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Wall
Street Journal
Refiners Face Obstacles to Processing
Cheaper, Dirtier Crude Oil
By ANA CAMPOY
June 12, 2008; Page A6
Refiners faced with rising prices for premium grades of crude oil are
rushing to expand their ability to process less expensive, dirtier
crudes, but their efforts face concerns about pollution and global
warming.
Several expansion projects in the U.S. are being slowed by worries that
the processing of heavier crudes produces more air pollutants and
greenhouse gases that contribute to climate change. While
environmentalists have long been critical of heavier crude, government
officials responsible for signing off on expansion projects are echoing
that unease and demanding countermeasures to reduce the amount of
pollution.
Last week, an Environmental Protection Agency board refused to approve a
permit for a refinery expansion proposed by ConocoPhillips and EnCana
Corp. in Roxana, Ill., after environmentalists raised objections.
In Richmond, Calif., Friday, the city's planning commission told Chevron
Corp. it will restrict the crude the company can process once it
upgrades its refinery there. And BP PLC is facing challenges
from environmental groups to a proposed project in Whiting, Ind.
Refiners have had difficulty building plants because of community
opposition and lengthy and complicated permitting processes. There have
been no new refineries built in the U.S. since 1976. Refiners have
circumvented these barriers by expanding existing facilities. Since
1985, U.S. refining capacity has grown 20%, even as the number of
refineries has fallen, according to API, the oil industry's trade group.
Refiners plan to increase the amount of crude they process by 800,000
barrels a day by 2010, a 4.5% increase from current capacity, or the
equivalent of four new refineries, API says. As rising oil prices
outpace refiners' ability to pass along increases to consumers in a weak
economy, they are looking for ways to cut costs. Because heavier crude
is more difficult to process, it is less expensive than premium grades,
such as West Texas Intermediate, or WTI. Prices for WTI have jumped more
than 30% since the beginning of the year to more than $130 a barrel,
while Mexican Maya, a heavy grade, has gone up 27% to about $105.
Meanwhile, oil producers are bringing more heavy crude into the market,
a trend industry officials expect to continue. In particular, refiners
are working to expand production from the Canadian tar sands, which hold
large reserves of ultraheavy oil.
But expansion and upgrade plans that would allow refiners to take
advantage of the heavier crude are increasingly coming under fire.
Opponents to projects cite global-warming concerns, but they also are
becoming more exacting in their criticism to pollution in general.
"It is going to cause vast increases in CO2 emissions; it's a huge issue
that you have to confront," said Ann Alexander, an attorney at the
Natural Resources Defense Council, an environmental group that is
challenging the Roxana and Whiting projects.
The mounting opposition to refining projects comes as oil companies are
under pressure from lawmakers and the public to do something about
skyrocketing oil and fuel prices. If they can't process more heavy
crude, refiners likely would have to pass more of their costs to
consumers at the pump. The increased objections are delaying projects
and could derail project economics if refiners can't process the cheaper
crude or are required to add equipment or staff to address the concerns,
industry experts say.
Refiners say limits on greenhouse-gas emissions being developed by the
federal government also could throw a wrench into their plans to use
heavier crudes, particularly crude from Canadian tar sands. Among the
biggest threats: potential laws that would penalize fuels derived from
heavier, more carbon-intensive sources.
Refiners say such rules don't make sense at a time when the government
is pushing to minimize demand for Mideast oil.
"We have all these facilities that we, as domestic refiners, have spent
billions of dollars upgrading so we can run Canadian crude, and then
[the government] is going to turn around and say there's going to be a
significant penalty in using those?" says Charles Drevna, president of
the National Petrochemical and Refiners Association, an industry group.
"And in the meantime, everyone's complaining about the price of a gallon
of gas."
While processing heavy crude makes economic sense, breaking down thick,
sticky crude into light fuels such as gasoline or diesel requires more
energy, which means more greenhouse-gas emissions, says Thomas O'Connor,
senior manager at ICF International, a consulting-services company.
In Richmond, Chevron wants to upgrade its refinery to be able to
process higher-sulfur crude, among other reasons. In the past,
regulators have mostly stuck to restricting what comes out of the
refinery, not what goes in. But Richmond's planning commission, which is
vetting the project, is siding with activists who complained about the
environmental impact of the dirtier fuel.
Write to Ana Campoy at
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