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## Economic Impact and Small Business Analysis for Petroleum Refinery NESHAP –– Heat Exchange Systems2 May 2009

Economic Impact and Small Business Anal ysis for Petroleum Refinery NESHAP – Heat Exchange Systems

U.S. Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Air Benefits and Costs Group Research Triangle Park, NC3 May 2009

Economic Impact and Small Business Anal ysis for Petroleum Refinery NESHAP – Heat Exchanger Systems

Background

This final action amends the national emission standards for petroleum refineries to add maximum achievable control technology standards for heat exchange systems. Finally, this action amends the general provisio ns cross reference table, clarifies dates,

and corrects section references. In developing this rule, we first i ssued an advanced notice of proposed rulemaking (ANPR) on March 29, 2007. The purpose of the ANPR, which covered the sources subject to the Refinery MACT 1 rule and other source categor ies, was to solicit

additional emissions data and a ny corrections to the data we already had. We issued an initial proposed rule for the petroleum refine ries subject to the Refinery MACT 1 on September 4, 2007, and held a public heari ng in Houston, Texas on November 27, 2007. In response to public comments on the ini tial proposal, we collected additional information and revised our impact analyses . Based on the results of these additional analyses, we issued a supplemental propos al on November 10, 2008, that established a new MACT floor for heat exchange system s and proposed an additional option under the residual risk and technology re view (RTR) for storage vessel s. A public hearing for the supplemental proposal was held in Research Triangle Park, North Carolina on November 25, 2008. We are now taking final action to pe rform the RTR of the Refinery MACT 1

standard. As explained later in this report, this fi nal rule includes a MACT standard for heat exchanger systems at petroleum refineries. This report presents the economic and sma ll business impacts associated with this final rule. The report contains a profile of the affected industry, background information on the requirements included in the final rule, information on the costs of the final rule, and the economic and small business impact s associated with this final rule.4 1.0 Industry Profile

1.1 Introduction At its core, the petroleum refining indus try comprises establishments primarily engaged in refining crude petr oleum into finished petroleu m products. Examples of these petroleum products include gasoline, kerosene , asphalt, lubricants, and solvents, among
others.

Firms engaged in petroleum refining ar e categorized under th e North American Industry Classification System (NAICS) code 324110. In 2006, 149 establishments owned by 58 parent companies were refining pe troleum. That same year, the petroleum refining industry shipped products valued at over $489 billion (U.S. Department of Commerce, Bureau of the Census, 2007).

This industry profile report is orga nized as follows. Section 1.2 provides a detailed description of the inputs, outputs, and processes involved in petroleum refining. Section 1.3 describes the appli cations and users of finished petroleum products. Section 1.4 discusses the organization of the industr y and provides facility- and company-level data. In addition, small businesses are reported separately for use in evaluating the impact on small business to meet the requireme nts of the Small Business Regulatory Enforcement and Fairness Act (SBREFA). S ection 1.5 contains market-level data on prices and quantities and discusses tre nds and projections for the industry.

1.2 The Supply Side Estimating the economic impacts of a ny regulation on the petroleum refining industry requires a good unders tanding of how finished pe troleum products are produced (the “supply side” of finished petroleum product markets). This section describes the production process used to manufacture these pro ducts as well as the inputs, outputs, and by-products involved. The section concludes with a description of costs involved with the production process.



### 1.2.1 Production Proce ss, Inputs, and Outputs
Petroleum pumped directly out of the gr ound, known as crude o il, is a complex mixture of hydrocarbons (chemical compounds that consist solely of hydrogen and carbon) and various impurities such as salt. To manufactur e the variety of petroleum products recognized in every day life, this tar-like mixture mu st be refined and processed5 over several stages. This secti on describes the typical stages involved in this process as well as the inputs and outputs.

1.2.1.1 The Production Process
The process of refining crude oil into us eful petroleum products can be separated into two phases and a number of supporting operations. These phases are described in detail in the following section. In the first pha se, crude oil is desalted and then separated into its various hydrocarbon components (known as “fractions”). These fractions include gasoline, kerosene, naphtha, and other products (EPA, 1995).

In the second phase, the distilled fracti ons are converted into petroleum products (such as gasoline and kerosene) using three different types of dow nstream processes: combining, breaking, and reshaping (EPA, 1995) . An outline of the refining process is presented in Figure 1-1.

Desalting. Before separation into fractions, crud e oil is treated to remove salts, suspended solids, and other impurities that could clog or corrode the downstream equipment. This process, known as “desalti ng,” is typically done by first heating the crude oil, mixing it with process water, a nd depositing it into a gravity settler tank. Gradually, the salts present in the oil will be dissolved into the process water (EPA, 1995). After this takes place, the process wa ter is separated from the oil by adding demulsifier chemicals (a process known as ch emical separation) and/or by applying an
electric field to concentrate the suspended water globules at the bottom of the settler tank (a process known as electrostatic separation) . The effluent water is then removed from the tank and sent to the refinery wastewater treatment facilities (E PA, 1995). This process is illustrated in Figure 1-2.

Atmospheric Distillation. The desalted crude oil is then heated in a furnace to
750°F and fed into a vertical distillation colu mn at atmospheric pressure. After entering the tower, the lighter fractions flash into vapor and travels up the tower. This leaves only the heaviest fractions (which have a much higher boiling point) at the bottom of the tower. These fractions include heavy fu el oil and asphalt residue (EPA, 1995).6 Figure 1-1. Outline of the Refining Process
Source: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006.7 Figure 1-2. Desalting Process
Source: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006.

As the hot vapor rises, its temperature is gradually reduced. Lighter fractions condense onto trays located at successively higher portions of the tower. For example, motor gasoline will condense at higher porti on of the tower than kerosene because it condenses at lower temperatures. This pro cess is illustrated in Figure 1-3. As these fractions condense, they will be drawn off their respective trays and potentially sent downstream for further proces sing (OSHA, 2003; EPA, 1995).8 Figure 1-3. Atmospheric Distillation Process
Source: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006.

Vacuum Distillation. The atmospheric distillation to wer cannot distil the heaviest fractions (those at the bottom of the towe r) without cracking under requisite heat and pressure. So these fractions are separated us ing a process called vacuum distillation. This process takes place in one or more vacuum distillation towers and is similar to the atmospheric distillation pro cess, except very low pressures are used to increase volatization and separation. A t ypical first-phase vacuum to wer may produce gas oils or lubricating-oil base stocks (EPA, 1995). This process is illustrated in Figure 1-4.

Downstream Processing. To produce the petroleum products desired by the market place, most fractions must be furthe r refined after distilla tion or “downstream.” These downstream processes change the molecular structure of the hydrocarbon molecules by breaking them into smaller mo lecules, joining them to form larger molecules, or shaping them into higher quality molecules (EPA, 1995).9 Figure 1-4. Vacuum Distillation Process
Source: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006.

Downstream processes include therma l cracking, coking, ca talytic cracking, catalytic hydrocracking, hydrotreating, alkylation, isomerization, polymerization, catalytic reforming, solvent extraction, mer ox, dewaxing, propane deasphalting and other operations (EPA, 1995).

1.2.1.2 Supporting Operations
In addition to the processes described a bove, there are other refinery operations that do not directly involve the production of hydrocarbon fuel s, but serve in a supporting role. Some of the major supporting operat ions are described in this section.

Wastewater Treatment. Petroleum refining operati ons produce a variety of wastewaters including process water (water us ed in process operati ons like desalting), cooling water (water used for cooling that does not come into direct contact with the oil), and surface water runoff (resulting from spills to the surface or leaks in the equipment that have collected in drains).

Wastewater typically contai ns a variety of contamin ants (such as hydrocarbons, suspended solids, phenols, ammonia, sulfides , and other compounds) and must be treated10 before it is recycled back into refining ope rations or discharged. Petroleum refineries typically utilize two stages of wastewater tr eatment. In primary wastewater treatments, oil and solids present in the wastewater are removed. After this is completed, wastewater can be discharged to a publicly owned treatm ent facility or under go secondary treatment before being discharged directly to surface water. In secondary treatment, microorganisms are used to dissolve oil and ot her organic pollutants that are present in the wastewater (EPA, 1995; OSHA, 2003).

Gas Treatment and Sulfur Recovery. Petroleum refinery operations such as coking and catalytic cracking emit gases with a high concentration of hydrogen sulfide mixed with light refinery fuel gases (such as methane and ethane). Sulfur must be removed from these gases in order to comply with Clean Air Act’s SO x emission limits
and to recover saleable elemental sulfur.

Sulfur is recovered by first separating the fuel gases from the hydrogen sulfide gas. Once this is done, elemental sulfur is removed from the hydrogen sulfide gas using a recovery system known as the Claus Process. In this process, hydroge n sulfide is burned
under controlled condit ions producing sulfur dioxide. A ba uxite catalyst is then used to
react with the sulfur diox ide and the unburned hydrogen su lfide to produce elemental sulfur. However, the Claus process only re moved 90% of the hydrogen sulfide present in the gas stream, so other processes must be used to recover the remaining sulfur (EPA, 1995).

Additive Production. A variety of chemicals are a dded to petroleum products to improve their quality or add sp ecial characteristics. For exam ple, ethers have been added to gasoline to increase octane levels and reduce CO emissions since the 1970s.

The most common ether additives being used today are methyl tertiary butyl ether (MTBE), and tertiary amyl methyl ether (T AME). Larger refineries tend to manufacture these additives themselves by reacting isobut ylene (a by-product of several refinery processes) with methanol (OSHA, 2003).

Heat Exchangers, Coolers, and Process Heaters. Petroleum refi neries require very high temperatures to perform many of their refining processes. To achieve these temperatures, refineries use fire d heaters fueled by refinery or natural gas, distillate, and residual oils. This heat is managed through heat exchanges, where are composed of bundles of pipes, tubes, plate coils, and ot her equipment that surround heating or cooling11 water, steam, or oil. Heat exchanges facilitate the indirect transfer of heat as needed (OSHA, 2003).

