# Presentation: 245943

## Construct, Creep, or Caribbean: How Will The US Meet The Need For New Refinery Capacity?

**Michael Leister**
**Fuels Technology Manager**
**Marathon Ashland Petroleum LLC**

**APRIL 12, 2005**

## Recent Headlines

**US Product Imports Growing at Alarming Rates**
**US Product Imports Fall Below Expectations**
**The US Refining Industry Will Never Build A New Grassroots Refinery**
**EPA Approves Permits For New Arizona Refinery**
**US Refining Industry Records Record Profits But Is Unwilling to Expand Capacity**
**US Refining Industry Invests Record Sums To Meet Clean Fuels Regulation**

## Gasoline Trends

## US Gasoline Production, Demand and Net Imports

## Gasoline Trends

**US demand increasing ~1.5-2% per year**
**Net imports increasing faster than demand**
**Imports from Europe are increasing**
**Product quality requirements are becoming more restrictive**
**Ethanol production is increasing**
**MTBE bans are increasing**

## Distillate Trends

## US Distillate Production, Demand and Net Imports

## Distillate Trends

**Demand increasing ~2% per year**
**Increased distillate imports are tied to Canadian refinery expansion**
**Distillate imports into Europe are increasing**
**Product quality requirements are becoming more restrictive**

## Import Trends

**US has historically imported gasoline from Caribbean, plus recently Europe**
**US has historically imported only small volumes of highway diesel fuel**
**Caribbean and European refineries will be capable of producing US Tier 2 gasoline**
**Europe will import, not export, USLD**
**It is uncertain if Caribbean refineries will make ULSD investments**

## European Gasoline and Diesel Demand

- Source:  International Energy Agency

## Decisions on Building New Refineries, Expanding Existing Refineries and Importing ProductsAre Based On Economic Expectations

## Import Characteristics

**Import/Export decisions are driven by profit motives**
**Flexible transportation allows shipments to be redirected in transit**
**US Imports Come Into East Coast, Gulf Coast and West Coast**
**The US distribution system allows PADD’s 1, 2, & 3 to adapt to import impacts of supply and economics.**

## Import Impacts

**Import availability/price impact the incremental cost of supply to US markets East of the Rockies and West Coast**
**Long term import availability/price provides an alternative to US refinery expansion projects and US grassroots refinery projects, except in areas with limited distribution capabilities**
**Even if US production capacity is increased, import economics will determine if this capacity is used or not.**

## Refinery Expansions Cost Less Than Grassroots Refinery Construction

**Grassroots Refinery Construction is 3-4 Times  more Expensive than Capacity Expansion**
**Existing site vs new**
**Existing utilities and support units**
**Shorter implementation and permitting times**
**Limited fixed operating costs vs full**
**Investment can be targeted to specific products**

## Refinery ConstructionGrassroots vs Expansions

**Source: NPC Report, ”Observations on Petroleum Product Supply”, 2004**

## CONCLUSIONS

**Import increases have reflected short-term economic opportunity as well as longer term supply choices, which is partially reflected in US refinery utilization variations **
**Import economics will be reflected in US refinery capacity expansion project decisions.  **
**Recent limited US capacity expansion has been driven by imported product availability and cost**
**For most of the US, new refineries will only be built when import costs and expansion costs are high enough to justify the higher incremental costs**