The Future of the U.S. Refining Industry

Transcription

1 The Future of the U.S. Refining Industry Why Climate Legislation is (more) Bad News for the Refining Sector Presentation by Lucian Pugliaresi Energy Policy Research Foundation, Inc. Washington, DC before New York Energy Forum New York City February 22, 2010 Energy Policy Research Foundation, Inc st St, NW Washington, DC

2 Number of U.S. Refineries and Capacity mbd Refineries Capacity Refineries Source: EIA data Energy Policy Research Foundation, Inc st St, NW Washington, DC

3 Total Gasoline Imports Share of Finished Motor Gasoline Product Supplied 18.00% 16.00% 14.00% % of marketshare 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Source: EIA data, EPRINC calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

4 US Refinery Capacity Utilization mbd % Utilization U.S. Percent Utilization of Refinery Operable Capacity U. S. Operable Crude Oil Distillation Capacity (Thousand Barrels per Day) Source: EIA data, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

5 Compliance Costs: US Refining Industry Red area above yellow line represents free allowances allocated to refiners billion $ annually Cost of Allowances to Cover Product Combustion Cost of Allowances to Cover Stationary Source Emissions Total Cost of Allowances, Stationary Source and Product Combustion net of 2 % allocation Energy Policy Research Foundation, Inc st St, NW Washington, DC

6 Effective Cost of Production: US Product Slate Source: EPRINC Calculations from OGJ and proprietary refinery data sets of complexity, product slate valuations, and location. Product slate standardized to common EPRINC product/cost value index. Energy Policy Research Foundation, Inc st St, NW Washington, DC

7 U.S. Refiners' Future Cost of Production ( ) Blend Wall Costs $ per barrel Stationary Emissions $15/ton - 80% Pass-Through Stationary Emissions $15/ton - 90% Pass-Through Section 199 Costs Product Combustion $15/ton 5 Effective Production Cost 0 5 mbd 10 mbd 15 mbd Source: EPRINC report: The American Clean Energy and Security Act: An EPRINC Assessment of Capacity and Employment Losses in the Domestic Refining Industry. Energy Policy Research Foundation, Inc st St, NW Washington, DC

8 Stationary Emission Costs and Potential Capacity Losses Source: EPRINC report: The American Clean Energy and Security Act: An EPRINC Assessment of Capacity and Employment Losses in the Domestic Refining Industry. Energy Policy Research Foundation, Inc st St, NW Washington, DC

9 Product Combustion Pass-Through Costs and Potential Capacity Losses Source: EPRINC report: The American Clean Energy and Security Act: An EPRINC Assessment of Capacity and Employment Losses in the Domestic Refining Industry. Energy Policy Research Foundation, Inc st St, NW Washington, DC

10 Emission Allowances for Refiners Under W-M (Millions of Metric Tons of CO2 per Annum) Year Total CO2 Emissions Permitted for US Economy U.S. Refiners Emissions (Stationary Source) U.S. Refiners Emissions (Product Combustion) Refiners Total Emission Compliance Obligation Emission Allowances Provided at No Cost Net Emission Allowance Purchase Requirement , ,029 2, , , ,980 2, , , ,964 2, , , ,973 2, ,222 Source: EPRINC report: The American Clean Energy and Security Act: An EPRINC Assessment of Capacity and Employment Losses in the Domestic Refining Industry. Energy Policy Research Foundation, Inc st St, NW Washington, DC

11 Annual Compliance Cost for U.S. Refiners Under W-M (U.S. dollars in billions, carbon prices derived from EPA estimates) Year Cost of Allowances to Cover Stationary Source Emissions Cost of Allowances to Cover Product Combustion Value of Allowances Allocated under W-M to U.S. Refiners Total Cost of Allowances, Stationary Source and Product Combustion net of 2 % allocation $3.3---$4.4 $ $34.5 $ $1.70 $ $ $4.3---$5.5 $ $43.5 $ $2.22 $ $ $5.4---$7.0 $ $55.2 $ $2.41 $ $ $6.9---$8.9 $ $70.7 $0 $ $79.6 Source: EPRINC report: The American Clean Energy and Security Act: An EPRINC Assessment of Capacity and Employment Losses in the Domestic Refining Industry Energy Policy Research Foundation, Inc st St, NW Washington, DC

