Hurricane damage highlights fall in capacity and boosts gas prices.
It took one of the nation's worst natural disasters to do it. But momentum is growing to build new refineries in the United States after a 29-year hiatus.
By shutting down 20 percent of the country's oil- refining capacity in a single day - and boosting prices nationwide by more than 45 cents a gallon on average in a week - hurricane Katrina has exposed just how stretched the nation's refineries are. Now industry and Congress are looking at how to boost capacity.
"The call to establish more refineries is likely to be sounded again," writes Jason Schenker, an economist with Wachovia Securities in a recent analysis of Katrina's impact.
"We need to specifically address our nation's lack of refining capacity and finally do something about it," said Rep. John Sullivan (R) of Oklahoma in a statement last week. "Hurricane Katrina has further underscored the fact that our refining capacity is inadequate."
But building more refineries will involve trade-offs, critics warn.
"There's an unprecedented push to build new refineries," says Denny Larson of the Refinery Reform Campaign, an environmental group that has documented refinery emissions violations in San Francisco. "We expect there well could be a wholesale change in clean-air laws that regulate refineries thanks to Katrina."
The current refinery squeeze has been building for years. For the past two decades, deregulation and low profits have combined to push the industry into consolidation. Partly because of environmental regulations, it was cheaper to expand existing refineries than to build new ones. In 1981, the US had 324 refineries with a total capacity of 18.6 million barrels per day, the Department of Energy reports. Today, there are just 132 oil refineries with a capacity of 16.8 million b.p.d., according to Oil and Gas Journal, a trade publication.
This bottleneck is expected to keep pressure on gas prices - and politicians. Both parties are weighing measures to loosen environmental and permitting constraints for refineries. Rep. John Shadegg (R) of Arizona is set to offer a bill to streamline federal regulations governing refineries, Congressional Daily reports.
Echoing that call, Representative Sullivan announced he will introduce legislation to help pave the way for a big new refinery near Cushing, Okla. His proposal, which had been stripped from the energy bill passed by Congress this summer, would speed up permitting by lessening "arcane and outdated environmental standards," he said in his statement.