Pressure Release and Flare Systems. As liquids and gases expand and contract through the refining process, pressure must be actively managed to avoid accident. Pressure-relief systems enable the safe handling of liquids and gases that that are released by pressure-relieving devices and blow-dow ns. According to the OSHA Technical Manual, “pressure relief is an automatic, pl anned release when operating pressure reaches a predetermined level. A blow-down normally refe rs to the intentional release of material, such as blow-downs from process unit st artups, furnace blow-downs, shutdowns, and emergencies” (OSHA, 2003).

Blending. Blending is the final operation in pe troleum refining. It is the physical mixture of a number of different liquid hydr ocarbons to produce final petroleum products that have desired characteristics. For example, additives such as ethers can be blended with motor gasoline to boost performance and reduce emissions. Products can be blended in-line through a manifold system, or batc h blended in tanks an d vessels (OSHA, 2003).

1.2.1.3 Inputs
The inputs in the production process of petroleum produc ts include general inputs such as labor, capital, and water. The inputs sp ecific to this industry are crude oil and the variety of chemicals used in producing petr oleum products. These tw o specific inputs are
discussed below.

Crude Oil. Contrary to popular concep tion, crude oils are complex, heterogeneous mixtures. Crude oils contai n many different hydr ocarbon compounds that vary in appearance and composition from one o il field to another. An “average” crude oil contains about 84% carbon; 14% hydrogen; and less than 2% sulfur, nitrogen, oxygen, metals, and salts (OSHA, 2003).

In 2004, the petroleum refining industry used 5.6 billion barrels of crude oil in the production of finished petr oleum products (EIA, 2005). 1

Common Refinery Chemicals. In addition to crude oil, a variety of chemicals are used in the production of petroleum products. The specific chemicals used will depend on specific characteristics of the produc t in question. Table 1-1 lists the most

1 A barrel is a unit of volume that is equal to 42 U.S. gallons.12 common chemicals used by petroleum refine ries, their characteristics, and their applications.

In 2004, the petroleum refining industry us ed 581 million barrels of natural gas liquids and other liquids in the production of finished petroleum products (EIA, 2005).

1.2.1.4 Types of Product Outputs
The petroleum refining industry produces a number of products that tend to fall into one of three categories: fuels, fini shed nonfuel products, and feedstock for the petrochemical industry. Table 1-2 briefly describes these product categories. A more detailed discussion of petroleum fuel products can be found in Section 1.3.

Table 1-1. Types and Charac teristics of Raw Materials used in Petroleum Refineries

Type Description Crude Oil Heterogeneous mixture of different hydrocarbon compounds. Oxygenates Substances which, when added to ga soline, increase the amount of oxygen in that gasoline blend. Ethanol, methyl tertiary butyl ether (MTBE), ethyl tertiary butyl ether (ETBE), and methanol are common oxygenates. Caustics Caustics are added to desalting water to neutralize acids and reduce corrosion. They are also added to desalted crude in order to reduce the amount of corrosive chlorides in the tower overheads. They are used in some refinery treating processes to remove contaminants from hydrocarbon streams. Leaded Gasoline Additives Tetraethyl lead (TEL) and te tramethyl lead (TML) are additives formerly used to improve gasoline octane ratings but are no longer in common use except in aviation gasoline Sulfuric Acid and Hydrofluoric Acid Sulfuric acid and hydrofluoric acid are us ed primarily as catalysts in alkylation processes. Sulfuric acid is also used in some treatment processes.
Source: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006.13 Table 1-2. Major Refinery Product Categories

Product Category Description Fuels Finished Petroleum produ cts that are capable of rel easing energy. These products power equipment such as automobiles, jets, and ships. Typical petroleum fuel products include gasoline, jet fuel, and residual fuel oil. Finished nonfuel products Petroleum products that are not used for powering machines or equipment. These products typically include asphalt, lubric ants (such as motor oil and industrial greases), and solvents (such as benzene, toluene, and xylene). Feedstock Many products derived from crude oil refining, such as ethylene, propylene, butylene, and isobutylene, are primarily intended for use as petrochemical feedstock in the production of plastics, synthetic fibers, synthetic rubbers, and other products.
Source: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006.



### 1.2.2 Emissions and Controls in Petroleum Refining
Petroleum refining leads to emissions of metals; spent acids; numerous toxic organic compounds; and gaseous pollutants, including carbon monoxide (CO), sulfur oxides, (SO x ), nitrogen oxides (NO x ), particulates, ammonia (NH 3 ), hydrogen sulfide (H 2 S), and volatile organic compounds (VOCs).

1.2.2.1 Gaseous and VOC Emissions
As previously mentioned, CO, SO x , NO x , NH 3 , and H 2 S emissions are produced along with petroleum products. Sources of th ese emissions from refineries include fugitive emissions of the volatile constituents in crude oil and its fractions, emissions from the burning of fuels in process heaters, and emissions from the various refinery processes themselves.

Fugitive emissions occur as a result of leaks throughout the refinery. Although individual leaks may be sma ll, the sum of all leaks can result in a lot of hazardous
emissions. These emissions can be reduced by purchasing leak-resistant equipment and maintaining an ongoing leak detectio n and repair program (EPA, 1995).

The numerous process heaters used in refi neries to heat process streams or to generate steam (boilers) for heating or other uses can be potential sources of SO x , NO x , CO, and hydrocarbons emissions. Emissions are low when process heaters are operating properly and using clean fuels such as refinery fuel gas, fuel oil, or natural gas. However, if combustion is not complete, or the heater s are fueled using fuel pitch or residuals, emissions can be significant (EPA, 1995).14 The majority of gas streams exiting each refinery process contain varying amounts of refinery fuel gas, H 2 S, and NH 3 . These streams are directed to the gas treatment and sulfur recovery units described in the previous secti on. Here, refinery fuel gas and sulfur are recovered using a variet y of processes. These processes create emissions of their own, which normally contain H 2 S, SO x , and NO x gases (EPA, 1995).

Emissions can also be created by the peri odic regeneration of catalysts that are used in downstream processes. These pro cesses generate streams that may contain relatively high levels of CO, particulates , and VOCs. However, these emissions are treated before being discharg ed to the atmosphere. First, the emissions are processed through a CO boiler to burn CO and any VOCs, and then through an electrostatic precipitator or cyclone separator to remove particulates (EPA, 1995).

1.2.2.2 Wastewater and Other Wastes
Petroleum refining operations produce a vari ety of wastewaters including process water (water used in process operations like desalting), cooling water (water used for cooling that does not come into direct c ontact with the oil), and surface water runoff (resulting from spills to the surface or leaks in the equipment that have collected in drains). This wastewater t ypically contains a variety of contaminants (such as hydrocarbons, suspended solids, phenols, NH 3 , sulfides, and other compounds) and is treated in on-site facilities before being r ecycled back into the production process or discharged.

Other wastes include forms of sludges, spent process catalysts, filter clay, and
incinerator ash. These wastes are controll ed through a variety of methods including incineration, land filling, and neutralization, among othe r treatment methods (EPA, 1995).



### 1.2.3 Costs of Production
Between 1995 and 2006, expenditures on input materials accounted for the largest cost to petroleum refineries—amounting to 94% of total expenses (Figure 1-5). These
material costs included the cost of all raw ma terials, containers, scrap, and supplies used in production or repair during th e year, as well as the cost of all electricity and fuel
consumed.15 Payroll 3% Materials

94% Total Capital 3% Average Percentage (1995–2006)

Figure 1-5. Petroleum Refinery Expenditures

Labor and capital accounted for the remaining expenses faced by petroleum refiners. Capital expenditures in clude permanent additions and a lterations to facilities and machinery and equipment used for expa nding plant capacity or replacing existing machinery. A detailed breakdown of how much petroleum refiners spent on each of these factors of production over th is 11-year period is provi ded in Table 1-3. A more
exhaustive assessment of the costs of material s used in petroleum refining is provided in
Table 1-4.



### 1.3 The Demand Side
Estimating the economic impact the regulation will have on the petroleum refining industry also requires characterizing various aspects of the demand for finished petroleum products. This section describes th e characteristics of finished petroleum products, their uses and consumer s, and possible substitutes.16 Table 1-3. Labor, Material, and Capital Expenditures for Petroleum Refineries (NAICS 324110)

Payroll ($millions) Materials ($millions) Total Capital ($millions) Year Reported 2005 Reported 2005 Reported 2005 1995 3,791 4,603 112,532 136,633 5,937 7,209 1996 3,738 4,435 132,880 157,658 5,265 6,247 1997 3,885 4,595 127,555 150,865 4,244 5,020 1998 3,695 4,415 92,212 110,187 4,169 4,982 1999 3,983 4,682 114,131 134,146 3,943 4,635 2000 3,992 4,509 180,568 203,967 4,685 5,292 2001 4,233 4,743 158,733 177,838 6,817 7,638 2002 4,386 4,947 166,368 187,646 5,152 5,811 2003 4,752 5,227 185,369 203,893 6,828 7,510 2004 5,340 5,635 251,467 265,369 6,601 6,966 2005 5,796 5,796 345,207 345,207 10,525 10,525 2006 5,984 5,751 396,980 381,546 11,175 10,741
Note: Adjusted for inflation using the producer price index industry for total manufacturing industries (Table 5-6). Sources: U.S. Department of Commerce, Bureau of the Census. 2007. 2006 Annual Survey of

Manufactures. Obtained through Am erican Fact Finder Database < http://factfinder.census.gov/home/saff/main.html?_lang=en>. U.S. Department of Commerce, Bureau of the Census. 2006. 2005 Annual Survey of Manufacture s.

