of
dollars and take years to plan, complete, and realize returns from.
Investment decisions are based on company estimates of the long-term,
expected, price of oil. It may not be that the current market price of
oil is equivalent to the companies' long-term expected price of oil. If
the long-term planning price of oil is significantly lower than the
current market price, it might appear that the companies have not
increased investment in capacity to a degree commensurate with
increased market prices.
Table 2.--CASH RESERVES OF SELECTED OIL COMPANIES
[Millions of dollars]
------------------------------------------------------------------------
Cash
Year Reserves
------------------------------------------------------------------------
1999........................................................ 9,495
2000........................................................ 27,185
2001........................................................ 23,875
2002........................................................ 20,908
2003........................................................ 24,764
2004........................................................ 41,323
2005........................................................ 57,828
------------------------------------------------------------------------
Source: Security and Exchange Commission Forms 10-K and 20-F, Company
Financial Reports. Note: Shell, Valero, and ConocoPhillips data could
not be obtained for 1999. Shell data could not be obtained for 2000.
Table 2 shows that the cash reserves of the selected oil companies
have more than doubled from 2001 to 2005, the period of complete data.
In 2005, three companies, ExxonMobil, Shell, and Chevron accounted for
over 87 % of the total cash reserves.
exploration and capital investment
Exploration expenses are undertaken to locate and develop new
commercially viable deposits of crude oil and natural gas. Two of the
eight companies in the data set, Valero and Sunoco, have no exploration
expenses since they operate only in the downstream portion of the
industry. Since oil fields deplete over time and production tends to
decline, oil producers must carry out a successful exploration program
to keep their reserve and production positions constant. However, it
cannot be determined from financial data which exploration expenses are
``net'' in the sense of increasing production and reserves, and which
are ``gross'', including depletion replacement. As a result, increasing
exploration expenses are not necessarily tied to increased production
capability or reserves. Most of the firms also report dry hole expenses
in exploration. Dry holes do not add to either production capacity or
reserves.
Capital investment expenditures were drawn from the companies cash
flow statements. These values represent actual outlays made during the
year. As a result, the values for capital investment reported in Table
3 represent gross investment, rather than investment net of
depreciation. In the current economic environment, it is likely that
all investments, new, as well as those that replace depreciated assets,
must pass a profitability test to be undertaken. As a result, gross
investment is likely to represent well the companies investment
decisions.
Table 3.--EXPLORATION AND CAPITAL INVESTMENT EXPENDITURES OF SELECTED
OIL COMPANIES
[Millions of dollars]
------------------------------------------------------------------------
Exploration Capital
Year Expense Investment
------------------------------------------------------------------------
1999........................................... 1,794 32,835
2000........................................... 3,114 36,417
2001........................................... 3,843 52,798
2002........................................... 4,231 55,577
2003........................................... 5,018 56,558
2004........................................... 5,318 58,304
2005........................................... 4,704 68,884
------------------------------------------------------------------------
Source: Security and Exchange Commission Forms 10-K and 20-F, Company
Financial Reports. Note: Shell and ConocoPhillips exploration data was
not available for 1999. ConocoPhillips capital investment data was not
available for 1999.
conclusion
The oil industry operates in a volatile, short run market in which
many decisions have long term implications. The upstream portion of the
market is increasingly controlled by national oil companies, not
private firms. The market is also affected by political forces.
The private oil companies have the responsibility of making
decisions in the best interests of their shareholders. However, because
their products are important to the functioning of national economies,
their decisions are also of interest to the public. This dual
responsibility must be balanced by the companies.
Senator Wyden. Mr. Slaughter, I think that's a fair
comment. I will just tell you that when there is that kind of
spread between equity, reserves, and investment, it certainly
is going to cause our constituents to say, ``Look, we're
getting clobbered by these prices. Is the money going back into
development?'' And the Congressional Research Service report
certainly raises a troubling question in my mind about whether
it's going back into the development that's necessary.
Let me also ask you about the--
The Chairman. Senator, might I ask--I mean, it's obvious
that those facts are very big, important facts. What was the
relationship here, since we're talking about investing in
refineries? You're trying to make the point that they're not
investing enough in refineries?
Senator Wyden. What happened, Mr. Chairman--and I think Mr.
Slaughter's point is a fair one as well. It's a snapshot in
time. It's over a 6-year period, so I think Mr. Slaughter's
point is a fair one as well.
The Chairman. OK.
Senator Wyden. But what the Congressional Research Service
found is that cash reserves over the 6-year period went up six
times, return on equity went up six times, but development and
exploration only went up twice. So it is correct, as Mr.
Slaughter said, it's a snapshot in time, but I think that's the
kind of thing that concerns our constituents and that's why I
go into it.
Mr. Slaughter, one other question. On the timetable for
getting a new refinery on line, as I understand what happened
in Arizona, they spent about 4 years kind of traipsing around
looking at a place to put it, but once they made a decision to
do it, they got it in 9 months. Now, we're talking about a
whole new operation and the like, and I just wonder why we
can't essentially pick up on what was done in Arizona rather
than all of what is being proposed at the Federal level, which
strikes me as pretty hard to follow, pretty confusing, pretty
convoluted.
We all want a win-win situation. We want refineries. We
want them to be out there as quickly as possible, sensitive to
environmental laws. I suspect if we don't do this carefully
here in Washington, we're going to lose-lose. We won't get the
refineries. We won't get the help for the consumers and all the
rest. Why can't we just duplicate the Arizona model?
Mr. Slaughter. First of all, I think it's a very good
point. We don't want to make things worse.
Senator Wyden. I'm sorry?
Mr. Slaughter. I think you have a very good point, that we
don't want to make things worse. We want to make things better.
And everyone agrees we need more refining capacity.
Mr. McGinnis has gone into the history of that project in
some detail. It's been going on for a number of years. The
project has been moved once. There was a lot of work that was
done, I think, before the final permit--they actually filed it,
so there was a lot of work that was already in the ground, so
to speak, there that you might not have with other
applications.
I think the clear intent of this legislation is not to
overrule Federal environmental statutes, but merely to say that
there is a Federal interest, to inject into the process that
there is a Federal interest in having new refineries, and
certainly not overruling States. I do have a bit of a concern
about giving a Governor a veto over the application process.
They should clearly be involved. But the way I read it now,
it's optional on the part of the person who is trying to build
a refinery. Some may elect not even to trigger this program.
But we think the clear intent--you know, the Arizona situation
is unique. It has gone on for several years. My members tell me
that if they're trying to get a new source review permit for a
major project, that that can take 2 to 4 years. So I think
there is a reason for some additional transparency here on the
permitting process, and I think that's all that this bill
intends to do, sir.
Senator Wyden. One last question, if I might, Mr. Chairman.
You have been very--
The Chairman. Senator, before you do that, might I just say
before you arrived--and again, no aspersions, delighted to have
you, and very important, the point you're going to make--but
Mr. McGinnis on the left here is the actual gentleman who has
gone through the misery of finally locating a refinery in the
State of Arizona, and has talked with us here today about it.