12 EPA and EIA Allowance Price Forecasts $/ton CO EIA No Int'l Offsets, Limited Alternatives EIA Basic EPA - Core IGEM EPA - Core ADAGE Source: EPA and EIA Forecasts Energy Policy Research Foundation, Inc st St, NW Washington, DC

13 U.S. Distillate Net Imports thousand barrels per day Source: EIA Data Energy Policy Research Foundation, Inc st St, NW Washington, DC

14 Projected Worldwide Refining Capacity Additions mb/d of crude distillation capacity With Saudi Projects IEA Forecast - Non-OECD IEA Forecast - OECD Source: IEA Forecasts, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

15 Some Planned Refining Capacity Additions by Locations Planned Completion Date India - Jamnagar Export Refinery Net Addition to Capacity (thousand b/d) China ,600* Saudi Arabia - Ras Tanura Saudi Arabia - Jubail Saudi Arabia - Yanbu Export Refinery Abu Dhabi - Ruwais Total: 7,780 Source: EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

16 Refined Product Gross Margins $ per barrel Composite Margin Gasoline Margin Kerosene Margin Distillate Margin Residual Fuel Margin Source: EIA Data, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

17 Stationary Emissions not Covered by Free Allowances million metric tons per year of allowances Refiner's Share of Free Allowances, 2% Total U.S. Refiner Stationary Emissions (2002) Source: EIA Data, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

18 EISA 07 Renewable Fuels Standard Biomass based Diesel Billion Gallons Any Advanced Cellulosic Advanced Corn Ethanol / Other EPACT % Ethanol Penetration (The Blend Wall) Source: DOE, EIA Data and June 2009 STEO. Blend wall assumes projected 2009 gasoline consumption found in the June 2009 EIA STEO. Energy Policy Research Foundation, Inc st St, NW Washington, DC

19 Retail Fuel Prices $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 E85 BTU Adjusted* Gasoline Diesel* $0.00 4/1/00 11/1/00 6/1/01 1/1/02 8/1/02 3/1/03 10/1/03 5/1/04 12/1/04 7/1/05 2/1/06 9/1/06 4/1/07 11/1/07 6/1/08 1/1/09 *Price is per gallon of gasoline equivalent (BTU basis), according to DOE conversion standards: 1 Gallon of Gasoline = gallons of E85 and gallons of diesel. Source: DOE Data Energy Policy Research Foundation, Inc st St, NW Washington, DC

20 Energy Subsidies Not Related to Electricity Production Category Fuel Consumption (Quadrillion BTU) FY 2007 Subsidy and Support (million 2007 dollars) Subsidy (dollars per Million BTU) Coal Refined Coal Natural Gas and Petroleum Liquids Ethanol/Biofuels Geothermal Solar Other Renewables Hydrogen * 230 NM Total Fuel Specific Total Non-Fuel Specific NM 3597 NM Total End-Use and Non-Electricity NM 9834 NM Source: EIA Data Energy Policy Research Foundation, Inc st St, NW Washington, DC

21 Ethanol Subsidies Total 2008 Ethanol Subsidies: $9.15 billion Total Subsidy Per Gallon of Ethanol: $1.08 TotalSubsidy Per Gallon of Gasoline Displaced, BTU Equivilent $1.63 (Total does not include cost of fuel, only the fuel subsidy), * = EPRINC Estimate, not all subsidies are listed Source: EPRINC calculated Blender's Credit Energy Policy Research Foundation, Inc st St, NW Washington, DC