M05(AS)-1. Washington, DC: Government Printing Office. Available at <http://www.census.gov/prod/2006pubs/am0531gs1.pdf>. As obtained on October 23, 2007. U.S. Department of Commerce, Bureau of the Census. 2003a. 2001 Annual Survey of Manufacture s.

M01(AS)-1. Washington, DC: Government Printing Office. Available at <http://www.census.gov/prod/2003pubs/m01as-1.pdf>. As obtained on October 23, 2006. U.S. Department of Commerce, Bureau of the Census. 2001. 1999 Annual Survey of Manufacture s.

M99(AS)-1 (RV). Washington, DC: Government Printing Office. Available at <http://www.census.gov/prod/2001pubs/m99-as1.pdf>. As obtained on October 23, 2006. U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufacture s.

M96(AS)-1 (RV). Washington, DC: Government Printing Office. Available at <http://www.census.gov/prod/3/98pubs/m96-as1. pdf>. As obtained on October 23, 2006. U.S. Department of Commerce, Bureau of the Census. 1997. 1995 Annual Survey of Manufacture s.

M95(AS)-1. Washington, DC: Government Printing Office. Available at <http://www.census.gov/prod/2/manmin/ asm/m95as1.pdf>. As obtained on October 23, 2006.



### 1.3.1 Product Characteristics
Petroleum refining firms produce a va riety of different products. The characteristics these products possess largel y depend on their intended use. For example, the gasoline fueling our automobiles has differe nt characteristics than the oil lubricating the car’s engine. However, as discussed in Section 1.1.4, finished petroleum products can be categorized into three broad groups based on their intended uses (EIA, 1999a):17 Table 1-4. Costs of Materials Used in Petroleum Refining Industry

2002 1997

Material Delivered Cost ($10 6 ) Percentage of Material Costs Delivered Cost ($10 6 ) Percentage of Material Costs Petroleum Refineries NAICS 324110 Total materials 157,415,200 100.0% 118,682,535 100.0% Domestic crude petroleum, including lease

condensate 63,157,497 40.1% 47,220,759 39.8%

Foreign crude petroleu m, including lease

condensate 69,102,574 43.9% 48,172,988 40.6%

Foreign unfinished oils (received from

foreign countries for further processing) 2,297,967 1.5% 2,373,376 2.0%

Ethane (C2) (80% purity or more) D D Propane (C3) (80% purity or more) 118,257 0.1% 269,928 0.2% Butane (C4) (80% purity or more) 1,925,738 1.2% 1,567,875 1.3% Gas mixtures (C2, C3, C4) 1,843,708 1.2% 952,009 0.8% Isopentane and natural gasoline 810,530 0.5% 1,381,100 1.2% Other natural gas liquids, including plant

condensate 455,442 0.3% 1,427,123 1.2%

Toluene and xylene (100% basis) 159,563 0.1% N Additives (including antioxidants,

antiknock compounds, and inhibitors) 40,842 0.0% 262,228 0.2%

Other additives (including soaps and

detergents) 709 0.0% 200,005 0.2%

Animal and vegetable oils D D Chemical catalytic preparations D 647,040 0.5% Sodium hydroxide (caustic soda) (100%

NaOH) 129,324 0.1% 41,741 0.0%

Sulfuric acid, excluding spent (100%

H 2 SO 4 ) 189,912 0.1% 56,514 0.0%

Metal containers 9,450 0.0% 60,531 0.1% Plastics containers D N Paper and paperboard containers D 18,404 0.0% Cost of materials r eceived from petroleum

refineries and lube manufacturers 8,980,758 5.7% 4,981,370 4.2%

All other materials and components, parts,

containers, and supplies 5,722,580 3.6% 4,233,383 3.6%

Materials, ingredients, containers, and

supplies, nsk 576,175 0.4% 4,779,890 4.0%

Source: U.S. Department of Commerce, Bureau of the Census. 2004. 2002 Economic Census, Industry

Series—Shipbuilding and Repair . Washington, DC: Government Printing Office. Available at <http://www.census.gov/ prod/ec02/ec0231i324110.pdf>. As obtained on October 23, 2006.18  fuels —petroleum products that are capable of releasing energy such as motor gasoline

 nonfuel products —petroleum products that are not used for powering machines or equipment such as solvents and lubricating oils

 petrochemical feedstocks —petroleum products that are used as a raw material in the production of plastic s, synthetic rubber, and other goods
A list of selected products from each of these groups is presented in Table 1-5 along with a description of each product’s ch aracteristics and primary uses.19 Table 1-5. Major Refinery Products

Product Description Fuels Gasoline A blend of refined hydrocarbons, motor gasoline ranks first in usage among petroleum products. It is primarily used to fuel automobiles and lightweight trucks as well as boats, recreational vehicles, lawn mowers, and other equipment. Other forms of gasoline include Aviation gasoline, which is used to power small planes. Kerosene Kerosene is a refined middle-distillate petroleum product that finds considerable use as a jet fuel. Kerosene is also used in wate r heaters, as a cooking fuel, and in lamps. Liquefied petroleum gas (LPG) LPG consists principally of propane (C 3 H 8 ) and butane (C 4 H 10 ). It is primarily used as a fuel in domestic heating, cooking, and farming operations. Distillate fuel oil Distillate fuel oil includes diesel oil, heating oils, and industrial oils. It is used to power diesel engines in buses, trucks, trains, automobiles, as well as other machinery. Residual fuels Residual fuels are the fuels distilled from the heavier oils that remain after atmospheric distillation, they find their primary use generating electricity in electric utilities. However, residual fuels can also be used as fuel for ships, industrial boiler fuel, and commercial heating fuel. Petroleum coke Coke is a high carbon residue that is the final product of thermal decomposition in the condensation process in cracking. Coke can be used as a low-ash solid fuel for power plants. Finished Nonfuel Products Coke In addition to use as a fuel, petroleum coke can be used a raw material for many carbon and graphite products such as furnace electrodes and liners. Asphalt Asphalt, used for roads and roofing materials, must be inert to most chemicals and weather conditions. Lubricants Lubricants are the result of a special re fining process that produce lubricating oil base stocks, which are mixed with various additives. Petroleum lubricating products include spindle oil, cylinder oil, motor oil, and industrial greases. Solvents A solvent is a fluid that dissolves a solid, liquid, or gas into a solution. Petroleum based solvents, such as Benzyme, are used top manufacture detergent and synthetic fibers. Other solvents include toluene and xylene. Feedstock Ethylene Ethylene is the simplest alkene and has the chemical formula C 2 H 4 . It is the most produced organic compound in the world and it is used in the production of many products. For example, one of ethylene’s derivatives is ethylene oxide, which is a primary raw material in the production of detergents. Propylene Propylene is an organic compoun d with the chemical formula C 3 H 6 . It is primarily used the production of polypropylene, which is used in the production of food packaging, ropes, and textiles.
Sources: U.S. Department of Labor, Occupational Safety and Health Administration (OSHA). 2003. OSHA

Technical Manual, Section IV: Chap ter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http ://www.osha.gov/dts/osta/o tm/otm_iv/otm_i v_2.html>. As obtained on October 23, 2006. U.S. Department of Energy, Energy Information Administration (EIA). 1999.



### 1.3.2 Uses and Consumers
Finished petroleum products are rarely c onsumed as final goods in themselves. Instead, they are used as primary inputs in the creation of a vast number of other goods and services. For example, goods created from petroleum products include fertilizers,20 pesticides, paints, thinners, cl eaning fluids, refrigerants, a nd synthetic fibers (EPA, 1995). Similarly, fuels made from petroleum are used to run vehicles a nd industrial machinery and generate heat and electrical power. As a result, the demand for many finished petroleum products is derived from the dema nd for the goods and services they are used

to create.

The principal end users of petroleum products can be separated into five sectors:

 Residential sector—private homes and residences

 Industrial sector—manuf acturing, construction, mi ning, agricultural, and forestry establishments

 Transportation sector—private and pub lic vehicles that move people and commodities such as automobiles, ships, and aircraft

 Commercial sector—nonmanufactur ing or nontransportation business establishments such as hotels, restaurants, retail stores, religious and nonprofit organizations, as well federa l, state, and local government institutions

 Electric utility sector—privately and publicly owned establishments that generate, transmit, distribute, or sell electricity (primarily) to the public; nonutility power producers are not included in this sector
Of these end users, the transportation sector consumes the largest share of petroleum products, accounting for 67% of total consumption in 2005 (EIA, 2006a). In fact, petroleum products like motor gasoline, dis tillate fuel, and jet fuel provide virtually all of the energy consumed in the transportation sector (EIA, 1999a).

Of the three petroleum product categories, end-users primarily consume fuel. Fuel products account for 9 out of 10 barrels of petroleum used in the United States (EIA, 1999a). In 2005, motor gasoline alone accounted for 49% of demand for finished petroleum products (EIA, 2006a).


### 1.3.3 Substitution Possibilities in Consumption
A major influence on the demand for fi nished petroleum products is the availability of substitutes. In some sectors, like the transportation sector, it is currently difficult to switch quickly from one fuel to another without costly and irreversible equipment changes, but other sectors can sw itch relatively quickl y and easily (EIA, 1999a).21 For example, equipment at large manuf acturing plants often can use either residual fuel oil or natural gas. Often coal and natural gas can be easily substituted for residual fuel oil at electricity utilities. As a result, we would expect demand in these industries to be more sensitive to price (in th e short run) than in others (EIA, 1999a).

However, over time, demand for petroleu m products could become more elastic. For example, automobile users could purchase more fuel-efficient vehicles or relocate to
areas that would allow them to make fewe r trips. Technological advances could also create new products that compete with pe troleum products that currently have no substitutes. An example of such a technol ogical advance would be the invention of ethanol (an alcohol produced from biomass), which can substitute for gasoline in sparkignition motor vehicles (EIA, 1999a).