And while he would come along with you in your last remarks, he
would conclude nonetheless that he sees no reason why we
shouldn't be interested in having somebody that is in charge of
seeing that the schedule is followed, other than the applicant
themselves.
That's the issue. It has almost boiled down to that. Should
we have a bill that nationally says there will be a scheduler
established under this statute, and that scheduler will set the
schedule with all the participants and then will be the one
that says let's stick to it, and when it falls behind, have
some rights. And even though he is finally going to get a
refinery without this, having gone through 4 years of whatever
one might call it--I would call it hell, but he might call it
learning, I don't know--that's about where we ended up before
you arrived.
And I wanted to just put that on the table and make sure
that you knew that we have a businessman. We thank him, don't
we, for coming up here and spending the whole day with us?
Senator Wyden. Unquestionably so.
The Chairman. Thank you very much, Senator.
Senator Wyden. And I think, Mr. Chairman, as usual, you
make a thoughtful point, and it really leads into my next
question. Because I think I sort of pummeled this question of,
if a little guy in Arizona can do it in 9 months, what are we
talking about with respect to the major companies? Chairman
Domenici has raised the point with respect to, why not have a
Federal coordinator and somebody who could be on the ground,
and I wanted to ask you a point on that question specifically,
Mr. McGinnis.
From your testimony, which I read, you basically indicated
that one of the biggest problems out there is the ``not in my
back yard'' kind of proposition, that it's the NIMBY. You know,
somebody else can do it, and let somebody else pick it up. My
understanding of NIMBY, though, ``not in my back yard,'' is
that it's primarily a local issue. I mean, it automatically
says, ``I don't know what they're up to in Washington, DC. I'm
caring about my neighborhood.''
How do you foresee somebody coming in at the Federal level,
which is often what people are objecting to, and now suddenly
getting around what you have said in your testimony is one of
the great hurdles, that the local opposition is a big part of
the problem? I would like to hear your thoughts, how you would
deal with those and reconcile the two.
Mr. McGinnis. It's a good question, Senator. The NIMBY
issue is alive and well pretty well everywhere. It is a very,
very local issue, as you point out. There are processes that
are available to deal with that. There are hearing processes,
public meeting processes, as part of the permit approval and
review, public comment, the responsiveness documents to public
comment. There are a lot of processes that exist today to
identify those issues, to deal with those issues, to air those
issues in public and in the general forum.
The intent of this bill is not to put someone, the Federal
coordinator, in charge of the content of what's going on within
the processes. In other words, they don't mandate or change or
dictate anything relative to Clean Air Act requirements, new
source process requirements, or the hearing obligations or the
public responsiveness obligations, et cetera.
What they are responsible for, as I understand it, is
having the agencies, and I would include the company and their
consultants, et cetera, all in this process as well, having
that group of people who have a stake in the permit mutually
discuss and agree on a schedule, what has to be done, who needs
to review and have input, and what's a reasonable time to
complete that work in.
And then that individual takes away a responsibility to not
only ensure commitment or drive commitment to that schedule,
but also to ensure the resources are available in the agencies
to meet those schedule obligations where they may not be
available. For example, the Arizona Department of Environmental
Quality has worked with us very, very closely on this permit
for many, many years. This was obviously their first look at,
or review of, a complex oil refinery permit. They have none
operating.
And those individuals are--they're very competent people
and they're very committed people, but they really needed a lot
of outside resources to help them understand all of the
implications of generating a permit for an oil refinery. This
bill would help that organization get those resources to be
able to do that in an expeditious manner.
Senator Wyden. Well, you all have been an excellent panel,
and obviously this whole question of refinery capacity, after
you start with the basic proposition that we need more of it
and that is not a matter for dispute, gets much more
complicated. And you get it down into the real world and it
does intertwine national considerations and regional issues and
local ones.
I was very concerned, as were a number of other elected
officials from the West Coast, about Shell's proposal to
essentially close the Bakersfield refinery, which could have
just clobbered all of us on the West Coast. They said they
really couldn't make a go of it, and the next people came in
and they did, which essentially contradicted what Shell had
been saying all those many months, but that was a combination
of Federal and local kind of considerations.
You all have been an excellent panel, and laid out the fact
that there are matters that we need to take up at various
levels of government.
And I think everybody here knows that I have enormous
respect for my chairman, Senator Domenici. We have fairly
spirited discussions about these matters from time to time, and
I know we will----
The Chairman. This one could be close.
Senator Wyden. The chairman knows that I am always anxious
to work with him and I will continue to do it. I think this has
been a good panel, Mr. Chairman, and good witnesses, and I
appreciate your letting me come in late and making the new CRS
report a part of the record. And we'll continue the
discussions.
The Chairman. I wanted to say, in closing, that I have here
before me, from Senator Feinstein, the issuance of an internal
communication that she puts out to the public. Senator
Feinstein asked Governor Schwarzenegger to streamline the
permits for oil refineries to bring down gas prices. And we
have a good, solid Democratic member of our committee
recognizing that the State should get its house in order and
streamline the permitting for oil refineries, because the
current process, which is the opposite of streamlined, is
causing prices to be high.
I would like to put that in the record. I know that my good
friend, Mr. Becker, would find some way of explaining that away
too. I don't have time to wait, but you are free to do that at
your leisure.
[The information referred to follows:]
Press Release From Hon. Dianne Feinstein, U.S. Senator From California
senator feinstein asks governor schwarzenegger to streamline permits
for oil refiners to bring down gas prices
Washington, DC--U.S. Senator Dianne Feinstein (D-Calif.) today
urged California Governor Arnold Schwarzenegger to help streamline the
refinery permitting process in an effort to relieve gas prices in the
State which have climbed to record levels, partly due to the shortage
of refining capacity. Following is the text of the letter sent
Thursday:
``I am writing to ask for your attention to the permitting problems
associated with petroleum infrastructure projects. As you know, the
Energy Information Administration reported that on Monday, May 10,
2004, gas prices in California averaged $2.27. There are several causes
of this price spike, including rising global demand for crude oil, the
federal oxygenate requirement and the boutique fuel problem, and
limited refining capacity. It is my hope that we can work together to
increase California's energy production while protecting the
environment.
I have spoken with both Shell and ChevronTexaco regarding refining
capacity. Both companies have told me that one step California could
take to help the gasoline supply situation is to streamline the
permitting process for refinery upgrades and expansions. I understand
you met with the Chief Executive Officer of ChevronTexaco, Dave
O'Reilly, who spoke with you about this as well. When I met with him
last week, he shared with me how difficult it is to get permits for
expansion and upgrade projects. He also talked about project delays
caused by overlapping and conflicting agency and local authorities. I
can see where a cumbersome permitting process, with uncertain outcomes,
would make it difficult to plan and implement projects.
