The Refining Capacity Myth

Gasoline prices are at record heights and American families are wondering what sacrifice they will have to make when a gallon of gasoline costs $4.00. Instead of taking responsibility for passing an energy bill which the Energy Information Administration predicted would raise gasoline prices, Republicans are again perpetuating myths about refining capacity.

They contend that environmental regulations are preventing oil and gas companies from opening refineries. In fact, it is the oil companies who have limited refining capacity to keep prices up.



The American Petroleum Institute (API) has encouraged oil companies to limit refining capacity in order to increase their profits. Internal memoranda from Chevron, Mobil, and Texaco document this. Oil companies have closed 178 refineries in the U.S. since 1980, and only one company, Arizona Clean Fuels, has filed for a permit to open a refinery. Even though that permit has been twice granted by the federal government, the company never opened the refinery.

Even the oil companies are willing to admit what Republicans are not. In 2005 testimony, the CEOs of Shell and ConocoPhillips said they did not believe any federal or state regulation had prevented them from siting new refineries. This January, an Exxon Mobil official told Congress that flat North American demand for gasoline through 2030 means there is no need to build new U.S. refineries. Even now, refineries are operating at only 90% of available capacity.

Profit margins show that the API strategy has worked. Between September 2004 and September 2005, refineries marked up their prices 255%, while retailers only marked up their prices 5%. If Republicans wanted to eliminate the purported refinery bottleneck and to protect our fuel from supply shocks, they could have voted to create a strategic refinery reserve to ensure we have an adequate supply of refined petroleum in times of crisis. They voted against that Democratic legislation and instead are working to pass a bill which would waive state and local refinery permitting processes and give the President the authority to site refineries, even though the industry admits those regulations are not preventing it from opening new refineries.

The Republican refining capacity myth belongs on the shelf somewhere between Aesop and the Brothers Grimm. If Republicans want to expand refining capacity, they should force the oil industry to open more refineries and to fully utilize their available capacity. With crude oil supply at a five year high, a larger and cheaper supply of gasoline would quickly flow to the market.