22 FFVs and E85 Usage % Million Vehicles % 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% Light Duty E85 FFV's In Use % of FFV's Actually Operating on E % Source: EIA Data, DOE Data, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

23 The Blend Wall in a low RBOB World 2.5 Estimated all-in cost for ethanol: corn + operating costs + capital costs 2 $/gallon Price difference between ethanol and RBOB After serving its role as an oxygenate, ethanol must compete directly with gasoline % of Gasoline Pool Ethanol loses significant value as it moves into E85 Blender's Credit: $0.45/gallon Falling values for ethanol will be mirrored by rising values for RINs RBOB (NYMEX Futures: March Delivery) Ethanol's Value Relative to Gasoline Ethanol (CBOT Futures: March Delivery) Corn Feedstock - $ per gallon of Ethanol All In-Cost of Ethanol Production Energy Policy Research Foundation, Inc st St, NW Washington, DC

24 EIA AEO 2010 Biofuels Projection Biofuels grow, but fall short of the 36 billion gallon RFS target in 2022, exceed it in Richard Newell, EIA, at SAIS, December, 2009 Energy Policy Research Foundation, Inc st St, NW Washington, DC

25 Cost and Effectiveness of Cash for Guzzlers Program Baseline=18 mpg, 12,000 VMT Voucher Value Program Cost for One Million Vehicles Gallons Saved Per Vehicle, Annually Total Fuel Savings for One Million Vehicles Over Eight Years, Gallons Cost Per Gallon Saved Over Eight Years Fleet Fuel Consumption Reduction Compared to 2008 Rate New Car, +4 MPG $3,500 $3,500,000,0 00 New Car, +10 MPG $4,500 $4,500,000,0 00 New Light Truck/SUV, $3,500 $3,500,000,0 +2 MPG 00 New Light Truck/SUV, +5 MPG $4,500 $4,500,000, ,600,000 $ % ,904,800,000 $ % ,600,000 $ % ,159,200,000 $ % Sources: EIA Data, EPA Data, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

26 Billion Gallons Ethanol Equivalent The RFS Already Maximizes U.S. Low-GHG Biofuel Use Through EIA AEO 2008 WBS Reference Case imports U.S. RFS gap Biodiesel Sugar F-T Cellulosic B-C Cellulosic Biodiesel B-C Cellulosic F-T Cellulosic Grain The 2008 AEO & a 2008 DOE Policy Analysis Office study project that RFS2 cellulosic biofuel waivers will be required through 2030 (AEO) or 2025 (Policy Analysis Office). Since then, the recession has further delayed investment. Energy Policy Research Foundation, Inc st St, NW Washington, DC

27 EIA W-M Base Case Petroleum Demand mb/d Biodiesel Ethanol Total Crude and Refined Petroleum Product Supply* Source: EIA Forecasts Energy Policy Research Foundation, Inc st St, NW Washington, DC

28 Energy Policy Research Foundation, Inc st St, NW Washington, DC

29 Product Prices and Share cents per gallon % CBOT Ethanol Futures NYMEX RBOB Futures Ethanol Production's Share of Finished Motor Gasoline Supplied (%) Dec/05 Mar/06 Jun/06 Sep/06 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Source: EIA Data, CME Group, EPRINC Calculations. All prices are for front month futures contracts. Prices are not BTU adjusted. Energy Policy Research Foundation, Inc st St, NW Washington, DC

30 Lifecycle GHG Emissions Source: EPA, Energy Policy Research Foundation, Inc st St, NW Washington, DC

31 Energy Policy Research Foundation, Inc st St, NW Washington, DC

32 Energy Policy Research Foundation, Inc st St, NW Washington, DC

33 A Selection of Ethanol Subsidies 2008 Ethanol Subsidies $ Million Market Price Support on Domestic Production 2,240 Market Price Support on Exports 30 Volumetric Excise Tax Credit (Blender's Credit)* 4,335 Reductions in State Motor Fuels Tax 440 Federal Small Producer Tax Credit 170 Excess of Acclerrated Over Cost Depreciation 680 Federal Grants, Demonstration Projects, R&D 350 Access to Tax-Exempt Solid Waste Bonds 110 Deferral of gain on sale of farm refineries to coops 20 Crop Support to Corn 730 Crop Support to Sorghum 20 Credits for Clean Fuel Refueling Infrastructure 20 Energy Policy Research Foundation, Inc st St, NW Washington, DC