In your California Performance Review, you have asked state
agencies to look for ways to make California run more efficiently, to
be more supportive of businesses, and still protect the environment. I
encourage you to improve the speed and predictability of the permitting
process, and believe that this will allow business and government to
focus their limited resources on actions that most benefit the
environment.
Please let me know if there are things at the Federal level that I
can do to help. I look forward to working with you.''
The Chairman. In any event, I think the round-up by the
Senator was right. You have been a good panel. I was just
thinking that with the Senate doing voting on the floor, every
committee in the Senate having hearings, we've had five
Senators, and that's pretty good. Senator Bingaman could not
make it, but he knows what's going on. He has had his staff
here.
I think the reason that Senator Bingaman is not here is
because the question of what we're going to do, if anything, in
this area is still up in the air. I mean, if I were saying,
``We're going to do this bill, along with five others,'' he
would be here, because that would be very important. But I
haven't made that decision yet. I don't know if we're going to
do this this year or not.
I understand the issue much better because of the three of
you. Mr. McGinnis, I do hope you succeed. And as a total
outsider, but a neighbor, put me on the invitation list. I
might just come to the opening. I might. Would you welcome me
there?
Mr. McGinnis. Consider it done.
The Chairman. I'll join you there, and when you cut the
ribbon, I'll be over on the side applauding you, saying you are
a gutsy guy. I didn't ask you, or I forgot, what's the capacity
of your refinery going to be?
Mr. McGinnis. 150,000 barrels a day.
The Chairman. Tell us what that means. Is that--that's a
little refinery?
Mr. McGinnis. On a world scale, it's on the small side, but
it's a world-scale facility. It's big enough to capture the
economies of scale, but it will make a very small dent in the
imports into this country and a lot more is required.
The Chairman. You've got it.
Senator Wyden. I want to join you as well, Mr. Chairman, if
I can get an invitation. I don't know if I will make it, but I
want to be associated with your comments.
The Chairman. Good. If I go and you go, we will be Mutt and
Jeff; right?
Senator Wyden. A team.
The Chairman. A team. Thanks, everybody. We stand in recess
until the call of the chair.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
[The following statement was received for the record:]
Statement of Maxine Natchees, Chairman, Business Committee,
The Ute Indian Tribe of the Uintah and Ouray Reservation
The the Indian Tribe of the Uintah and Ouray Reservation (the
``Tribe'') appreciates the opportunity to submit testimony before this
Senate Energy and Natural Resources Committee in support of H.R. 5254,
the Refinery Permit Process Schedule Act. The Tribe urges prompt
passage of H.R. 5254, as amended by the proposed amendment described
below extending the benefit of the bill to Indian Tribes. The recent
weather-related disruptions to the Nation's refinery capacity on the
Gulf Coast, and limitations on refinery capacity elsewhere in the U.S.
highlight the constraints on the ability of the oil and gas industry to
refine the products of increased domestic oil production. The topic of
this hearing is thus timely and of immense importance to the Tribe and
the Nation as a whole.
Our Tribe, like all other Indian Tribes in the United States, faces
a very difficult and unique challenge of being a government, and
providing all of the essential services associated with being a
government, without a significant tax base. Without a tax base, our
Tribe must generate its own revenue base in order to provide for the
health, safety and welfare of its members. Recognizing the difficulties
posed by this unique situation, the Tribe decided to take an active
part in determining its financial destiny and furthering its self-
determination and sovereignty. In 2000, by tribal ordinance and by a
referendum of the Tribal membership binding on its leaders, the Tribe
adopted a Financial Plan designed to enable us to achieve our goals of
self-determination and financial independence. The Financial Plan is
based on a proven strategy of controlling expenses and enhancing
revenues through proactive financial management including investment
and reinvestment of our existing capital to ensure financial growth in
perpetuity, and active development of our natural resources.
Our Reservation is located in northeastern Utah in the middle of
the Uintah oil and gas basin. We have been leasing out oil and gas
resources for many years. Energy resources are the cornerstone of our
Tribal resource base and moving from passive to active participation in
the development of these resources is a key part of our Financial Plan.
To that end, instead of just leasing our lands to outside companies, we
have begun to partner with such companies to take an active position in
the exploration and development of our resources.
One of the emerging impediments to fully developing our resources
is inadequate refining capacity to handle production from Tribal oil
assets. A large portion of the crude oil produced on the reservation is
``black wax'' crude oil. There are two main constraints that complicate
obtaining refining capacity sufficient to enable the Tribe and other
operators on the Reservation to move this significant resource to
market, each based on certain unique characteristics of black wax
crude. First, because of these characteristics, the four refineries are
operationally limited in the amount of black wax etude they can refine
at any one time without expending significant capital investment on new
facilities. These same refineries have access to Canadian crude
delivered via pipeline that is easier for them to refine. Canadian
crude oil is increasingly displacing domestic production from the
Uintah basin and deprives the refineries of any economic incentive to
make the capital investment necessary to process greater portions of
Uintah basin black wax crude. Second, the characteristics of black wax
crude make it impossible to transport via pipeline and uneconomic to
transport long distances to refineries capable of handling larger
volumes of black wax crude in Wyoming, New Mexico or California.
The intersection of these factors could result in a shut down of
production of the Tribe's significant oil resources at a time when the
Nation needs to increase its domestic oil production. This would be
devastating to the Tribe as royalty and other oil and gas proceeds are
the main source of revenues for the Tribe's essential government
services, including health and safety services to the Tribe's most
vulnerable members: our children and our elders. Shut down would also
have adverse effects on the State of Utah and area county and local
governments, as they also derive significant revenues from oil
production in the Uintah Basin. The only way to prevent stranding this
major energy source is to build new refining capacity in the Uintah
basin that is capable of handling black wax crude oil.
To that end, the Tribe seeks to amend H.R. 5254 to make available
to Indian tribes the same federal assistance with refinery permitting
as would be available to States under the existing bill. The Tribe's
Reservation is strategically located for refining purposes because of
its close proximity to oil and gas resources. The Tribe and the other
energy Tribes, as sovereign entities with substantial land bases close
to oil production, are in a unique position to address the shortage in
refinery capacity, In addition, refining capacity on tribal lands
should also aid the potential development of unconventional hydrocarbon
sources in the Rocky Mountain west, such as oil shale and tar sands.
Our proposed amendment would increase the effectiveness of H.R. 5254 in
increasing refinery capacity while furthering the dual aims of Title V
of the Energy Policy Act of 2005: (1) encouraging the efficient
development of energy minerals on Tribal lands and (2) promoting Tribal
self-determination. In fact, Title V of the Energy Policy Act of 2005
explicitly contemplates construction of refineries on Tribal land.
Amending H.R. 5254 as we have proposed would result in the following
five benefits to Indian Tribes and the Nation as a whole: (1) provide
Indian Tribes with access to the same federal assistance as States to
implement the aims of the Energy Policy Act; (2) enable Tribes to
better navigate the refinery permitting process; (3) enhance revenue
and prevent economic hardship for both State and Tribal governments;
(4) increase refining capacity; (5) strengthen the nation's long-term
energy security by locating refining capacity outside of the weather-
threatened Gulf Coast region.
