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CMI 9 th Annual Meeting: US Refining Outlook & Climate Policy Implications. Jim Keating – BP America, R< February 9 th , 2010. US Refining Outlook & Climate Policy Implications. Refining sector market outlook in the US - PowerPoint PPT Presentation
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CMI 9th Annual Meeting: US Refining Outlook & Climate Policy Implications
Jim Keating – BP America, R<February 9th, 2010
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US Refining Outlook & Climate Policy Implications
• Refining sector market outlook in the US
• Refining sector as “Energy Intensive Trade Exposed” in the Waxman-Markey bill
• Implications of Clean Air Act regulation of GHGs (i.e. PSD permitting requirements)
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Much of recent refining margin improvement attributable to unusual events. Global competition and supply length in OECD expected to move margins back toward late-1990s. Historically refining in a highly capital intensive low return business (ca. 6% ROI)
Source: USGC Platts
US Refining Margins
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US Net Imports vs. Refinery Utilization
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North American refinery shutdowns Jan 09 – Jan 10Total capacity mothballed/closed ~800 kbd
ArubaMothballed Jul 09230 kbd
Delaware CityClosed Nov09210kbd
Corpus ChristiCoker shut20 kbd
BakersfieldMothballed Jan 09
70 kbd
BloomfieldClosed Nov09
17kbd
Eagle PointMothballed Oct 09150kbd
Montreal EastClosure announced Jan 10130kbd
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-630
-400
470
-270232
890
400
Net GlobalBalance:
U.S. short 900 kbd of gasoline, balanced distillates
Europe short 1MM bpd
distillates, long 1 MMbpd gasoline
Majority of estimated Russian
length not produced
Source: Average of various consultants
Regional Gasoline and Distillate S&D Balance 2007 (k bbl / day)
7
630
-870
310
-470 600
750
Net GlobalBalance:
2680
890
540
350
CAFE and RFS flip U.S. S&D from short
to long gasoline
… leaving Europe gasoline
length with no home
Massive over building in
Middle East and Asia
Growing economies but little investment in
refining supply
Source: Average of various consultants
Regional Gasoline and Distillate S&D Balance 2020 (k bbl / day)
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Refining & Trade ExposureAn Increased Allowance Allocation is Needed
• The US Refining Sector competes internationally
− 16% of the 7.1 billion barrels of oil products consumption in the US (2008) were imported
• The Waxman-Markey bill 2.25% allowance allocation to the Refining Sector covers only ~30% of the direct operational GHG emissions
• Additional costs associated with allowance purchase will:
− Will not apply to foreign refiner operational emissions
− Increase competitive pressures, reduce US refining production, and increase imports
− Reduce US energy security and employment
• Solution:
− Increase the allocation to Refining via an increase of the 2.25% allocation and/or via designation as an Energy Intensive Trade Exposed (EITE) sector (consistent with Refining treatment in Australia and EU ETS)
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Clean Air Act (CAA) Regulation of GHG
• Endangerment Finding (Dec 2009)
− Affirmative finding that vehicle GHGs “cause & contribute” to “endangerment” of human health and welfare
− EPA must regulate Vehicle GHG emissions
• Proposed Sec 202 Vehicle Rule (expected final Mar 2010)
− Sets new CAFÉ standard at 35 mpg by 2016
− Sets new vehicle GHG std at 250 g CO2e/mi
• GHGs defined as a “Regulated Air Pollutant” under the CAA
• Instantaneous trigger other CAA programs to address GHG emissions
− Prevention of Significant Deterioration (PSD) pre-construction permitting
− PSD threshold is 100/250 tons
− Case-by-case control technology evaluation
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Implications of PSD Permit Regulation of GHG
• Immediate Applicability to new or modified sources
• Lack of Regulatory Clarity for Planning
− GHG permitting program requirements yet to be developed by EPA
− EPA attempts to tailor PSD program for GHGs will meet legal challenges
• Permitting Complexity
− States may not be clear on authority and requirements (i.e. changes to state law)
− State agency overload as new sources are brought in to permitting programs
• Project Delays
− Agency permitting delays due to lack of resources, guidance, and experience
− Litigation and challenges to any permit issued
• Increased Costs
− New control requirements; potential process redesign for new projects, off-sets
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EPA Should Defer PSD Permitting of GHGs
EPA deferral of PSD permit regulation of GHG will:
• Avoid the detrimental impacts to the economy and counteract the goals to simulate the economy
• Allow Congress and the Administration time to craft an appropriate market-based legislative approach
• Allow EPA time to craft a path forward for the GHG Vehicle Rule without trigger CAA stationary controls
• Allow EPA time to craft a more appropriate program under the CAA that will complement eventual market-based systems (i.e. performance standards)
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Questions?