34 Ethanol Subsidies Total 2008 Ethanol Subsidies: $9.15 billion Total Subsidy Per Gallon of Ethanol: $1.08 TotalSubsidy Per Gallon of Gasoline Displaced, BTU Equivilent $1.63 (Total does not include cost of fuel, only the fuel subsidy), * = EPRINC Estimate, not all subsidies are listed Source: EPRINC calculated Blender's Credit Energy Policy Research Foundation, Inc st St, NW Washington, DC

35 GHG Well to Wheels CA ULSD Crude Production 7% Crude Transport 1% Crude Refining 12% Product Transport >0.5% Tank to Wheel 79% Source: Detailed California-Modified GREET Pathway for Ultra Low Sulfur Diesel (ULSD) from Average Crude Refined in California, CARB, Feb Energy Policy Research Foundation, Inc st St, NW Washington, DC

36 Upstream GHG Emissions by Feedstock Source: An Evaluation of the Extraction, Transport and Refining of Imported Crude Oils and the Impact on Life Cycle Greenhouse Gas Emissions, DOE/NETL-2009/1362, March 27, 2009 Energy Policy Research Foundation, Inc st St, NW Washington, DC

37 How the LCFS is Met in 2030 Sugar ethanol 4% Corn Ethanol 3% Approx. 275 million tonnes of CO 2 equivalent credits are required by Cellulosic ethanol 54% BTL 22% PHEV electricity 1% Biodiesel 1% Reductions from refining and upstream 15% Energy Policy Research Foundation, Inc st St, NW Washington, DC

38 Alberta Oil Sands With and Without LCFS Reference case 2025 LCFS case mbpd 0.7 mbpd 3.4 mbpd 2.0 mbpd 1.2 mbpd Source: An Evaluation of the Extraction, Transport and Refining of Imported Crude Oils and the Impact on Life Cycle Greenhouse Gas Emissions, DOE/NETL-2009/1362, March 27, 2009 Energy Policy Research Foundation, Inc st St, NW Washington, DC

39 Impact of U.S. LCFS on CO 2 Emissions Note: US LCFS limits leads to significant reductions in emissions attributed to the LCFS, but these reductions are largely offset by increased emissions in the rest of the world: Canadian oil sands go elsewhere & most increased biofuel use is at the expense of biofuel use elsewhere. Source: US DOE, Unofficial estimates of LCFS, private communication. Energy Policy Research Foundation, Inc st St, NW Washington, DC

40 The Endangerment Finding Greenhouse Gas Emission Regulation Under the Clean Air Act Energy Policy Research Foundation, Inc st St, NW Washington, DC

41 Pathways for Control of GHGs Clean Air Act (CAA) emission limitations on stationary and mobile sources, including fuels Endangered Species Act (ESA) emission sources could be subject to consultation requirements and takings claims for effects on specie habitat Clean Water Act (CWA) limits could be placed on GHG emissions to address ocean acidification and water temperature changes National Environment Policy Act (NEPA) could require the analysis of climate change in environmental assessments and impact statements Energy Policy Research Foundation, Inc st St, NW Washington, DC

42 What are Prospects for Legislative Preemption? None of the legislative proposals before Congress call for full preemption of CAA stationary and mobile source requirements - HR 2454 preempts some stationary sources requirements but not fuels - S is similar to HR 2454 but has 25k source threshold for PSD and Title V None of the legislative proposals preempt CWA and ESA requirements or tort. Only limited State preemption Worse outcome is legislation and regulation 60 votes for full preemption may be difficult Energy Policy Research Foundation, Inc st St, NW Washington, DC