The text of the Tribe's proposed amendment reads as follows:
``Insert within Section 2 of the Bill the following two
definitions and replace Section 3 of the Bill in its entirety:
(5) the term ``Indian Tribe'' has the meaning given
the term in Section 4 of the Indian Self-Determination
and Education Assistance Act (25 U.S.C. 450b);
(8) the term ``Tribal Organization'' has the meaning
given the term in Section 4 of the Indian Self-
Determination and Education Assistance Act (25 U.S.C.
450b).
Sec. 3. State and Tribal Organization Assistance
(a) Financial Assistance--At the request of a Governor of a
State, or at the request of a Tribal Organization, the
Administrator is authorized to provide financial assistance to
that State or Indian Tribe to facilitate the hiring of
additional personnel to assist the State or Indian Tribe with
expertise in fields relevant to consideration of Federal
refinery authorizations.
(b) Other Assistance--At the request of a Governor of a
State, or at the request of a Tribal Organization, a Federal
agency responsible for a Federal refinery authorization shall
provide technical, legal, or other nonfinancial assistance to
that State or Indian Tribe to facilitate its consideration of
Federal refinery authorizations.
The Tribe looks forward to working with you on these very important
issues, and asks that you seriously consider the attached proposed
amendment to H.R. 5254, and promptly pass the bill as amended.
APPENDIX
Responses to Additional Questions
----------
Responses of Robert J. Meyers to Questions From Senator Domenici
Question 1. Is it fair to say that the bulk of investment in
refineries over the last several decades has been for the purpose of
capacity expansion and for the purpose of producing cleaner fuels
required by both law and new regulations?
Answer. The U.S. Environmental protection Agency (EPA) does not
track investment patterns of refineries and it is therefore difficult
to state definitely whether the bulk of such investment over the last
several decades has indeed been for the purposes cited in your
question. Information published by the Energy Information
Administration indicates that domestic refineries, which have decreased
in number over the past twenty-five years, have simultaneously
increased overall capacity levels. At the same time, EPA recognizes
that many operators have also made investments in their refineries for
the purpose of producing cleaner fuels, as required by laws and new
regulations enacted at the federal or state level. EPA has detailed
such costs in its Regulatory Impact Assessments for these rules.
Question 2. You note in your testimony that this bill does not
include codification of ``New Source Review Rules that would enable
accelerated investments in efficiency at refineries.'' While
modification of the New Source Review Rules is not within the
jurisdiction of this Committee, I am interested in knowing precisely
how EPA believes those rules should be altered and how such alteration
might speed investment in refinery capacity.
Answer. Since the early 1990s, numerous parties have called for
improvement and simplification of the New Source Review (NSR) program,
particularly as it applies to existing facilities. In 2002, EPA
completed a review of the NST program that concluded that improvements
were warranted. In particular, it concluded that the program has an
adverse impact on the willingness and ability of owner/operators (e.g.,
of refineries) to invest in equipment and technologies that will expand
and preserve capacity, or improve energy efficiency.
Refiners seeking to expand capacity or ensure reliability through
additional investment are hindered by a number of NSR-related factors,
including: (1) regulatory uncertainty resulting from confusion about
the NSR program's requirements; (2) the added costs and delays imposed
by the NSR process; and (3) the possibility that activities necessary
to assure the safety, reliability and efficiency of a plant may not be
able to be undertaken without an NSR permit.
EPA has sought to reform the current NSR process and address these
concerns by reducing regulatory complexity and providing proper
incentives for reducing air pollution. Providing increased clarity
regarding NSR would ultimately expedite the process for those refiners
hoping to increase capacity or make improvements in reliability or
energy efficiency.
EPA has issued a number of rules that make specific changes to NSR
to achieve these goals, but some of these rules have been halted by
litigation. This Administration has called on Congress to codify EPA's
December 2002 changes to the NSR program, and we believe the regulator
certainty offered by legislating these changes would expedite
investment in refinery capacity.
Question 3. Are there other legislative vehicles or administrative
measures that could be useful in encouraging the siting of new
refineries or expansion at existing facilities?
Answer. This Administration supports efforts to simplify and
expedite the permitting process for construction of new refineries and
expansion of existing refining facilities and believes such steps could
help strengthen the nation's energy infrastructure. Given the broad
scope of economic, land-use, and environmental issues involved in the
siting of new refineries or expansion of existing facilities, there are
potentially multiple legislative or administrative vehicles by which
such processes could be improved. The Administration supports enactment
of H.R. 5254 and also stands ready to work with the Senate and Congress
on additional legislative vehicles.
EPA's Office of Air and Radiation has taken regulatory steps to
help streamline the permitting process for refineries and other
industrial sectors; perhaps the most important of these have been our
NSR reform rules, as mentioned in the response to you r previous
question. In addition to codification of NSR reforms, there are other
legislative measures that would also have a significant and beneficial
effect in the long run. The President's Clear Skies cap and trade
approach to reducing air emissions from power plants gives our states a
powerful, efficient and proven tool to help meet air quality standards
for fine particles and ozone. To the extent the Clear Skies emission
reduction requirements for the power sector can help provide emissions
reductions towards attainment or partial attainment of Clean Air Act
health-based standards, states and local governments will have a
lighter burden in putting together their local emission control
strategies to attain the National Ambient Air Quality Standards
(NAAQS). This may result in an ability at the state and local level to
accommodate new or expanded manufacturing or refining activities within
plans to meet the NAAQS.
Responses of Robert J. Meyers to Questions From Senator Thomas
Question 1. In Wyoming, many refineries have stopped producing
asphaltic oil because of policies put in place to reduce sulfur
emissions. This has resulted in a significantly reduced supply of this
product for companies in the paving business. Are you aware of the
consequences that this otherwise desirable environmental improvement
has had on the construction industry? Did the Environmental Protection
Agency look into what the more peripheral consequences of changing that
standard would be prior to implementing the regulatory change?
Answer. As part of the Ultra Low-Sulfur Diesel (ULSD) rulemaking,
PEA analyzed, the impact of desulphurizing the diesel stream and the
associated changes in refinery operations. In general, in normal
refinery operation, product used for asphalt production is removed
during the initial stages of processing crude before the bulk of LSD
and ULSD diesel processing occurs. Thus, producing low-sulfur diesel
(LSD) and ULSD production should have little or no direct impact on
asphalt production.
There are many indirect factors, however, that influence refiner
decisions with respect to the products produced, including hardware,
crude inputs, demand for specific product slates, economics and
environmental requirements. Any overall noticeable impact on production
of asphalt could result from such factors and would vary from refinery
to refinery, with some decisions tending to increase asphalt and others
to decrease it. To meet the ULSD quality standards, some refineries may
be shifting the most difficult inputs to process streams out of diesel
production, which could increase heavier product streams, including
asphalt volumes. However, other refineries may switch to a lighter,
sweeter crude, which may result in a decrease in asphalt output.
