GAS PRODUCTION Despite demand, companies won't build new refineries

Even with increased usage, oil companies lack incentive to build refineries.
KNIGHT RIDDER NEWSPAPERS
DETROIT -- With the United States consuming record amounts of gasoline, there's never been a more dire need to build new oil refineries.
But don't hold your breath.
There hasn't been a major new refinery in the United States since 1976, and experts say none is on the horizon. Refineries are expensive, and nobody likes having a big, smelly refinery near his back yard. But another reason you won't see any refineries springing up soon is that oil companies like things the way they are: Their refineries are operating near capacity, so they sell practically every drop of fuel they make.
High consumption
Consumers' driving habits and vehicle choices don't make things better. Consumption has jumped 24 percent since 1990, thanks in part to the surge in the number of sport utility vehicles on the road. And the government expects another 48 percent increase by 2025.
There aren't enough domestic refineries to do the job. As a result, the amount of gas that's imported has gone from a mere 4 percent of consumption in 1995 to about 10 percent today.
Insufficient inventories of domestically refined gasoline contribute to high prices and spark fears about gas shortages, as they did last month.
Refining makes up roughly 14 percent of the cost of a gallon of gasoline. Because demand for gasoline is greater than what the refineries can produce in many cases, refineries can charge more for gasoline.
The soaring gas costs are bringing more attention to the limited refining capacity in the United States. The number of domestic refineries is declining. In 1980, there were more than 300 U.S. refineries. At the end of 2003, there were 149, roughly a 50 percent decrease. Through early June, those refineries cranked out 8.5 million barrels of gasoline a day, up 4 percent from last year. Some are running at close to 100 percent of their capacity just to keep pace with demand, so it's tough to further boost production.
Trouble with building
The chance of new ones being built is slim. The last major U.S. oil refinery was built in 1976, and stringent pollution controls and the overall public distaste for refineries make it nearly impossible for oil companies to build more, oil experts say.
"No one wants one," said Anthony Sabino, associate business professor at St. John's University in New York. "Building a refinery is very expensive. It's a multibillion-dollar proposition."
In the last 10 years, U.S. refiners have invested about $47 billion in environmental improvements for their facilities, much of that to make cleaner fuels. Recently, refiners have invested millions to make cleaner, low-sulfur fuels for the environment.
But even before the idea of building a new refinery leaves the gate, it's faced with opposition from consumers and environmentalists. They're considered eyesores, so no one wants one in the neighborhood. It's difficult for oil companies to get the environmental permits to build. Smaller refineries have a tough time thriving because they just don't produce enough fuel to offset their operating costs, and experts say that's why so many refineries have shut down over the years.
Efficiency level
"Most of them, if not all, were inefficient, and the owners of those refineries were unable to make a reasonable profit," said James Nelson, a division manager at Marathon Ashland Petroleum LLC's Detroit refinery. "That's typically the reason people would shut down a refinery."
Ashland Inc., which has a 32 percent interest in Marathon Ashland Petroleum, closed several refineries in the last 25 years. Marathon Ashland operates seven refineries.
Marathon's Garyville, La., refinery, which makes 245,000 barrels of gasoline a day, was the last major refinery to be built in the United States. Since then, oil companies have acquired or expanded refineries to boost production.
Experts also say fewer refineries give the oil companies a huge advantage: They stand to make a lot more money when supplies are limited; so even if people wanted more refineries, companies don't have a lot of incentive to build more.
Though opposition for refineries is abundant, some lawmakers are pushing for construction of new refineries to help ease tight gasoline supplies and lower prices. House Republicans recently pushed through legislation that could speed up the regulatory and approval processes for new refineries in certain regions of the country.
The bill encourages construction of new refineries in areas that have an unemployment rate 20 percent higher than the national average, have experienced massive layoffs in manufacturing segment or have a closed refinery in the area. The bill still has to be approved by the Senate.