43 Preliminary Conclusions Multiple Regulatory Pathways under which Petroleum facilities could be regulated. Clean Air Act (CAA) not well suited to regulating GHGs Pathways are linked; regulation under one CAA provision can and will trigger regulation under others. Litigation, including citizen suits, will increase dramatically but unlikely to stay rules. Managing the regulation of GHGs likely to be a key objective for industry. Energy Policy Research Foundation, Inc st St, NW Washington, DC

44 Petroleum Emission Sources Flares FCC Fluid coking Cat reforming On-site sulfur recovery units Coke calcining Asphalt blowing Delayed coking Process vents Uncontrolled blow-down Equipment leaks Storage tanks Crude oil, intermediate or product loading operations Topping Plants (Alaska) Sulfur Plants Chemical Plants (partial equity and Bayway Polypropylene) Specialty Chemicals (Flow Improver Manufacturing) Lubricants Manufacturing CoGens Calciners Sulfuric Acid Plants Pipeline Terminals and Bulk Stations Marine Loading facilities Natural Gas Processing Plants Fractionators Midstream Compressor Stations LNG Facilities Upstream-Production Facilities Development Drilling and Workover Rigs East Vacuum Liquid Recover and CO2 Injection Plant Coal Gasification Offshore platforms Energy Policy Research Foundation, Inc st St, NW Washington, DC

45 Final Endangerment Finding: Second Order Effects are Numerous Two major findings: - Current and projected atmospheric concentrations of 6 GHGs endanger public health and welfare; - Combined emissions of 4 of the 6 pollutants emitted from motor vehicles contribute to atmospheric concentrations and threat. Final Endangerment Finding will likely compel regulation under several other provisions of CAA that rely on similar endangerment test Energy Policy Research Foundation, Inc st St, NW Washington, DC

46 Stationary and Mobile Controls Will Be Triggered Early Next Year March Final Endangerment Finding will allow EPA to finalize its GHGs motor vehicle rule - Final Motor Vehicle Rule will make CO2 and other GHGs a regulated pollutant under the CAA. Even though EPA will regulate cars, EPA states that the motor vehicle rule will immediately trigger (without further rulemaking) stationary source requirements: - Operating Title V permit requirements for plants or buildings having potential to emit > threshold limit - Plant modification pre-construction permit requirements and best available controls ( PSD/BACT ) For existing plants with emissions threshold limits that make modifications that increase GHG emissions Energy Policy Research Foundation, Inc st St, NW Washington, DC

47 What Would National GHG NAAQS Look Like* National Ambient Air Quality Standard (NAAQS) endangerment test similar to 202 finding. Expect litigation CBD petition to set 350 ppm GHG NAAQS. Similar to ozone and PM2.5 standard could force all areas of country to be considered in attainment or non-attainment. Given tough statutory consequences for non-attainment LAER, offsets for all emission increases and 10-year attainment deadline EPA likely to place all areas into attainment. - EPA could then require states to develop maintenance strategies reductions to assure concentrations are not exceeded. - Challenge of attaining concentration levels that will be driven by international emissions. *If not preempted by legislation 47

48 Political Factors Affecting Regulatory Outcomes New Administration - Eager to right perceived wrongs - Moving at breakneck speed to issue new rules - Some recognition that speed is necessary to prevent unraveling if one-term Presidency - Top-down management style career staff frustrated - Few moderating influences inside the Administration One year from now things could change -- - Mid-term election coupled with lackluster economic growth and job creation could slow EPA regulatory march - Significant regulatory activity on non-ghgs could overwhelm States and sources - Top-down management strategy could yield to more staff reality checks and greater interagency push back Energy Policy Research Foundation, Inc st St, NW Washington, DC