In addition, it is likely that the biggest driver currently
impacting asphalt production is the overall economic situation
affecting all refined products, rather than any direct or indirect
impact of ULSD production. Quite simply, with diesel fuels and gasoline
prices at record and near-record levels, refineries are finding it
economically attractive to upgrade the heavier product streams into
gasoline and diesel fuel. This results in relatively less production of
asphalt.
Question 2. Under Section 392 of the Energy Policy Act a Governor
could request assistance with the refinery permitting process. This
bill would repeal those provisions and replace them with a new set of
guidelines for permit streamlining. Aside from the inclusion of closed
military installations as possible refinery sites, can you discuss in
greater detail what EPA interprets as the most significant differences
between the EPACT language and the bill we are discussing today?
Answer. There are several significant differences between the
refinery provisions of Energy Policy Act (EPAct) and the refinery bill
under consideration (H.R. 5254). In general, the legislation is
considerably more detailed than section 392 of the Energy Policy Act
and extends to environmental permits required ``under Federal law,
whether administered by a Federal or State administrative agency or
official'' as opposed to section 392's references to ``permits required
from the Environmental Protection Agency.''
Other significant differences between section 392 and H.R. 5254
include the following: (1) The streamlined permitting process
authorized by EPAct is triggered by a request from a Governor, while
under H.R. 5254, the streamlined permit process review may be initiated
by the applicant for a refinery permit. (2) H.R. 5254 directs the
President to appoint a ``Federal Coordinator'' to facilitate the
permitting process, while EPAct indicates that the Administrator of EPA
is authorized to accept a consolidated refinery permit application. (3)
H.R. 5254 requires the federal coordinator and relevant agencies to
take several specified actions, including the convening of a meeting on
the refinery authorization, the establishment of a memorandum of
agreement (MOA) that sets forth the most expeditious coordinated
schedule possible for completion of all federal refinery authorizations
and the maintenance of a consolidated record. EPAct does not contain
this level of detail, but rather authorizes the EPA Administrator to
enter MOUs with other federal agencies and with a state. (4) In
addition to the procedural requirements, H.R. 5254 additionally assigns
duties to the Federal Coordinator including ensuring good faith
cooperation of the MOU participants and ensuring that a refinery
schedule accommodates relevant authorizations. Section 392 of EPAct
contains no similar duties. (5) H.R. 5254 also specifically authorizes
court actions to be brought in U.S. District Courts to establish an
enforceable schedule for completing the permit process if the court
finds that a failure to act by a government agency jeopardizes the
schedule set forth in the MOA. Section 392 of EPAct does not contain
any similar provision.
Question 3. Without naming particular states, can you share with
the Committee if any Governors have approached the Environmental
Protection Agency, preliminarily or in a more official capacity, to
request assistance with the construction of a refinery under the
authorities established in the Energy Policy Act of 2005?
Answer. To date, EPA has received an official request from the
Governor of Oklahoma to negotiate a refinery permitting cooperative
agreement with the state under the relevant provisions of the Energy
Policy Act of 2005. THe Agency is responding to the Governor and
developing a process for negotiating a cooperative agreement.
Question 4. Section 1838 of the Energy Policy Act required an
investigation of recycling used oil products into the refining process
and improving the ability to collect those materials for further use.
Where does that study stand and do you have any preliminary findings to
report on the potential for greater utilization of these oil products?
Answer. Section 1838 of the Energy Policy Act directs the Secretary
of the Department of Energy (DOE), in consultation with the
Administrator of the EPA, to conduct the study cited in the question.
EPA's Office of Solid Waste and Emergency Response has worked with DOE
on that study, and I understand that a final report on the study has
been sent to Congress.
Responses of Robert J. Meyers to Questions From Senator Bingaman
Question 1. Last year, in Subtitle H of the Energy Policy Act of
2005 (EPAct 05), Congress streamlined the permitting procedures for
refineries. These provisions are similar to those that are included in
the proposed legislation, yet they would not create any conflicts with
existing environmental laws. Additionally, the proposed legislation
would repeal subtitle H. Acting Assistant Administrator Wehrum
testified before the Environment and Public Works Committee in October
2005 that EPA was reviewing its new authority under that law. What is
EPA now doing to implement these provisions? Is there any factual
record that shows that we should change these provisions less than a
year after they were passed? Has anyone even sought to use them yet?
Answer. EPA staff from various regional offices, the Office of Air
and Radiation, Office of general Counsel, and Office of Federal
Activities have met on a number of occasions to review and analyze the
requirements of Subtitle H. As a result of these efforts, EPA stands
ready to cooperate with states and our sister federal agencies to
implement the permitting process for new refineries under Section 392.
To date, EPA has received an official request from the Governor of
Oklahoma to negotiate a refinery permitting cooperative agreement with
the state under Section 392. The Agency is responding to the Governor
and developing a process for negotiating a cooperative agreement.
EPA believes that H.R. 5254 would offer several improvements to the
EPAct provisions that have already been approved by Congress. The
legislation provides more detailed procedural and substantive
requirements than EPAct and includes specific measures for enforcement
of permitting timetables. There, EPA believes this legislation could
act to further encourage private sector investments geared towards
expanding domestic refining capacity. As indicated during the Energy
and Natural Resources Committee hearing, EPA stands ready to work with
the committee and Congress on this matter.
Question 2. In your testimony, you state that approximately 100
permits have been issued to refineries since 2000--many for upgrades to
comply with new EPA regulations and many which have added to increased
capacity not related to new fuel standards. This would suggest that a
considerable number of permits were issued in a relatively short amount
of time. How do you see the proposed legislation facilitating this
process?
Answer. It is important to note that, with the exception of one
permitting action for a new refinery, the 100 permits referenced in my
testimony have been with respect to New Source review air permits
issued for expansions or upgrades of existing facilities. Therefore,
the scope of the permits varied considerably. Many ``narrow'' NSR
permits can be evaluated and approved within a matter of months.
However, NSR permits for new refineries or major modifications to
existing facilities can take considerably longer.
Furthermore, Clean Air Act permits comprise just one part of all
the state and federal permits that are typically necessary for
refineries. As indicated in my testimony, when refinery construction is
involved, permits may be required under the Clean Water Act, the
Resource Conservation and Recovery Act, and other federal, state and
local environmental laws.
EPA believes it is logical to work together to identify potential
efficiencies that could be achieved by coordinating the permitting
process. The legislation provides for this coordination and provides
specific direction with respect to the process for developing
enforceable MOUs. The Agency believes that the legislation could
therefore provide additional incentives for the expansion of domestic
refinery capacity.
Question 3. Has EPA issued any regulations or taken any action to
implement Subtitle H? If yes, how would passage of this bill affect
that process? If no, when do you anticipate you will begin and how long
will it take?
