** NEW DATE **Full Committee Hearing- Refinery Permit Process Schedule Act
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Witness Panel 1
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Mr. Robert Meyers
Principal Deputy Assistant Administrator for Air and RadiationU.S. Environmental Protection AgencyWitness Panel 1
Mr. Robert Meyers
TESTIMONY OF
ROBERT J. MEYERS
ASSOCIATE ASSISTANT ADMINISTRATOR to
OFFICE OF AIR AND RADIATION
U.S. ENVIRONMENTAL PROTECTION AGENCY
BEFORE THE COMMITTEE ON ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
June 29, 2006
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
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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
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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
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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
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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
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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.
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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
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the refinery project1. 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.
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
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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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.
Witness Panel 2
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Glenn McGinnis
CEOArizona Clean Fuels YumaWitness Panel 2
Glenn McGinnis
The
By
Arizona Clean Fuels Yuma LLC
June 27, 2006
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
- The appointment of a Federal Coordinator who will act as “Project Manager” during the permitting process.
- 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.
- 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
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
New Refinery Construction Considerations
There are four general areas of consideration that drive the feasibility and timing of new refining projects:
- Overall Project economics driven by product values, feedstock costs, operating costs, and the uncertainties introduced by long lead times for engineering, permitting and construction,
- 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,
- Public Acceptance – significant reluctance in most areas of the
- 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
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
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
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
Summer 1998: work began on a Class 1/Title V air permit for a large oil refinery to be located near the community of
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
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
September 14, 2004: ADEQ issued a draft permit and began a public hearing and review process. Meetings and Hearings were held in
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
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:
- The appointment of a Federal Coordinator who will act as “Project Manager” during the permitting process.
- 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.
- 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
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
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S. William Becker
Executive DirectorSTAPPA/ALAPCOWitness Panel 2
S. William Becker
S. William Becker
Executive Director
of the
State and Territorial Air Pollution Program Administrators
and the
Association of Local Air Pollution Control Officials
on
H.R. 5254, the Refinery Permit Process Schedule Act.
before the
Senate Committee on Energy and Natural Resources
July 13, 2006
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
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
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
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
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 (
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.
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Bob Slaughter
PresidentNational Petrochemical and Refineries AssociationWitness Panel 2
Bob Slaughter
Written Statement of the
National Petrochemical & Refiners Association
delivered by
Bob Slaughter
President, NPRA
before the
Senate Energy and Natural Resources Committee
concerning
H.R. 5254, The Refinery Permit Process Schedule Act
July 13, 2006
Washington, DC
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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 HR. 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.
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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)
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 averagesized
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
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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 nearelimination
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.
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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 respond ing 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 refine ry 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.
5
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 investme nt, 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, Ind ia 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.
6
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.
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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
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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.
