Push For Biofuels Leads To Reduction In Refinery Plans

Oil industry executives don't see high enough demand for gasoline to warrant billions in refinery expansions originally anticipated.

WASHINGTON (AP) - A push from Congress and the White House for huge increases in biofuels, such as ethanol, is prompting the oil industry to scale back its plans for refinery expansions. That could keep gasoline prices high, possibly for years to come.

With President Bush calling for a 20 percent drop in gasoline use and the Senate now debating legislation for huge increases in ethanol production, oil companies see growing uncertainty about future gasoline demand and little need to expand refineries or build new ones. Oil industry executives no longer believe there will be the demand for gasoline over the next decade to warrant the billions of dollars in refinery expansions originally anticipated as recently as a year ago.

Biofuels coupled with efforts to get automakers to build more fuel-efficient cars and SUVs have been portrayed as key to countering high gasoline prices, but they are likely to do little to curb costs at the pump today, or in the years ahead as refiners reduce gasoline production.

A shortage of refineries has frequently been blamed by politicians for the sharp price spikes in gasoline, as was the case last week by Sen. James Inhofe, R-Okla., during debate on a Senate energy bill. ''The fact is that Americans are paying more at the pump because we do not have the domestic capacity to refine the fuels consumers demand,'' Inhofe complained as he tried unsuccessfully to get into the bill a proposal to ease permitting and environmental rules for refineries.

This spring, refiners, hampered by outages, could not keep up with demand and imports were down because of greater fuel demand in Europe and elsewhere. Despite stable, even sometimes declining, oil prices, gasoline prices soared to record levels and remain well above $3 a gallon. Consumer advocates maintain the oil industry likes it that way.

Only last year, the Energy Department was told that refiners, reaping big profits and anticipating growing demand, were looking at boosting their refining capacity by more than 1.6 million barrels a day, a roughly 10 percent increase. That would be enough to produce an additional 37 million gallons of gasoline daily.

But oil companies already have scaled those expansion plans back by nearly 40 percent. More cancellations are expected if Congress passes legislation now before the Senate calling for 15 billion gallons of ethanol use annually by 2015 and more than double that by 2022, say industry and government officials.

With the anticipated growth in biofuels, ''you're getting down to needing little or no additional gasoline production'' above what is being made today, said Joanne Shore, an analyst for the government's Energy Information Administration.

In 2006, motorists used 143 billion gallons of gasoline, of which 136 billion was produced by U.S. refineries, and the rest imported.

Valero Corp., the nation's largest refiner producing 3.3 million barrels a day of petroleum product, recently boosted production capacity at its Port Arthur, Texas, refinery by 325,000 barrels a day. But company spokesman Bill Day said some additional expansions have been postponed. ''That's not to say we've changed our plans,'' Day said in an interview. ''But it's fair to say we're taking a closer look at what the president is saying and what Congress is saying'' about biofuels. He said there's a ''mixed message'' coming out of Washington, calling for more production but also for reducing gasoline demand.

Ron Lamberty of the American Coalition for Ethanol said all the talk about biofuels threatening gasoline production is the ''latest attempt to blame ethanol on Big Oil's failure to meet our energy needs. The ethanol industry continues to grow while oil refiners continue to make excuses for maintaining their profitable status quo.''

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