Answer. Subtitle H of Title III of EPA (``Subtitle H'') does not
specifically require that EPA issue regulations in order to implement
the authority conveyed by the subtitle and, to date, EPA has not taken
any action to promulgate such regulations. With respect to your second
question, since H.R. 5254 acts to repeal Subtitle H, its enactment
would remove the legal basis for regulations based on the subtitle.
With respect to your third question, EPA does not presently have plans
to propose regulations implementing Subtitle H. EPA has experience in
cooperative permitting frameworks, however, and we anticipate that we
can draw on this experience quickly to assist a state and other
stakeholders in effectively implementing the provisions of Subtitle H.
Responses of Robert J. Meyers to Questions From Senator Wyden
Question 1. Most states fund their air quality permitting programs
from a combination of state general funds and fees. If H.R. 5254 was
enacted and a Governor requested additional EPA or other federal agency
assistance in obtaining a federal refinery authorization would the
project applicant reimburse the federal government for their additional
assistance? Does H.R. 5254 give applicants an incentive to request
federal assistance in lieu of having to pay state permitting fees?
Answer. We do not anticipate that project applicants, such as
refineries, would reimburse the federal government for federal
assistance provided under H.R. 5254, since there are no provisions in
the bill that provide for such a mechanism. With regard to the
possibility that H.R. 5254 would provide an incentive for applicants to
request federal assistance in lieu of having to pay state permitting
fees, the proposed legislation neither authorizes an applicant to make
such a request nor alters the state permit fees structure. Under the
legislation, only the Governor of a state may request federal
assistance.
Question 2. Does H.R. 5254 create a bad precedent in that petroleum
and other fuel refining and production facilities are given
preferential, expedited permitting and project reviews while other
energy production facilities (that could also dampen demand for
additional fuel or energy supplies) continue to be permitted in a
``business as usual'' way? Shouldn't all energy production facilities
such as wind farms, geothermal, solar and wave energy be eligible for
the same fast-track treatment as long as they help to meet national
energy supply goals and reduce the cost of energy or fuel to consumers?
Answer. The Administration is committed to securing the production
of reliable energy from all practical sources. EPA does not generally
issue permits associated with renewable sources such as wind,
geothermal, solar and wave energy. H.R. 5254 specifically addresses
petroleum and other fuel refining and production facilities that fall
under the jurisdiction of several environmental statutes administered
by EPA.
Responses of Robert J. Meyers to Questions From Senator Salazar
Question 1. The Energy Policy Act addressed this same issue of
expediting the oil refinery permit process. Sections 391 and 392
include a balanced, straightforward way to speed up review of refinery
permits: they allow for the federal government to enter into
cooperative agreements with states on refinery permitting, enable the
Administrator to provide financial assistance to states in reviewing
refinery permits, and empower the Administrator to accept consolidated
permit applications to speed up the process. H.R. 5254 would eliminate
these sections.
Have these sections of the Energy Policy Act been proven to be
inadequate improvements to the refinery permitting process? Or is it
possible that we have not give the provisions in EPAct enough time to
take hold?
Answer. EPA is currently implementing Subtitle H of Title III of
EPAct in response to a request from the Governor of Oklahoma to enter
into a refinery permitting cooperative agreement. EPA believes,
however, that H.R. 5254 offers additional authority and additional
ability for the federal government to streamline the refinery
permitting process. As indicated during the hearing, EPA stands ready
to assist Congress in its consideration of H.R. 5254 or other refinery
streamlining legislation. The Agency would certainly offer any
requested technical assistance in order to resolve implementation
issues between the existing provisions of Subtitle H and any new
legislative authority.
Question 2. H.R. 5254 gives a considerable amount of responsibility
to the ``Federal Coordinator'' to expedite and coordinate the permit
process.
Is this not adding another level of bureaucracy that may slow
permitting down?
How much weight will the state agencies be given in the process?
Answer. Because refinery construction is subject to permitting by
multiple agencies for multiple purposes, it only makes sense that the
relevant permitting agencies work together to identify potential
efficiencies that could be achieved by coordinating the permitting
process. State agencies are in many, if not most, cases the primary
permitting agency for refineries, and as such EPA expects they would
play a substantial role in the process laid out in the bill.
Question 3. Section 5 of H.R. 5254 allows for closed military
installments or portions of closed military installments to be used as
refinery sites.
Does this mean that any closed military installation including, for
example, Lowry Air Force Base in Denver, could be designated a refinery
site?
Answer. Section 5 of the bill would authorize the President to
designate closed military installations as ``potentially suitable'' for
construction of a refinery (emphasis added). Following designation, the
redevelopment authority for each designated installation would be
required to consider ``the feasibility and practicability of siting a
refinery on the installation.'' The Secretary of Defense would then be
required to ``give substantial deference to the recommendations of the
redevelopment authority . . . regarding the siting of a refinery on the
installation.'' In sum, the bill would provide a mechanism for
identifying and considering closed military bases for use as a refinery
site, but it would not explicitly mandate that a closed base be used
for that purpose.
Question 4. In considering new sites at closed military
installments, the redevelopment authority is instructed to consider the
``feasibility ad practicability'' of the site prior to the development.
What does feasibility and practicability entail under this bill?
Does it include consideration of surrounding communities?
What opportunity will the public have to comment on this process?
Answer. Under the bill, the President and Secretary of Defense
would exercise the authority to designate closed military bases for
consideration as potential refinery sites. Accordingly, the
Environmental Protection Agency is not in a position to speak
authoritatively to the appropriate interpretation or application of
this section of the bill or the process that would be used to implement
it.
Question 5a. Section 4 of H.R. 5254 allows an applicant for a
permit, or a party to a memorandum of agreement on permitting, to bring
a cause of action if a party does not take prompt action on a permit.
Does this mean that the federal government could take a state or
local government to court if a permit review is not completed within
the timeframe approved by the federal government?
Answer. The language of the bill would appear to authorize such a
suit, but the principles of federalism embodied in the U.S.
Constitution and the federal-state relationship created by the relevant
federal permitting statutes would counsel against it. Under federal
environmental laws, state and local governments agree to implement
federal permitting requirements at their discretion, and they remain
free to return those responsibilities to the federal government.
Federal agencies have a strong interest in states taking a leading role
in the implementation of many environmental programs, including
permitting, and so ave a strong incentive to work cooperatively with
state programs to implement federal requirements. In this regard, as
indicated in my testimony, we would be happy to work with Congress
prior to any final action on H.R. 5254, to address any concerns
regarding the proper balance to be struck between federal and state
programs.
Question 5b. Will this bill not erode the authority of state and
local governments to review proposed refinery projects?
Answer. The bill addresses federal refinery authorizations, which
are defined as those authorizations required under federal law. It
specifically provides that any schedule developed under its provisions
be ``the most expeditious coordinated schedule possible for completion
of all federal refinery authorizations with respect to the refinery,
consistent with the full substantive and procedural review with respect
to the refinery, consistent with the full substantive and procedural
review required by Federal law.'' The legislation does not contain an
explicit provision with respect to non-federal laws and requirements.