1.3.4 Model Parameters Essential components of an economic impact analysis are supply and demand price elasticities. These el asticities measure the res ponsiveness of producers and consumers to prices changes and determine how the social costs of a regulatory program are distributed between the two groups of stakeholders. Economic theory suggests consumers will bear a higher share of the economic welfare losses if the supply of a petroleum product is more responsive to pr ice changes than is the demand for that product. A summary of the estimates of demand and supply elasticities for commonly produced petroleum products is provided in Table 1-6.

Table 1-6. Estimates of Price El asticity of Demand and Supply

Market Motor Gasoline Jet Fuel Distillate Fuel Oil Residual Fuel Oil Liquefied Petroleum

Gases Demand elasticity

− 0.29

− 0.15

− 0.75

− 0.68

− 0.8 Supply elasticity 1.24 1.24 1.24 1.24 1.24 Sources: U.S. Environmental Protection Agency. 1995. Economic Impact Analysis for Petroleum Refineries NESHAP. EPA-452/R-95-003, Final Report. Washington DC: Government Printing Office.22 

### 1.4 Industry Organization
This section examines the organization of the U.S. petroleum refining industry, including market structure, firm characteristic s, plant location, and capacity utilization. Understanding the industry’s organization help s determine how it will be affected by new
emissions standards.



### 1.4.1 Market Structure

Market structure characterizes the leve l and type of competition among petroleum refining companies and determines their power to influence market prices for their products. For example, if an industry is perf ectly competitive, then individual producers cannot raise their prices above the marginal cost of production without losing market share to their competitors. Understanding pr icing behavior in the petroleum refining industry is crucial for pe rforming subsequent EIAs.

According to basic microeconomic theor y, perfectly competitive industries are characterized by unrestricted entry and exit of firms, large numbers of firms, and undifferentiated (homogenous) products being sold. Conversely, imperfectly competitive industries or markets are characterized by barri ers to entry and exit, a smaller number of firms, and differentiated products (resulting from either differences in product attributes or brand name recognition of products). This section considers whether the petroleum refining industry is competitiv e based on these three factors.

1.4.1.1 Barriers to Entry
Firms wanting to enter the petroleum refining industry may face at least two major barriers to entry. First, according to a 2004 Federal Trade Commission staff study, there are significant economies of scale in petroleum refinery operations. This means that costs per unit fall as a refinery produces more finished petroleum products. As a result, new firms that must produce at relatively lo w levels will face higher average costs than firms that are established and produce at higher levels, which will make it more difficult for these new firms to compete (Nicholson, 2005) . This is known as a technical barrier to entry.

Second, legal barriers could also make it difficult for new firms to enter the petroleum refining industry. The most common example of a legal barrier to entry is patents—intellectual property rights, gran ted by the government, that give exclusive monopoly to an inventor over his invention for a limited time period. In the petroleum refining industry, firms rely heavily on proce ss patents to appropriate returns from their23 innovations. As a result, firms seeking to en ter the petroleum refining industry must develop processes that respect the novelty requirements of these patents, which could potentially make entry more difficult for new firms (Langinier, 2004). A second example of a legal barrier would be environmental regul ations that apply only to new entrants or new pollution sources. Such regulations w ould raise the operating costs of new firms without affecting the operating costs of existing ones. As a result, new firms may be less competitive.

Although neither of these barriers are im possible for new entrants to overcome, they can make it more difficult for new firms to enter the market for manufactured petroleum products. As a result, existing petrol eum refiners could pot entially raise their prices above competitive levels with less wo rry about new firms entering the market to compete away their customers with lower pric es. It was not possible during this analysis to quantify how significant these barriers would be for new entrants or what effect they would have on market prices. However, ex isting firms would still face competition from each other. In an unconcentrated industry, competition among existing firms would work to keep prices at competitive levels.

1.4.1.2 Measures of Industry Concentration
Economists often use a variety of measures to assess the concentration of a given industry. Common measures include four-fir m concentration ratios (CR4), eight-firm concentration ratios (CR8), and Herfinda hl-Hirschmann indexes (HHI). The CR4s and CR8s measure the percentage of sales accounted for by the top four and eight firms in the industry. The HHIs are the sums of the square d market shares of firms in the industry. These measures of industry concentrated are reported for the petroleum refining industry (NAICS 324110) in Table 1-7 for se lected years between 1985 and 2003.

Table 1-7. Market Concentration Measures of the Petroleum Refining Industry: 1985 to 2003

Measure 1985 1990 1996 2000 2001 2002 2003 Herfindahl-Hirschmann Index (HHI) 493 437 412 611 686 743 728 Four-firm concentration ratio (CR4) 34.4 31.4 27.3 40.2 42.5 45.4 44.4 Eight-firm concentration ratio (CR8) 54.6 52.2 48.4 61.6 67.2 70.0 69.4

Source: Federal Trade Commission (FTC). 2004. “The Petroleum Industry: Mergers, Structural Change,

and Antitrust Enforcement.” Available at <http://www .ftc.gov/opa/2004/08/oilmergersrpt.shtm>. As obtained on February 6, 2007.24 Between 1990 and 2000, the HHI rose from 437 to 611, which indicates an
increase in market concentration over time. This increase is partially due to merger activity during this time period. Betw een 1990 and 2000, over 2,600 mergers occurred across the petroleum industry; 13% of these mergers occurred in the industry’s refining and marketing segments (GAO, 2007).

Unfortunately, there is no objective crit erion for determining market structure
based on the values of these concentration ra tios. However, accepted criteria have been established for determining market struct ure based on the HHIs for use in horizontal merger analyses (U.S. Department of Ju stice and the Federal Trade Commission, 1992). According to these criteria, industrie s with HHIs below 1,000 are considered unconcentrated (i.e., more competitive); industries with HHIs between 1,000 and 1,800 are considered moderately concentrated (i .e., moderately competitive); and industries with higher HHIs are considered heavily c oncentrated. Based on this criterion, the petroleum refining industry continues to be unconcentrated even af ter an increase in merger activity.

A more rigorous examination of market concentration was conducted in a 2004 Federal Trade Commission (FTC) staff study. Th is study explicitly accounted for the fact that a refinery in one geographic region may not exert competitive pressure on a refinery in another region if trans portation costs are high. This was done by comparing HHIs
across Petroleum Administration for Defense Districts (PADDs). PADDs separate the United States into five geographic regions or districts. They were initially created during World War II to help manage th e allocation of fuels during wa rtime. However, they have remained in use as a convenient way of or ganizing petroleum market information (FTC, 2004).

This study concluded that these geographi c markets were not highly concentrated. PADDs I, II, and III (East Coast, Midwest, a nd Gulf Coast) were sufficiently connected that they exerted a competitive influence on each other. The HHI for these combined regions was 789 in 2003, indicating a low concen tration level. Concentration in PADD IV (Rocky Mountains) was also low in 2003, with an HHI of 944. PADD V gradually grew more concentrated in th e 1990s after a series of signifi cant refinery mergers. By 2003, the region’s HHI was 1,246, indicating growth to a moderate level of concentration (FTC, 2004).25 1.4.1.3 Product Differentiation
Another way firms can influence market prices for their product is through product differentiation. By diffe rentiating one’s product and us ing marketing to establish brand loyalty, manufacturers can raise their pr ices above marginal cost without losing market share to their competitors.

While we saw in Section 1.3 that there ar e a wide variety of petroleum products with many different uses, individual petr oleum products are by nature quite homogenous. For example, there is little difference between premium motor gasoline produced at different refineries (Mathtec h, 1997). As a result, the role of product differentiation is probably quite small for many finished petrol eum products. However, there are examples of relatively small refining businesses pr oducing specialty products for small niche markets. As a result, there may be some instances where product differentiation is important for price determination.

1.4.1.4 Competition among Firms in the Petroleum Refining Industry
Overall, the petroleum industry is char acterized as producing largely generic products for sale in relatively unconcentrated markets. Although it is not possible to quantify how much barriers to entry and ot her factors will affect competition among firms, it seems unlikely that individual petrol eum refiners would be able to significantly influence market prices given the current structure of the market.



### 1.4.2 Characteristics of U.S. Petroleu m Refineries and Pe troleum Refining Companies
A petroleum refinery is a facility wher e labor and capital are used to convert material inputs (such as crude oil and other materials) into finished petroleum products. Companies that own these facilities are legal business entities that conduct transactions
and make decisions that affect the facil ity. The terms “facility,” “establishment,” and “refinery” are synonymous in this study and refer to the physical location where products are manufactured. Likewise, the terms “company” and “firm” are used interchangeably to refer to the legal business entity that owns one or more facilities. This section presents information on refineries, such as their lo cation and capacity util ization, as well as financial data for the companies that own these refineries.

1.4.2.1 Geographic Distribution of U.S. Petroleum Refineries
There are approximately 149 petroleum refi neries operating in the United States, spread across 33 states. The number of petroleum refineries located in each of these states26 is listed in Table 1-8. This table illustra tes that a significant portion of petroleum refineries are located along the Gulf of Mexico region. The leading petroleum refining states are Texas, California, and Louisiana.

