New refineries face challenging environment
By Meagan Sexton, msexton@siouxcityjournal.com | Posted: Sunday, December 14, 2008
A Journal Exclusive
Four top national energy and oil analysts say anyone planning to build a new refinery in this country faces a challenging environment, and at least one expert says the chances of the Hyperion Energy Center being built are between "slim and none."
Yet executives with Dallas-based Hyperion Refining and Arizona Clean Fuels, which is planning a new refinery near Yuma, Ariz., say their projects' location and ability to produce new, cleaner fuels make them more viable than analysts realize or understand.
In fact, David Treanor, a vice president with Arizona Clean Fuels, said his company plans to break ground on the Yuma refinery, which will refine 150,000 barrels of crude oil a day, in the second quarter of 2009.
"I frankly find it astonishing any analyst would say we don't need new refineries," he said. "I don't know who's doing the math, but it's not right."
Leading industry analysts such as Tom Kloza, chief oil analyst for the Oil Price Information Service, remain skeptical. Kloza said he doesn't believe a new facility will be built any time in the foreseeable future because no one will finance a new facility right now and the expansion of existing refineries will meet the domestic demand for oil products.
"There's no question that a year from now we will be refining probably more gasoline and more products in the United States than we would probably be comfortable with domestically," Kloza said. "The chances of that refinery (Hyperion) being built right now are somewhere between slim and none."
Joanne Shore, senior analyst for the Energy Information Administration, a division of the U.S. Department of Energy, said her agency estimates that in the next five years there will be a 1 million barrel-a-day increase because of refinery expansions nationwide.
"The long term forecast we put out showed we don't need any more expansions (after the 1 million increase) for the next 20 to 25 years," Shore said.
She said that amount will fill the need for oil domestically. In fact, Shore said the need for crude in the United States is likely to decrease.
Shore said the Energy Independence and Security Act's requirement for increased effciency in automobiles and increased use of renewable fuels will diminish the need for refined crude. Her agency projects that in the next 15 years the need for crude-based gasoline will decline by 7 percent.
"The picture I'm painting here is that we're not seeing the need for new crude oil capacity that we did two or three years ago," Shore said.
But officials with Hyperion and Arizona Clean Fuels say their refineries don't follow the traditional business model.
Hyperion officials say their proposed refinery near Elk Point, S.D., would supply an underserved market with the diesel fuel that is sometimes in short supply in the Upper Midwest and Plains states, among other fuels.
Treanor said the Yuma refinery will meet growing demands for the new cleaner diesel and jet fuels in southern Arizona, one of the fastest growing markets in the country.
Beyond that, Preston Phillips, project executive for Hyperion Refining, said he disagrees with analysts' assertions that the U.S. doesn't need an increase in capacity.
"There's still 4 million barrels a day of refined product being imported," Phillips said.
Treanor said his company also aims to replace imported fuels but that the new refinery won't even catch up to demand for those.
Cindy Schild, refining issues manager for the American Petroleum Institute, said she believes new refineries face challenges simply because it is more cost effective to modify existing refineries than to build a new one.
"You already have the facility, infrastructure and community support," Schild said. " You have the means to get the product in and out, which makes it more cost effective. On a per-barrel basis, it is more cost effective to expand than to build a new facility."
But Phillips said the locations of existing refineries have become problematic because of natural disasters.
"Every time we get a hurricane, they (refineries on the Gulf Coast) get knocked out," Phillips said. "The average consumer is not aware of how fragile the balance is."
Peter Beutel, an oil analyst for the energy risk management firm Cameron Hanover in New Canaan, Conn., said the U.S. does need new refineries, but he doesn't think this is the right time to build one.
"We are going to have growth again, and the fact that demand has declined dramatically doesn't mean that we're not going to see growth again, and we've had some spectacular refining margins this century at various times," Beutel said. "They're absolutely horrible this minute, but they have the chance of being outstanding again."
He said the current credit crisis, the decline in oil prices and the collapse in refining margins are three reasons the nation has not seen new oil refineries started recently.
"My comments are more like a plea ... pleading the case for them putting refineries in the U.S. because we need them, understanding that the odds seem somewhat stacked against us right now," Beutel said.
Eric Williams, spokesman for Hyperion, said the company isn't concerned about obtaining financing in the current economic environment because the refinery isn't scheduled to be operational until 2014.
"Fortunately, that means there is ample time for the markets to recover before we need to finalize our financing," Williams wrote in an e-mail.
-- Journal staff writer Michele Linck contributed to this story
Oil refinery expansions
Here are some of the major crude distillation unit expansions being planned for the next five years:
Valero -- St. Charles, LA 45,000 barrels per day
Valero n Port Arthur, Texas 75,000 barrels per day
Marathon n Garyville, LA 180,000 barrels per day
Motiva n Port Arthur, Texas 325,000 barrels per day
ConocoPhillips/EnCana Wood River -- Roxana, Ill. , 50,000 barrels per day
Others: 325 thousand barrels per day
Total n 1 million barrels per day of additional crude unit capacity.
Source: Energy Information Administration
Four top national energy and oil analysts say anyone planning to build a new refinery in this country faces a challenging environment, and at least one expert says the chances of the Hyperion Energy Center being built are between "slim and none."
Yet executives with Dallas-based Hyperion Refining and Arizona Clean Fuels, which is planning a new refinery near Yuma, Ariz., say their projects' location and ability to produce new, cleaner fuels make them more viable than analysts realize or understand.
In fact, David Treanor, a vice president with Arizona Clean Fuels, said his company plans to break ground on the Yuma refinery, which will refine 150,000 barrels of crude oil a day, in the second quarter of 2009.