In addition, the legislation contains a savings clause. Section 6 of
H.R. 5254, which provides that nothing in the legislation ``shall be
construed to affect the application of any environmental or other law .
. .''
______
Responses of Glenn McGinnis to Questions From Senator Domenici
Question 1. In your testimony you state that ``long term historical
refining margins in the U.S. have, on average and in general, not been
adequate to support new refinery construction.'' Is that condition
changing in your view? Are economic conditions more favorable now to
investment in new refineries? If so, do you expect those conditions to
be sustained for the foreseeable future?
Answer. During the period from the mid 1980's until early 2004,
average refining margins in the U.S. were in the 5-6% range and below
the cost-of-capital for the industry. Product pricing was driven by
imports from surplus refining capacity in the Caribbean, Europe, and
the Far East. Over the past two years economic activity overseas has
removed the surplus capacity increasing competition and raising prices
for refined products. This shift has led to higher margins for U.S.
refiners and is now adequate to support significant expansions--both
grass roots and at existing refineries. Most industry observers expect
the current higher margins to be sustained for an extended period (at
least 5 years) due to the time required to permit, engineer and build
refineries, both in the U.S. and overseas. Many projects are in the
planning stages, however, rapid economic growth is likely to continue
to put upward pressure on margins.
Question 2. How many jobs will the construction and operation of
your refinery bring to Arizona?
Answer. The ACFY refinery will generate many high skilled jobs in
the Yuma County area. During construction it is expected that about
3000 people will be required for a 3 year period. Ongoing operation
will require about 600 people including local contract support. These
jobs will all be in Yuma County with professional and highly skilled
operations and maintenance positions.
Question 3. You state in your testimony that the Yuma project has
modern control and monitoring equipment as required by current
regulations and allows the plant to have ``minimal impact on the
surrounding environment'' and thus helps siting and public acceptance
of the project. You also state that ``the industry has led in major
technology developments'' in Best Available Control Technology for
emissions as required by the Clean Air Act. Would you agree that in
this case environmental requirements have actually been beneficial to
the project?
Answer. Processing technology and process control have reached a
high level of sophistication as have measuring and monitoring. The
sophisticated controls required by the permit will aid in optimization
and both minimizing losses and maximizing product values. The controls
on ``fugitive emissions'' are very beneficial as they permit recovery
and minimization of losses of very expensive hydrocarbons. As the
operational management practices are developed and implemented they
will include a critical focus on all environmental requirements and
will also improve operational monitoring and incident reduction. Yes--
the critical focus on environmental controls and requirements will
assist the operations in other areas and be beneficial to the refinery.
[Responses to the following questions were not received at
the time the hearing went to press:]
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC, July 20, 2006.
Mr. S. William Becker,
Executive Director, STAPPA/ALAPCO, Washington, DC.
Dear Mr. Becker: I would like to take this opportunity to thank you
for appearing before the Senate Committee on Energy and Natural
Resources on Thursday, July 13, 2006 to give testimony regarding H.R.
5254, the Refinery Permit Process Schedule Act.
Enclosed herewith please find a list of questions which have been
submitted for the record. If possible, I would like to have your
response to these questions by Friday, August 4, 2006. Thank you in
advance for your prompt consideration.
Sincerely,
Pete V. Domenici,
Chairman.
[Enclosure.]
Questions From Senator Domenici
Question 1. I too am concerned that efforts to speed refinery
construction not interfere with state authorities and procedures. But I
also am concerned about finding ways of meeting the nation's need for
refined products. Please summarize for the committee why your
organization favors the approach contained in Subtitle H of Title III
of the Energy Policy Act of 2005 over the approach contained in H.R.
5254.
Question 2. In your testimony you suggest, as does Mr. McGinnis,
that the primary reason for the lack of new refinery construction has
been due to the economics of the reining industry. Do you see those
conditions changing with new domestic requirements for the production
of cleaner fuels and with the tremendous growth in world wide demand
for finished petroleum products-especially for diesel and motor
gasoline?
Question 3. Are not environmental compliance matters a ``cost''
issue? Don't the length, uncertainty, and cost of the permit process
act as a deterrent to new refinery construction?
Questions From Senator Bingaman
Question 1. What do you think the effect of Section 4 will be of
changing the court of jurisdiction?
Question 2. In your testimony, you express concerns about how H.R.
5254 would preempt states' rights in several areas: 1) providing
exclusive jurisdiction to Federal district courts rather than state and
local courts over civil actions for failure to meet a schedule, 2)
setting the coordinated schedule to be consistent with procedural
review required by Federal law irrespective of state or local
procedures and 3) allowing the federal government to make communities
accept construction of a refinery. Do you think that this proposed
legislation would have a negative impact on the ability of states to
handle important environmental issues at the local level?
Question 3. Can you expound on why you believe it would be
preferential for industry to increase refinery capacity by expanding
existing refineries rather than building new ones?
Question 4. It has been said that the bill does not alter the
substantive environmental requirements of federal and state law. The
bill does establish permitting deadlines and new judicial review
requirements for participating states, would you agree that those
changes, at a minimum, do result in a substantive change in the
procedural requirements of federal and state law?
Questions From Senator Wyden
Question 1. Most states fund their air quality permitting programs
from a combination of state general funds and fees. If H.R. 5254 was
enacted and a Governor requested additional EPA or other federal agency
assistance in obtaining a federal refinery authorization would the
project applicant reimburse the federal government for their additional
assistance? Does H.R. 5254 give applicants an incentive to request
federal assistance in lieu of having to pay state permitting fees?
Question 2. Does H.R. 5254 create a bad precedent in that petroleum
and other fuel refining and production facilities are given
preferential, expedited permitting and project reviews while other
energy production facilities (that could also dampen demand for
additional fuel or energy supplies) continue to be permitted in a
``business as usual'' way? Shouldn't all energy production facilities
such as wind farms, geothermal, solar and wave energy be eligible for
the same fast-track treatment as long as they help to meet national
energy supply goals and reduce the cost of energy or fuel to consumers?
______
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC, July 20, 2006.
Mr. Bob Slaughter,
President, National Petrochemical and Refineries Association,
Washington, DC.
Dear Mr. Slaughter: I would like to take this opportunity to thank
you for appearing before the Senate Committee on Energy and Natural
Resources on Thursday, July 13, 2006 to give testimony regarding H.R.
5254, the Refinery Permit Process Schedule Act.
Enclosed herewith please find a list of questions which have been
submitted for the record. If possible, I would like to have your
response to these questions by Friday, August 4, 2006. Thank you in
advance for your prompt consideration.
Sincerely,
Pete V. Domenici,
Chairman.
[Enclosure.]
Questions From Senator Domenici
Question 1. You testified that establishing and optional federal
coordinator for permitting might bring some of the announced refinery
capacity additions on line more quickly. Do you know of any attempts at
this time to delay any of those needed refinery expansions?