Table 1-8. Number of Petroleum Refineries, by State

State Number of Petroleum Refineries Alabama 4 Alaska 6 Arkansas 2 California 21 Colorado 2 Delaware 1 Georgia 1 Hawaii 2 Illinois 4 Indiana 2 Kansas 3 Kentucky 2 Louisiana 18 Michigan 1 Minnesota 2 Mississippi 4 Montana 4 Nevada 1 New Jersey 6 New Mexico 3 North Dakota 1 Ohio 4 Oklahoma 5 Oregon 1 Pennsylvania 5 Tennessee 1 Texas 25 Utah 5 Virginia 1 Washington 5 West Virginia 1 Wisconsin 1 Wyoming 5 Total 149
Source: U.S. Department of Energy, Energy Information Administration (EIA). 2006b. “Refinery Capacity

Report 2006.” Available at <http://www.eia.doe.gov/oil_gas/petroleum/d ata_publications/refinery_capacity_data/ refcapacity.html/>. As obtained on October 23, 2006.
1.4.2.2 Capacity Utilization
Capacity utilization indicates how we ll current refineries meet demand. One measure of capacity utilization is capacity uti lization rates. A capacity utilization rate is the ratio of actual production volumes to full-capacity production volumes. For example,27 if an industry is producing as much output as possible without adding new floor space for equipment, the capacity utiliz ation rate would be 100 percen t. On the other hand, if under the same constraints the industry were only producing 75 percent of its maximum possible output, the capacity u tilization rate would be 75 perc ent. On an industry-basis, capacity utilization is highly variable from year to year depending on economic
conditions. It is also variable on a co mpany-by-company basi s depending not only on economic conditions, but also on company’s stra tegic position in its particular industry. While some plants may have idle production lines or empty floor space, others need additional space or capacity.

Table 1-9 lists the capacity utilization rates for petroleum refineries from 2000 to 2006. It is interesting to note the significant drop in capac ity utilization in 2005. This
would seem counter intuitive since there does not appear to be evidence that demand for petroleum products is not dropping. To understa nd why this might be the case, one must first realize that the capacity utilization ratio in petrol eum industry represents the utilization of the atmospheric crude oil distillation units.

Table 1-9. Full Production Capacity Util ization Rates for Petroleum Refineries

Year Petroleum Refineries Capacity Utilization Rates (NAICS 324110) Gross Input to Atmospheric Crude Oil Distillation Units (1,000s of barrels per day) Operational Capacity (1,000s of barrels per day) 2000 92.6 15,299 16,525 2001 92.6 15,352 16,582 2002 90.7 15,180 16,744 2003 92.6 15,508 16,748 2004 93.0 15,783 16,974 2005 90.6 15,578 17,196 2006 89.7 15,602 17,385
Source: U.S. Department of Energy, Energy Information Administration (EIA). 2007a. “Refinery

Utilization and Capacity.” Available at <http://tonto.eia.doe.gov/dnav/pet/ pet_pnp_unc_dcu_nus_m.htm>. As obtained on January, 2007.

This is calculated for the petroleum industry by dividing the gross input to atmospheric crude oil distillation units (a ll inputs involved in at mospheric crude oil distillation, such as crude oil) by the industry’s operational capacity.

In 2004, operational capacity increased from 16,974,000 barrels per calendar day to 17,196,000 barrels per calendar day. Howe ver, gross inputs fell from 15,783,000 barrels per calendar day in 2004 to 15,578,000 in 2005. This indicates that capacity utilization sagged due to a drop in production inputs. In 2006, gross inputs grew 0.15% to28 15,602,000 barrels per day. However, since operati onal capacity grew much faster (from 17,196,000 to 17,385,000 or 1.00%), capacity utilizati on rates for the industry continued
to fall.

1.4.2.3 Characteristics of Small Businesse s Owning U.S. Petroleum Refineries
According to the Small Business Administ ration (SBA), a small business in the petroleum refining industry is defined for government procurement purposes as having 1,500 or fewer employees (SBA, 2008).

As of January 2006, there were 149 petr oleum refineries operating in the continental United States with a cumulative capacity of processing over 17 million barrels of crude per calenda r day (EIA, 2006c). RTI identified 58 parent companies owning refineries in the United States and was able to collect employment and sales data for 47 (84%) of them.

The distribution of employment across comp anies is illustrated in Figure 1-6. As this figure shows, 25 companies (53%) of these 47 employ fewer than 1,500 workers and
would be considered small businesses. Thes e firms earned an average of $1.04 billion of revenue per year, while firms employing more than 1,500 employees earned an average of $84.2 billion of revenue per year (Figure 1-7). A distribution of the number of firms earning different levels of revenue is presented in Figure 1-8.

Employment, crude capacity, and location in formation are provided in Table 1-9 for each of companies employing 1,500 employees or less. Similar information can be found for all 56 companies owning petroleum refineries in Appendix A.

In Section 1.4.2.1, we discussed how petroleum refining operations are characterized by economies of scale—that the cost per unit falls as a refinery produces more finished petroleum products. This means that smaller petroleum refiners face higher per unit costs than larger refining operati ons because they produce fewer petroleum products. As a result, some smaller firms have sought to overcome their competitive disadvantage by locating close to product-consuming areas to lower transportation costs and serving niche product markets (FTC, 2004).29 0% 10% 20% 30% 40% 50% 60%

<100 100-250 250-500 500-1000 1000- 1500 >1500Share of Firms (%)

Figure 1-6. Employment Distri bution of Companies Owning Petroleum Refineries (N=47)

Sources: Dun & Bradstreet. 2007a. 2007 D&B Million Do llar Directory. Pennsylvania: Dun & Bradstreet

Inc.

Dun & Bradstreet Small Business Solutions. Small Business Database. Available at <http://smallbusiness.dnb.com/default.asp?bhcd2=1107465546>.

Gale Research Inc. 2007. Ward’s Business Director y of U.S. Private and Public Companies. Detroit: Gale Research.
Hoovers. 2007. Free Content, Co mpany Information. Available at <http://www.hoovers.com/free/>.

$0 $20,000 $40,000 $60,000 $80,000 $100,000

<100 100-250 250-500 500-1000 1000- 1500 >1500Average Revenue ($millions)

Figure 1-7. Average Revenue of Companie s Owning Petroleum Refineries by Employment (N=47)
Sources: Dun & Bradstreet. 2007. 2007 D&B Million Dollar Directory. Pennsylvania: Dun & Bradstreet

Inc.

Dun & Bradstreet Small Business Solutions. Small Business Database. Available at <http://smallbusiness.dnb.com/default.asp?bhcd2=1107465546>. Gale Research Inc. 2007. Ward’s Business Directory of U S Private and Public Companies. Detroit: Gale Research.30 Hoovers. 2007. Free Content, Co mpany Information. Available at <http://www.hoovers.com/free/>.

0% 10% 20% 30% 40% 50% 60% 70%

<$5 $5-$10 $10-$50 $50- $100 $100- $500 $500- $1000 >$1000Share of Firms (%)

Figure 1-8. Revenue Distribution of Comp anies Owning Petroleum Refineries (N=47)
Sources: Dun & Bradstreet. 2007. 2007 D&B Million Dollar Directory. Pennsylvania: Dun & Bradstreet

Inc.

Dun & Bradstreet Small Business Solutions. Small Business Database. Available at <http://smallbusiness.dnb.com/default.asp?bhcd2=1107465546>. Gale Research Inc. 2007. Ward’s Business Directory of U S Private and Public Companies. Detroit: Gale Research.
Hoovers. 2007. Free Content, Co mpany Information. Available at <http://www.hoovers.com/free/>.

A good example of a firm locating close to prospective customers is Countrymark Cooperative, Inc., which was started in th e 1930s for the express purpose of providing farmers in Indiana with a consistent supply of fuels, lubricants, and other products. A good example of a firm producing niche products is Calumet Lubricants, which focuses on developing and manufacturing naphthenic specialty oils.

