On Tuesday, the Dow Jones Newswire reported that U.S. oil-company executives defended their gasoline-pricing practices before a Senate investigative panel.
Speaking to the Senate permanent subcommittee on investigation, the officials blamed the recent increase in pump prices on crude-oil prices that are not in their control, a patchwork of regional fuel regulations that have reduced supply flexibility, and environmental regulations that impede expansion of refineries.
On Monday, April 29, the majority staff of the subcommittee issued a report blaming oil-industry consolidation and corporate strategies for the gasoline price spikes in the Midwest and West Coast over the past three years. In addition, there has not been a new refinery built in the U.S. in 26 years, and most of the oil-company executives before the panel told the senators that even with refinery use at high levels, the profit motive for a new refinery is not there.
“Money devoted to refining, delivery and marketing has earned some of the lowest returns in business — an average of about 5.5 percent per year over the last 20 years,” said Gary Heminger, president of Marathon Ashland Petroleum LLC in Findlay, OH. Heminger was the only one of the five industry executives testifying to indicate his company would consider building a new refinery.
Several of the executives explained that most of their recent investment in U.S. refineries has been to meet stricter environmental specifications, including lowering sulfur content, blending methanol into motor fuels and production of cleaner-burning “boutique fuels.”
“Ultimately, demand is going to outstrip capacity in the refining industry in the United States over the next 20 years,” said David Reeves, president of ChevronTexaco Corp.’s North American products division. He explained that since there is adequate refining capacity in the world to meet U.S. demand, importation of refined fuels would meet those needs.
Originally posted on Fleet Financials