"I frankly find it astonishing any analyst would say we don't need new refineries," he said. "I don't know who's doing the math, but it's not right."
Leading industry analysts such as Tom Kloza, chief oil analyst for the Oil Price Information Service, remain skeptical. Kloza said he doesn't believe a new facility will be built any time in the foreseeable future because no one will finance a new facility right now and the expansion of existing refineries will meet the domestic demand for oil products.
"There's no question that a year from now we will be refining probably more gasoline and more products in the United States than we would probably be comfortable with domestically," Kloza said. "The chances of that refinery (Hyperion) being built right now are somewhere between slim and none."
Joanne Shore, senior analyst for the Energy Information Administration, a division of the U.S. Department of Energy, said her agency estimates that in the next five years there will be a 1 million barrel-a-day increase because of refinery expansions nationwide.
"The long term forecast we put out showed we don't need any more expansions (after the 1 million increase) for the next 20 to 25 years," Shore said.
She said that amount will fill the need for oil domestically. In fact, Shore said the need for crude in the United States is likely to decrease.
Shore said the Energy Independence and Security Act's requirement for increased effciency in automobiles and increased use of renewable fuels will diminish the need for refined crude. Her agency projects that in the next 15 years the need for crude-based gasoline will decline by 7 percent.
"The picture I'm painting here is that we're not seeing the need for new crude oil capacity that we did two or three years ago," Shore said.
But officials with Hyperion and Arizona Clean Fuels say their refineries don't follow the traditional business model.
Hyperion officials say their proposed refinery near Elk Point, S.D., would supply an underserved market with the diesel fuel that is sometimes in short supply in the Upper Midwest and Plains states, among other fuels.
Treanor said the Yuma refinery will meet growing demands for the new cleaner diesel and jet fuels in southern Arizona, one of the fastest growing markets in the country.
Beyond that, Preston Phillips, project executive for Hyperion Refining, said he disagrees with analysts' assertions that the U.S. doesn't need an increase in capacity.
"There's still 4 million barrels a day of refined product being imported," Phillips said.
Treanor said his company also aims to replace imported fuels but that the new refinery won't even catch up to demand for those.
Cindy Schild, refining issues manager for the American Petroleum Institute, said she believes new refineries face challenges simply because it is more cost effective to modify existing refineries than to build a new one.
"You already have the facility, infrastructure and community support," Schild said. " You have the means to get the product in and out, which makes it more cost effective. On a per-barrel basis, it is more cost effective to expand than to build a new facility."
But Phillips said the locations of existing refineries have become problematic because of natural disasters.
"Every time we get a hurricane, they (refineries on the Gulf Coast) get knocked out," Phillips said. "The average consumer is not aware of how fragile the balance is."
Peter Beutel, an oil analyst for the energy risk management firm Cameron Hanover in New Canaan, Conn., said the U.S. does need new refineries, but he doesn't think this is the right time to build one.
"We are going to have growth again, and the fact that demand has declined dramatically doesn't mean that we're not going to see growth again, and we've had some spectacular refining margins this century at various times," Beutel said. "They're absolutely horrible this minute, but they have the chance of being outstanding again."
He said the current credit crisis, the decline in oil prices and the collapse in refining margins are three reasons the nation has not seen new oil refineries started recently.
"My comments are more like a plea ... pleading the case for them putting refineries in the U.S. because we need them, understanding that the odds seem somewhat stacked against us right now," Beutel said.
Eric Williams, spokesman for Hyperion, said the company isn't concerned about obtaining financing in the current economic environment because the refinery isn't scheduled to be operational until 2014.
"Fortunately, that means there is ample time for the markets to recover before we need to finalize our financing," Williams wrote in an e-mail.
-- Journal staff writer Michele Linck contributed to this story
Oil refinery expansions
Here are some of the major crude distillation unit expansions being planned for the next five years:
Valero -- St. Charles, LA 45,000 barrels per day
Valero n Port Arthur, Texas 75,000 barrels per day
Marathon n Garyville, LA 180,000 barrels per day
Motiva n Port Arthur, Texas 325,000 barrels per day
ConocoPhillips/EnCana Wood River -- Roxana, Ill. , 50,000 barrels per day
Others: 325 thousand barrels per day
Total n 1 million barrels per day of additional crude unit capacity.
Source: Energy Information Administration
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EPJeff wrote on Dec 24, 2008 10:40 PM:
A simple apology will suffice. Something like 'I am sorry, whom was the correct form.' "
AnnieO wrote on Dec 24, 2008 4:40 PM:
Surely a self-professed 'road' scholar of your calibre Jeffie, you should be able to follow the LGEverist/D&I Railroad reference. Oh that's right, the only thing you follow is the great Simian way. "
Dakota Woman wrote on Dec 22, 2008 1:55 PM:
Your goal, according to you, is to keep people honest. The problem is that you don't always recognize honesty when you read it.
You also lack the ability to realize that your method of expressing yourself is oftentimes offensive. Or maybe you just don't care.
It must be lonely to be so isolated from other people. "
EPJeff wrote on Dec 22, 2008 8:52 AM:
When did I say I was a genius about oil?
Lets assume for a moment that your statement that Hyperion has no intention of building a refinery and is a real estate development company. Then why would the price of oil have any effect on it? "
EPJeff wrote on Dec 22, 2008 8:50 AM:
Your question does not make any sense. How could I possible know if Hyperion is going to be able to build the refinery? I have no way of knowing if it can secure all permits for example. "