However, recent developments are making these factors less important for success in the industry. For example, the entry of ne w product pipelines is eroding the locational advantage of smaller refineries (FTC, 2004). Th is trend can possibly be illustrated by the fact that most refineries owned by small busin esses tend to be located in relatively rural areas (see Table 1-10). The median populati on density of counties occupied by small refineries is 94 people per square mile. This could suggest that refi neries do not rely on the population surrounding them to s upport their refining operations.31Table 1-10. Characteristics of Small Businesses in the Petroleum Refining IndustryParent CompanyParentCompanyTypeCummulative CrudeCapacity(bbl/cd)ParentCompanySales($Millions)ParentCompanyEmployment (#)Facility Name Facility CityFacilityStateFacilityCountyCounty IDFacilityCountyPopulationDensity(2000)AGE Refining &ManufacturingPrivate 12,200 287 52AGE Refining &ManufacturingSan Antonio TX Bexar CountyTXBexarCounty1,117American RefiningGroupPrivate 10,000 350 310American RefiningGroupBradford PAMcKeanCountyPAMcKeanCounty47Arabian AmericanDevelopment CoPublic 0 80 118South HamptonResources Inc.Silsbee TXHardinCountyTXHardinCounty54Calcasieu RefiningCo.Private 30,000 638 51Calcasieu RefiningCo.Lake Charles LACalcasieuParishLACalcasieuParish171Calumet SpecialtyProductsShreveport LA Caddo Parish LACaddo Parish 286Calumet SpecialtyProductsCotton Valley LA Caddo Parish LACaddo Parish 286Calumet SpecialtyProductsPublic 63,320 1,641 350Calumet SpecialtyProductsPrinceton LA Caddo Parish LACaddo Parish 286CountrymarkCooperative, Inc.Private 23,000 87 300CountrymarkCooperative, Inc.Mt. Vernon IN Posey County INPosey County 66Cross Oil & RefiningCo. Inc.Private 7,200 49 110Cross Oil &Refining Co. Inc.Smackover AR Union CountyARUnionCounty44CVR Energy Inc. Public 112,000 3,038 577CoffeyvilleResources LLCCoffeyville KSMontgomeryCountyKSMontgomeryCounty56Foreland RefiningCo.Private 2,000 56 100Foreland RefiningCo.Tonopah/EagleSpringsNV Nye County NVNye County 2Frontier Oil &Refining Co.Cheyenne WYLaramieCountyWYLaramieCounty30Frontier Oil Corp Private 153,000 4,000 727Frontier Oil Corp El Dorado KS Butler CountyKSButlerCounty42Gary-Williams Co Private 54,000 97 200WynnewoodRefining Co.Wynnewood OKGarvinCountyOKGarvinCounty34(Continued)32Table 1-10. Characteristics of Small Businesses inthe Petroleum Refining Industry (continued)Parent CompanyParentCompanyTypeCumulativeCrudeCapacity(bbl/cd)ParentCompanySales($Millions)ParentCompanyEmployment (#)Facility Name Facility CityFacilityStateFacilityCountyFacilityCountyPopulationDensity(2000)Goodway Refining LLC Private 4,100 3 18Goodway RefiningLLCAtmore ALEscambiaCounty41Greka Integrated Inc Private 9,500 22 145 Greka Integrated Inc Santa Maria CASanta BarbaraCounty146Gulf AtlanticOperations LLCPrivate 16,700 9 32Gulf AtlanticOperations LLCMobile Bay AL Mobile County 324Holly Corp. Woods Cross UT Davis County 785Holly Corp. Public 99,700 4,023 859Navajo Refining Co. Artesia NM Eddy County 12Hunt Refining Co. Tuscaloosa ALTuscaloosaCounty125Hunt SouthlandRefiningLumberton MS Lamar County 79Hunt Refining Co. Private 45,500 4,871 1,100Hunt SouthlandRefiningSandersville MS Lamar County 79Lion Oil Co. Private 70,000 247 425 Lion Oil Co. El Dorado AR Union County 44Pelican Refining Co.LLCPrivate 0 29 62Pelican Refining Co.LLCLake Charles LACalcasieuParish171Placid Refining Inc. Private 56,000 1,400 200 Placid Refining Inc. Port Allen LAWest BatonRouge Parish113San Joaquin RefiningCo., Inc.Private 15,000 288 20San Joaquin RefiningCo., Inc.Bakersfield CA Kern County 81Somerset Oil Inc Private 5,500 55 150Somerset RefineryInc.Somerset KY Pulaski County 85Trigeant Ltd. Private 0 5 50 Trigeant Ltd. Corpus Christi TX Nueces County 375(Continued)33Table 1-10. Characteristics of Small Businesses inthe Petroleum Refining Industry (continued)Parent CompanyParentCompanyTypeCumulativeCrudeCapacity(bbl/cd)ParentCompanySales($Millions)ParentCompanyEmployment (#)Facility Name Facility CityFacilityStateFacilityCountyFacilityCountyPopulationDensity(2000)Western Refining, Inc. El Paso TX El Paso County 671Giant Refining Co. Yorktown VA York County 533Giant Refining Co. Bloomfield NMSan JuanCounty21Western Refining, Inc. Public 212,200 4,200 416Giant Refining Co. Gallup NMMcKinleyCounty14World Oil Corp Private 8,500 277 475 Lunday-Thagard Co. South Gate CALos AngelesCounty2,344Wyoming Refining Co. Private 12,500 340 107Wyoming RefiningCo.Newcastle WY Weston County 3Total2,128,860 59,738 12,688Sources: Dun & Bradstreet. 2007.2007 D&B Million Dollar Directory. Pennsylvania: Dun & Bradstreet Inc.Dun & Bradstreet Small Business Solutions. Small Business Database. Available at <http://smallbusiness.dnb.com/default.asp?bhcd2=1107465546>.Gale Research Inc. 2007. Ward’s Business Directory ofU S Private and Public Companies. Detroit: Gale Research.Hoovers. 2007. Free Content, Company Information. Available at <http://www.hoovers.com/free/>. As obtained on April 11, 2007.U.S. Department of Commerce, Bureau of the Census. 2000. “Population Density by County: Census 2000 Summary File 1 (SF 1) 100-Percent Data”.Available through American Fact Finder < http://factfinder.census.gov/home/saff/main.html?_lang=en>. As obtained on February 21, 2008.34 Capacity information for the 29 refineries owned by small businesses also suggests that fewer small businesses are focusing on developing specialty products or serving local customers as major parts of their business plan. For exam ple, in 2006 these 29 refineries had a collective crude refining capacity of 778,920 barrels per calendar day or 857,155 barrels per stream day (EIA, 2006c). Approximately 21% of this total capacity was devoted to producing specialty products or more locally focused products such as aromatics, asphalt, l ubricants, and petroleum coke. The remaining 79% was used to produce ga soline, kerosene, diesel fuel, and liquefied petroleum gases. As discussed in Section 1.4.1.3, fuel products tend to be quite homogenous (gasoline from one refinery is not very different from gasoline from another refinery), and they are also normally transported by pipeline.



### 1.5 Markets
This section provides data on the volume of petroleum products produced and consumed in the United States, the quantit y of products imported and expor ted, and the average prices of major petroleum products. The section concludes with a discussion of future trends for the petroleum refining industry.


### 1.5.1 U.S. Petroleum Consumption
Figure 1-9 illustrates the amount of petr oleum products supplied between 2000 and 2006 (measured in millions of barrels of oil). These data represent the approximate consumption of petroleum products because it measures the di sappearance of these products from primary sources (i.e., refineries, natu ral gas processing plants, blendi ng plants, pipelines, and bulk terminals).

Between 2000 and 2004, U.S. consumption of petroleum products increased by 5%. Consumption grew steadily from 2001 and 2004 befo re leveling off and slightly declining in 2006 (Figure 1-9). This reduced growth was primarily the result of less jet fuel and residual fuel being consumed in recent years (Table 1-11).



### 1.5.2 U.S. Petroleum Production
Table 1-12 reports the number of barrels of major petroleu m products produced in the United States between 2000 and 2006. U.S. producti on of petroleum products at refineries and blenders grew steadily between 1995 and 2003. However, production declined by 0.35% in 2005. This drop was possibly the result of damage in flicted by two hurricanes (Hurricane Katrina and Hurricane Rita) on the U.S. Gulf Coast—the location of many U.S. petroleum refineries (Section 1.4.2). According to the American Petrol eum Institute, approximately 30% of the U.S. refining industry was shut down as a result of the damage (API, 2006). In 2006, production of35 6,800 7,000 7,200 7,400 7,600 7,800

2000 2001 2002 2003 2004 2005 2006

Figure 1-9. Total Petroleum Products Supplied (millions of barrels per year)

Table 1-11. Total Petroleum Products Supplied (millions of barrels per year)

Year Motor Gasoline Jet Fuel Distillate Fuel Oil Residual Fuel Oil Liquefied Petroleum

Gases Other Products Total 2000 3,101 631 1,362 333 816 967 7,211 2001 3,143 604 1,404 296 746 978 7,172 2002 3,229 591 1,378 255 789 969 7,213 2003 3,261 576 1,433 282 757 1,003 7,312 2004 3,333 597 1,485 316 780 1,076 7,588 2005 3,343 613 1,503 336 741 1,057 7,593 2006 3,377 596 1,522 251 749 1,055 7,551
Source: U.S. Department of Energy, Energy Information Administration (EIA). “Petroleum Supply Annuals 1996–

2007, Volume 1.” Available at <http://www.eia.doe. gov/oil_gas/petroleum/data_publications/petroleum_ supply_annual/psa_volume1/psa_volume1.html>. As obtained on October 31, 2007.

petroleum products rebounded, increasing 1% over 2004 levels. Additional production data are presented in Table 1-13, which reports the valu e of shipments of products produced by the petroleum refining indus try between 1997 and 2006.



### 1.5.3 International Trade
International trade is a growing component of the U.S. petroleum refining industry. This
trend is demonstrated in Ta bles 1-14 and 1-15. Between 1995 and 2006, imports and exports of petroleum products increased by more than 50%. While imports of most major petroleum36 Table 1-12. U.S. Refinery and Blender Net Production (millions of barrels per year)

Year Motor Gasoline Jet Fuel Distillate Fuel Oil Residual Fuel Oil Liquefied Petroleum

Gases Other Products Total 2000 2,910 588 1,310 255 258 990 6,311 2001 2,928 558 1,349 263 243 968 6,309 2002 2,987 553 1,311 219 245 990 6,305 2003 2,991 543 1,353 241 240 1,014 6,383 2004 3,025 566 1,396 240 236 1,057 6,520 2005 3,036 564 1,443 229 209 1,015 6,497 2006 3,053 541 1,475 232 229 1,032 6,561
Source: U.S. Department of Energy, Energy Information Administration (EIA). “Petroleum Supply Annuals 1996–

2007, Volume 1.” Available at <http://www.eia.doe. gov/oil_gas/petroleum/data_publications/petroleum_ supply_annual/psa_volume1/psa_volume1.html>. As obtained on October 31, 2007.
Table 1-13. Value of Product Shipments of the Petroleum Refining Industry

Year Millions of $Reported Millions of $2005 1997 152,756 180,671 1998 114,439 136,746 1999 140,084 164,651 2000 210,187 237,425 2001 195,898 219,476 2002 186,761 210,647 2003 216,764 238,425 2004 290,280 306,328 2005 419,063 419,063 2006 489,051 470,037
Note: Numbers were adjusted for inflation using producer price index industry data for Total Manufacturing Industries (Table 5-6). Sources: U.S. Department of Commerce, Bureau of the Census. 2007. 2006 Annual Survey of Manufactures.

Obtained through American Fact Finder Database < h ttp://factfinder.census.gov/home/saff/main.html?_lang=en>. U.S. Department of Commerce, Bureau of the Census. 2003b. 2001 Annual Survey of Manufactures. M01(AS)-2.

Washington, DC: Government Printing Office. Availa ble at < http://www.census.gov/prod/2003pubs/m01as2.pdf. As obtained on March 4, 2008.

products grew at approximately the same rate , the growth of petroleum product exports was driven largely by residual fuel oil and other petroleum products.