Question 2. In 2005, ICF Consulting produced a report on worldwide
refining capacity which concluded that growth in new refining capacity
will be insufficient to meet world wide demand for finished petroleum
products, especially for new cleaner gasoline and diesel fuel. Are you
aware of that report? Do you agree generally with the report's
conclusions? If so, what does the projected worldwide shortage in
refinery capacity mean for fuel availability and for fuel prices in the
U.S. if we are unable to enhance our refining capacity?
Question 3. Is it possible that domestic requirements for cleaner
and cleaner fuels could reduce this country's ability to obtain such
fuels from foreign sources? Or is it likely that foreign refiners will
adjust their production to accommodate U.S. demand for fuels?
Question 4. Over the past several years we have heard from a number
of different sources that the domestic petroleum industry's
infrastructure is such that even minor outages at product pipelines,
crude and product storage facilities, crude oil delivery facilities at
our ports, and, of course refineries, can result in very serious
consequences for domestic fuel markets. Would you take a few minutes to
provide the committee with your thoughts on how we might be able to
alleviate these infrastructure problems?
Question 5. Are not environmental compliance matters a ``cost''
issue? Don't the length, uncertainty, and cost of the permit process
act as a deterrent to new refinery construction?
Question 6. There is much interest in building new biomass to
ethanol plants and coal to liquids plants to produce more
transportation fuels. Do we need to include these facilities in an
effort to improve the permitting process?
Question 7. Tesoro reports that it is scrapping a coker project at
its Washington refinery due to ``higher than expected costs.'' Can you
shed any light on what ``higher than expected costs'' means?
Questions From Senator Bingaman
Question 1. How many jobs would be created in the United States if
we built (and operated) an additional 3 million barrels per day of
refining capacity to try to offset the imports of petroleum products
that we receive each day into this country?
Question 2. What is the average level of compensation for an
average worker in the refining industry?
Question 3. The refining industry has testified that environmental
regulations are not interfering with the construction of existing or
the expansion of new (Greenfield) refineries. CEOs have noted the
steady capacity increases historically from expansions at existing
refineries and in your testimony today you provide a list of announced
expansions for the future. Today's Oil Daily reports that Tesoro will
not go forward with a 25,000 bpd expansion at its Anacordes refinery
due to an ``increase in costs.'' Do the projects on the list that you
provide, totaling some 1.8 million bpd, also face such potential
impacts? Please explain.
Question 4. Does your organization represent all of the refining
companies in the U.S.? If not, who (which refiners) is not a member? Do
you have reason to believe that these non-members have opinions
different than that which you presented today?
Question 5. Based on your testimony about the proposed legislation,
is it NPRA's view that, under Section 4(b)(2) the designated federal
coordinator has the authority to establish a schedule governing
federal, state and local permitting actions, even when relevant
permitting agencies do not participate in meetings called by the
coordinator? If not, does NPRA support modifications to the bill's
language to ensure all permitting requirements, federal, state, and
local, are included in a Memorandum of Agreement (MQA).
Question 6. The proposed legislation would authorize the refinery
applicant or a party to the MOA to bring a civil action in federal
district court if a federal or state agency jeopardizes the timely
completion of the schedule. It appears the bill's judicial review
standard does not provide for expedited review in the event of
disagreement over substantive issues such as compliance with
environmental standards. Why is such a distinction beneficial in NPRA's
view?
Question 7. For Memoranda of Agreement reached under this bill,
there would also be a required change to the venue in which cases
involving the MOA's permit processing schedule are litigated under
federal and state environmental law. Under this bill, cases would now
have to go to the federal district court in which the refinery is
located or proposed to be located. Litigated outcomes are always
difficult for companies to predict, isn't there some benefit to
companies to staying within the current judicial forums, rather than
changing them, because of judicial precedent?
Question 8. In your testimony, you state that U.S. refining
companies will add considerable additional capacity by 2010--
approximately 1.8 million barrels per day. In addition, you state that
there is 800,000 barrels per day of capacity still idle as a result of
hurricanes. How much additional capacity do you project will be needed
to meet U.S. demand? Why not continue to expand existing refineries in
order to increase capacity rather than build new ones, given that the
permitting is faster, and the economics are preferable?
Question 9. Last year, in Subtitle H of the Energy Policy Act of
2005 (EPAct 05) Congress streamlined the permitting procedures for
refineries. These provisions are similar to those that are included in
the proposed legislation, yet they would not create any conflicts with
existing environmental laws. Does NPRA support Subtitle H of EPAct 05?
Questions From Senator Wyden
Question 1. Refining capacity may not increase as much as your
chart shows . . . . NPRA's testimony contains a chart showing that the
Tesoro company plans to increase their refining capacity by 223,000
barrels/day. Oil Daily however, reports that the company will not
proceed with their plant expansion due to higher costs. What does this
mean for the rest of the projected capacity shown in the NPRA chart?
Are there other planned expansion projects that will not pan out?
Question 2. Your chart claims that an additional 1.8 million
barrels/day capacity is due to be on-line by 2011. Would any additional
capacity be brought on-line with the passage and enactment of H.R.
5254? If yes, how much additional fuel supply would be added and how
much faster would it be added?
Question 3. Your testimony projects that an additional 1.8 million
barrels/day of refined oil products would be added to our national
supplies by 2011. Yet, the Department of Energy's, Energy Information
Administration projects that the demand for petroleum fuels will
continue to grow by 1.2%-1.9% annually from now until then. How much
additional petroleum will be needed to meet or exceed demand by 2011?
What effect will this have on gas prices at the pump? If current
domestic refining capacity does not help to satisfy projected demand in
2011, how much additional supply or imports will we need to have
available before prices will decline? Do we really have to wait five
years before seeing a decline in gas prices?
Questions From Senator Salazar
Question 1. People often cite the statistic that no new refineries
have been built in the U.S. since 1976 as evidence that environmental
protections and the permitting process has caused the industry's growth
to remain stagnant.
Is it true that refiners have not been adding capacity? According
to your own testimony before the House, Valero recently announced that
it will be investing $5 billion dollars in refinery expansion,
resulting in over 400,000 barrels per day of new capacity. ExxonMobil's
Baytown refinery is currently under expansion of 75,000 barrels per
day, and Marathon Ashland Petroleum has also plans to expand.
Question 2. Furthermore, major refiners have been consolidating and
closing refineries to increase their margins over the last several
years, resulting in greater profits and more capital on-hand. Is this
legislation even necessary, if refining companies have the resources
and means to invest in added refinery infrastructure?
Question 3. What other economic forces affect the growth of
refinery capacity in the U.S.?
Question 4. Under the current regulatory framework and the
provisions passed in last summer's Energy Policy Act, how much new
refinery capacity will be added in the U.S. within the next five years?
Question 5. Have you found the sections of the Energy Policy Act
that pertain to refinery permitting to be inadequate improvements to
the regulatory process? Or is it possible that we have not given the
provisions in EPAct enough time to take hold?