Energy
4:51 pm
Thu May 31, 2012

Gulf Refinery Expansion May Not Cut Gas Prices

Originally published on Mon June 4, 2012 6:44 pm

In Texas recently there was a grand opening for what is now the largest refinery in the U.S. Shell and Saudi Arabia's national oil company, Saudi Aramco, have more than doubled the capacity of their Port Arthur refinery.

The refinery business has been going through a tough period in recent years. Americans are buying less gasoline and other petroleum products — about 10 percent less than in 2005, according to the U.S. Energy Information Administration.

Refiners' profits have been squeezed between this declining demand and rising prices for the main ingredient in gasoline — oil. Across the country, refineries are shutting down because they're no longer profitable. It's surprising, then, to hear someone in the oil business get excited about a refinery expansion.

"This is the largest manufacturing project ever done in the state of Texas," says Bob Pease, president and CEO of Motiva Enterprises, which is a 50-50 partnership between Shell and Saudi Aramco.

600,000 Barrels A Day

Expanding the refinery took five years and $10 billion. At peak construction, there were more than 14,000 people working on the project. The result: A facility that was refining 280,000 barrels a day can now process 600,000 barrels a day. (About 15 million barrels of oil a day go into U.S. refineries.)

"Besides just capacity increases, the main thing we're getting out of this is considerable flexibility," Pease says.

This facility can refine all kinds of oil, including the heavy crude that Saudi Arabia produces. It also can tap into some of the less expensive oil currently produced in the middle of the U.S. and Canada

At the other end of the refinery, there's also flexibility in where the gasoline is sold. It can end up in U.S. gas tanks, or it can be shipped from the Gulf Coast to wherever in the world it is most profitable to sell.

That ability to export is bad news for U.S. drivers worried about gas prices.

"Don't expect it to have any significant impact on the prices paid for gasoline at the pumps," says Neal Walters, vice president and partner in the energy practice at consulting firm A.T. Kearney.

U.S. A Net Exporter Of Gasoline

In recent years, the U.S. has become a net exporter of finished petroleum products, like gasoline and diesel. This refinery expansion will contribute to that trend.

"It increases the capacity available to export and doesn't have, in the short term, any significant impact on the supply going into the United States," Walters says.

It also continues a trend of smaller, regional refineries shutting down in favor of production from larger, more efficient refineries, like those on the Gulf Coast.

While this refinery expansion may not reduce gasoline prices, oil prices have declined by more than 15 percent in just the past month. Amid economic concerns, traders are worried that oil demand will be lower than they expected. That has sent gasoline prices down nearly 20 cents a gallon this month.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

You're listening to ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel. Here's a case where the law of supply and demand doesn't play out in quite the way you might expect. The United States is making gasoline like crazy, and it's been adding capacity to make more. For instance, Shell and Saudi Arabia's national oil company have more than doubled the capacity of a refinery in Port Arthur, Texas, making it the largest in the country. But all that production is not driving gas prices down at the pump. NPR's Jeff Brady explains why.

JEFF BRADY, BYLINE: The refinery business has been going through a tough period in recent years. Americans are buying less gas and other petroleum products - about 10 percent less than in 2005, according to the Department of Energy. Across the country, refineries are shutting down because they're no longer profitable. It's surprising then to hear someone in the oil business, like Bob Pease, get excited about a refinery expansion.

BOB PEASE: So, this is the largest manufacturing project every done in the state of Texas. So, you know Texas does things big. This is the biggest ever.

BRADY: Pease is president and CEO of Motiva Enterprises, that's a 50-50 partnership between Shell and Saudi Aramco. The Port Arthur refinery expansion really is a big project. It took five years and $10 billion to complete. At peak construction, there were more than 14,000 people working on the project. Now, Pease says the refinery can process 600,000 barrels of oil a day.

PEASE: Besides just capacity increases, the main thing we're getting out of this is considerable flexibility.

BRADY: Pease says the refinery can handle all kinds of oil, including the heavy crude that Saudi Arabia produces. At the other end of the refinery there's also flexibility in where the gasoline is sold. It can end up in U.S. gas tanks or it can be shipped from the Gulf Coast to wherever in the world it's most profitable to sell. That ability to export is bad news for U.S. drivers worried about gas prices. Neal Walters is with the consulting firm A.T. Kearney

NEAL WALTERS: Don't expect it to have any significant impact on the prices paid for gasoline at the pumps.

BRADY: Walters says in recent years the U.S. has become a net exporter of finished petroleum products, like gas and diesel.

WALTERS: So, in effect, what this does is it increases the capacity available to export and doesn't have, in the short term, any significant impact on the supply going into the United States.

BRADY: And it continues a trend of smaller, regional refineries shutting down in favor of production from larger, more efficient refineries like those on the Gulf Coast. While this expansion may not reduce gasoline prices, another development is. Oil prices have fallen amid bad economic news. World oil prices are down nearly $30 a barrel since mid-March. And that also has sent gasoline prices down in recent weeks. Jeff Brady, NPR News. Transcript provided by NPR, Copyright National Public Radio.

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