However, the United States remains a net importer of petroleum products. In 2006, the United States imported nearly three times more petroleum products than it exported. These imported petroleum products accounted for 17% of total petroleum products consumed that year (1,310 millions of barrels per year/7,551 millions of barrels per year).37 Table 1-14. Imports of Major Petroleum Pr oducts (millions of barrels per year)

Year Motor Gasoline Jet Fuel Distillate Fuel Oil Residual Fuel Oil Liquefied Petroleum

Gases Other Products Total 1995 97 35 71 68 53 262 586 1996 123 40 84 91 61 322 721 1997 113 33 83 71 62 345 707 1998 114 45 77 101 71 324 731 1999 139 47 91 86 66 344 774 2000 156 59 108 129 79 343 874 2001 166 54 126 108 75 400 928 2002 182 39 98 91 67 396 872 2003 189 40 122 119 82 397 949 2004 182 47 119 156 96 520 1,119 2005 220 69 120 193 120 587 1,310 2006 173 68 133 128 121 687 1,310
Source: U.S. Department of Energy, Energy Information Administration (EIA). “Petroleum Supply Annuals 1996–

2007, Volume 1.” Available at <http://www.eia.doe. gov/oil_gas/petroleum/data_publications/petroleum_ supply_annual/psa_volume1/psa_volume1.html>. As obtained on October 31, 2007.
Table 1-15. Exports of Major Petroleum Pr oducts (millions of barrels per year)

Year Motor Gasoline Jet Fuel Distillate Fuel Oil Residual Fuel Oil Liquefied Petroleum

Gases Other Products Total 1995 38 8 67 49 21 128 312 1996 38 17 70 37 19 138 319 1997 50 13 56 44 18 147 327 1998 46 9 45 50 15 139 305 1999 40 11 59 47 18 124 300 2000 53 12 63 51 27 157 362 2001 48 10 44 70 16 159 347 2002 45 3 41 65 24 177 356 2003 46 7 39 72 20 186 370 2004 45 15 40 75 16 183 374 2005 49 19 51 92 19 183 414 2006 52 15 79 103 21 203 472 Source: U.S. Department of Energy, Energy Information Administration (EIA). “Petroleum Supply Annuals 1996–

2007, Volume 1.” Available at <http://www.eia.doe. gov/oil_gas/petroleum/data_publications/petroleum_ supply_annual/psa_volume1/psa_volume1.html>. As obtained on October 31, 2007.



### 1.5.4 Market Prices
The average nominal prices of major petroleu m products sold to e nd users are provided for selected years in Table 1-16. 2 As these data illustrate, nomin al prices rose substantially between 2004 and 2006. In particular, the price of motor gasoline rose 48% over this 2-year period.

2 Sales to end users are those made directly to the consum er of the product. This includ es bulk consumers, such as agriculture, industry, and utilities, as well as residential and commercial consumers.38 Table 1-16. Average Price of Major Petroleum Products Sold to End Users (cents per gallon)

Product 1995 2000 2002 2004 2005 2006 Motor gasoline 76.5 110.6 94.7 143.5 182.9 212.8 No. 1 distillate fuel 62 98.8 82.8 126.2 183.2 213.7 No. 2 distillate fuel 56 93.4 75.9 123.5 177.7 209.1 Jet fuel 54 89.9 72.1 120.7 173.5 199.8 Residual fuel oil 39.2 60.2 56.9 73.9 104.8 121.8
Source: U.S. Department of Energy, Energy Information Administration (EIA). 2007b. “Refiner Petroleum Product

Prices by Sales Type.” Available at <http://tonto.eia.doe.gov/ dnav/pet/pet_pri_refoth_dcu_nus_m.htm>. As obtained on January 11, 2008.
Note: Prices do not include taxes.

The nominal prices domestic petroleum refiners receive for their products have also been rising much faster than prices received by other U.S. manufacturer s. This trend is demonstrated in Table 1-17 by comparing the producer price index (PPI) for the petroleum refining industry against the index for all manu facturing industries. Between 1995 and 2006, prices received by petroleum refineries for their products rose by 223%, while prices received by all manufacturing firms rose by 26%. The vast majority of this grow th in prices has been experienced in the years
after 2002.

Table 1-17. Producer Price Index Industry Data: 1995 to 2006

Petroleum Refining (NAICS 32411) Total Manufacturing Industries

Year PPI Annual Percentage Change in PPI PPI Annual Percentage Change in PPI 1995 74.5 3% 124.2 3% 1996 85.3 14% 127.1 2% 1997 83.1

− 3% 127.5 0% 1998 62.3

− 25% 126.2

− 1% 1999 73.6 18% 128.3 2% 2000 111.6 52% 133.5 4% 2001 103.1 –8% 134.6 1% 2002 96.3

− 7% 133.7

− 1% 2003 121.2 26% 137.1 3% 2004 151.5 25% 142.9 4% 2005 205.3 36% 150.8 6% 2006 241.0 17% 156.9 4%
Source: U.S. Bureau of Labor Statistics (BLS). 2007. “Pro ducer Price Index Industry Data: Customizable Industry

Data Tables.” Available at <http://www.bls.g ov/ppi/>. As obtained on October 11, 2007.



### 1.5.5 Profitability of Petroleum Refineries
Estimates of the mean profit (before taxes) to net sales ratios for petroleum refiners are reported in Table 1-18 for the 2006–2007 fiscal year. These ratios were calculated by Risk39 Table 1-18. Mean Ratios of Profit before Taxes as a Percentage of Net Sales for Petroleum Refiners, Sorted by Value of Assets

Fiscal Year Total Number of Statements 0 to 500,000 500,000 to 2 Million 2 Million to 10 Million 10 Million to 50 Million 50 Million to 100 Million 100 Million to 250 Million All Firms 4/1/2006– 3/31/2007 44 — — 4.6 6.5 — — 6.7

Source: Risk Management Association (RMA). 2008. Annual Statement Studies 2007-2008. Pennsylvania: RMA,

Inc.

Management Associates by dividing net income into revenues for 44 firms in the petroleum refining industry. They are broken down base d on the value of assets owned by the reporting
firms.

As these ratios demonstrate, firms that report ed a greater value of a ssets also received a greater return on sales. For example, firms with assets valued between $10 and $50 million received a 6.5% average return on net sales, wh ile firms with assets valued between $2 and $10 million only received a 4.6% average return. The average return on sales for the entire industry
was 6.7%.

Obtaining profitability information specifically for small petroleum refining companies can be difficult as most of these firms are privat ely owned. However, five of the small, domestic petroleum refining firms identified in S ection 1.4.2.3 are publicly owned companies—the Arabian American Development Co., CVR Energy Inc., Calumet Specialty Products Partners, L.P., Holly Corporation, Western Refining, Inc. Profit ratios were calcula ted for these companies using data obtained from their publicly avai lable 2006 income statements. These ratios are presented in Table 1-19.


### 1.5.6 Industry Trends
The Energy Information Administration’s (EIA’s) 2007 Annual Energy Outlook provides forecasts of average petroleum prices, petrol eum product consumption, and petroleum refining capacity utilization to th e year 2030. Trends in these variable s are affected by many factors that are difficult to predict, such as energy prices, U.S. economic growth, advances in technologies, changes in weather patterns, and future public po licy decisions. As a result, the EIA evaluated a wide variety of cases based on different assump tions of how these factors will behave in the future. This section focuses on the EIA’s “reference case” forecasts, which assume that current policies affecting the energy sector will re main unchanged throughout the projection period (EIA, 2007c).40 According to the 2007 Annual Energy Outlook’s reference forecast, world oil prices (defined as the average price of low-sulfur, light crude oil) are expected to fall significantly over

Table 1-19. Net Profit Margins for Publicly Owned, Small Petroleum Refiners: 2006

Company Net Income ($millions) Total Revenue ($millions) Net Profit Margin (%) Arabian American Development Co. 7.9 98.5 8.0% Calumet Specialty Products Partners 93.9 1,641.0 5.7% CVR Energy Inc. 191.6 3,037.6 6.3% Holly Corporation 266.6 4,023.2 6.6% Western Refining, Inc. 204.8 4,199.5 4.9%
Sources: Arabian American Developm ent Co. April 6, 2007. 10K for year ended December 31, 2006. EDGAR

Database. Available at <http://www.sec.gov/Archive s/edgar/data/7039/000095013407007709/0000950134-07- 007709-index.htm>. Calumet Specialty Products Partners. February 23 , 2007. 10K for year ende d December 31, 2006. EDGAR

Database. Available at <http://www.sec.gov/Archives/edgar/data/1340122/000095013407003992/ h43776e10vk.htm>. CVR Energy Inc. 2006. Google Finance. Availabl e at <http://finance.google.com/finance?q=NYSE:CVI> As

obtained on February 28, 2008. Holly Corporation. March 1, 2007. 10K for year ended December 31, 2006. EDGAR Database. Available at <http://www.sec.gov/Archives/edgar/data/480 39/000095013407004555/d44106e10vk.htm>. Western Refining, Inc. March 8, 2007. 10K for year e nded December 31, 2006. EDGAR Database. Available at < http://www.sec.gov/Archives/edgar/data/1339048/000095013407005096/h44360e10vk.htm >.

the next 10 years as the amount of oil supplie d by non-OPEC and OPEC countries increases. Since crude oil is the primary i nput in petroleum refining, a dec line in its pri ce would likewise represent a decline in production co sts of petroleum refiners. As a result, the prices of petroleum products sold to end users are expected to de cline over the same period (Table 1-20). These lower prices will, in turn, encourage more pe troleum products to be consumed (Table 1-21). Between 2007 and 2015, the prices of major pe troleum products are expected to fall approximately 20% to 25%, while consumption of those products is ex pected to rise by 9%.

Operational capacity of U.S. petroleum refineries is also expected to grow for the foreseeable future. The expansion of dozens of petroleum re fineries has already been announced (Reuters, 2007). The Oil & Gas Journal’s 2007 Worldwide Construction U pdate survey alone catalogued nearly 40 refining construction projects being pursued in the United States.41 Table 1-20. Forecasted Average Price of Major Petroleum Products Sold to End Users in 2005 Currency (cents per gallon)

Product 2007 2008 2009 2010 2011 2012 2013 2014 2015 Motor gasoline 257.4 241.3 227.3 217.3 209.2 204.7 201.1 195.2 194.9 Jet fuel 175.4 158.3 152.0 147.2 140.0 135.8 135.5 132.9 133.5 Distillate fuel 253.8 236.6 224.1 215.9 205.0 197.2 194.7 190.3 191.0 Residual fuel oil 123.5 125.8 120.6 113.9 107.7 102.8 96.6 95.9 98.0 LPGs 257.4 241.3 227.3 217.3 209.2 204.7 201.1 195.2 194.9
Source: U.S. Department of Energy, Energy Information Administration (EIA). 2007c. “Annual Energy Outlook.”

Available at <http://www.eia.doe.gov/oiaf/archive/aeo07/pd f/0383(2007).pdf>. As obtained on January 21, 2007.
Table 1-21. Total Petroleum Products Supplied (millions of barrels per year)

Year Motor Gasoline Jet Fuel Distillate Fuel Oil Residual Fuel Oil Liquefied Petroleum

Gases Other Products Total 2007 3,388 622 1,600 275 819 940 7,643 2008 3,407 646 1,613 278 824 953 7,721 2009 3,446 675 1,631 281 815 955 7,804 2010 3,479 713 1,654 287 809 937 7,879 2011 3,520 728 1,682 289 811 961 7,990 2012 3,563 739 1,710 294 812 958 8,076 2013 3,610 749 1,735 303 812 967 8,177 2014 3,663 758 1,755 306 814 953 8,249 2015 3,716 766 1,774 300 815 970 8,341
Source: U.S. Department of Energy, Energy Information Administration (EIA). 2007c. “Annual Energy Outlook.”

Available at <http://www.eia.doe.gov/oiaf/archive/aeo07/pd f/0383(2007).pdf>. As obtained on January 21, 2007.
Table 1-22. Selected Refinery Construction Projects: 2008–2011

Company and Location Project Projected Added Capacity (barrels per day) Expected Completion
Cenex Harvest States, Laurel, MT New delayed coker unit N/A 2008
Frontier Oil Corp, El Dorado, KS New crude distillation unit N/A 2008

New vacuum distillation unit N/A 2008

Marathon Petroleum Co. LLC, Garyville, LA New crude distillation unit 180,000 2009

New delayed coker unit N/A 2009 Motiva Enterprises LLC, Port Arthur, TX Refinery expansion 325,000 2010
Sinclair Oil Corp, Tulsa, OK Refinery expansion 45,000 2011

Source: Oil and Gas Journal . November 19, 2007. Worldwide Construction Update.42 In particular, several U.S. refineries are plan ning projects to expand their ability to handle cheaper and lower-quality vari eties of crude oil (known as “heavy crudes”). For example, ConocoPhillips will be expanding its capacity to handle heavy crude oils at its refinery in Billings, Montana, to 46,000 barrels per day (Reuters, 2007).

In addition to these expansions, two entire ly new refineries could potentially be constructed within the next 5 years. The first is the Arizona Clean Fuel s Refinery in Phoenix. This facility will cost $3 billion to construct and will be capable of producing 6 million gallons of gasoline, diesel, and jet fuel per day (A rizona Clean Fuels, 2007). Second, a proposal to construct the MHA Nation Clean Fuels Refinery in North Dakota is being reviewed. If constructed, this facili ty will be capable of producing 15,000 ba rrels of fuel per day (EPA, 2006).

Overall, the EIA forecasts that U.S. operati onal capacity will increa se by a total of 2% between 2007 and 2015 (Table 1-23). However, since consumption of petroleum products is projected to grow much more quick ly, the rate of capacity utiliza tion is projected to average 90% during this period.

Table 1-23. Full Production Capacity Util ization Rates for Petroleum Refineries

Year Petroleum Refineries Capacity Utilization Rates (NAICS 324110) Gross Input to Atmospheric Crude Oil Distillation Units (1,000s of barrels per day) Operational Capacity (1,000s of barrels per day) 2007 88.8% 15,630 17,597 2008 88.1% 15,587 17,684 2009 88.6% 15,712 17,737 2010 89.1% 15,879 17,822 2011 89.9% 16,055 17,852 2012 90.9% 16,267 17,897 2013 91.4% 16,378 17,914 2014 91.6% 16,433 17,940 2015 92.2% 16,628 18,031
Source: U.S. Department of Energy, Energy Information Administration (EIA). 2007c. “Annual Energy Outlook.”

Available at <http://www.eia.doe.gov/oiaf/archive/aeo07/pd f/0383(2007).pdf>. As obtained on January 21, 2007.



### 1.6 References

 American Petroleum Institute (API). 2006. “F YI on Refineries: Operating at Record Levels.” Available at <http://new.api.or g/aboutoilgas/sectors/refining/upload/ FYI_Refineries.pdf>. As obtained on October 31, 2006.

 Arizona Clean Fuels. 2007. Comp any Home Page. Available at <http://www.arizonacleanfuels.com/>. As obtained on February 5, 2007.43  Arabian American Development Co. April 6, 2007. 10K for year ended December 31, 2006. EDGAR Database. Available at <htt p://www.sec.gov/Archives/edgar/data/ 7039/000095013407007709/0000950134-07-007709-index.htm>.

 Calumet Specialty Products Partners . February 23, 2007. 10K for year ended December 31, 2006. EDGAR Database. Available at <http://www.sec.gov/Archives/edgar/data/ 1340122/000095013407003992/h43776e10vk.htm>.

 CVR Energy Inc. 2006. Google Finance. Available at <http://finance.google.com/finance?q=NYSE:CVI> As obtained on February 28, 2008.

 Dun & Bradstreet Small Business Solutions. Small Business Database. Available at <http://smallbusiness.dnb.com /default.asp?bhcd2=1107465546>.

 Dun & Bradstreet. 2007. 2007 D&B Million Dollar Directory . Pennsylvania: Dun & Bradstreet Inc.

 Federal Trade Commission (FTC). 2004. “T he Petroleum Industry: Mergers, Structural Change, and Antitrust Enforcement.” Available at <http://www.ftc.gov/opa/2004/08/ oilmergersrpt.shtm>. As obtained on February 6, 2007.

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 General Accounting Office (FTC). 2007. “Ene rgy Markets: Factors That Influence Gasoline Prices.” Available at <h ttp://www.gao.gov/new.items/d07902t.pdf>. As obtained on February 6, 2007.

 Holly Corporation. March 1, 2007. 10K for year ended December 31, 2006. EDGAR Database. Available at <http://www.sec.gov/Archives/edgar/data/48039/000095013407004555/ d44106e10vk.htm>.

 Hoovers. 2007. Free Content, Company Information. Available at <http://www.hoovers.com/free/>. As obtained on April 11, 2007.

 Langinier, Corrine. 2004. “Are Patent s Strategic Barriers to Entry?” Journal of Economics and Business 56:349-361.

 MathTech, Inc. 1997. “Industry Profile fo r the Petroleum Refinery NESHAP.” Available at <http://www.epa.gov/ttnecas1/ regdata/IPs/Petroleum%20Refinery%20 (Sulfur%20Recovery%20Units,%20Catalytic% 20Crackin.pdf>. As obtained on October 31, 2006.

 Nicholson, Walter. 2005. Microeconomic Theory: Basic Principles and Extensions

. Mason, OH: South-Western Publishing.44  Oil and Gas Journal. 2007. Worldwide Construction Update. November 19, 2007.

 Risk Management Association (RMA). 2008. Annual Statement Studies 2007-2008. Pennsylvania: RMA, Inc.

 Reuters. July 19, 2007. “U.S. Refinery Expansion Plans.” Available at <http://uk.reuters.com/ article/oilRpt/idUKN1997 46120070719>. As obtained on February 5, 2007.

 Small Business Administration. 2006. Tabl e of Small Business Size Standards. Available at <http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_table_pdf.> As obtained on November 30, 2006.

 U.S. Bureau of Labor Statistics (BLS). 2007. “Producer Price Index Industry Data: Customizable Industry Data Tables.” Available at <http://www.bls.gov/ppi/>. As obtained on October 11, 2007.

 U.S. Department of Commerce, Bureau of the Census. 1997. 1995 Annual Survey of Manufacture s. M95(AS)-1. Washington, DC: Governme nt Printing Office. Available at <http://www.census.gov/prod/2/manmin/asm/m95as1.pdf>. As obtained on October 23, 2006.

 U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufacture s. M96(AS)-1 (RV). Washington, DC : Government Printing Office. Available at <http://www.census.gov/prod/3/98pubs/m96-as1.pdf>. As obtained on October 23, 2006.

 U.S. Department of Commerce, Bureau of the Census. 2000. “Population Density by County: Census 2000 Summary File 1 (SF 1) 100-Percent Data”. Available through American Fact Finder < http://factfinder. census.gov/home/saff/main.html?_lang=en>. As obtained on February 21, 2008.

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 U.S. Department of Commerce, Bureau of the Census. 2003a. 2001 Annual Survey of Manufacture s. M01(AS)-1. Washington, DC: Governme nt Printing Office. Available at <http://www.census.gov/prod/2003pubs/m01as-1.pdf>. As obtained on October 23, 2006.

 U.S. Department of Commerce, Bureau of the Census. 2003b. 2001 Annual Survey of Manufactures . M01(AS)-2. Washington, DC: Government Printing Office. Available at < http://www.census.gov/prod/2003pubs/m01as-2.pdf. As obtained on March 4, 2008.45  U.S. Department of Commerce, Bureau of the Census. 2004. 2002 Economic Census, Industry Series—Petroleum Refineries . Washington, DC: Government Printing Office. Available at <http://www.census.gov/pr od/ec02/ec0231i324110.pdf>. As obtained on October 23, 2006.

 U.S. Department of Commerce, Bureau of the Census. 2006. 2005 Annual Survey of Manufacture s. M05(AS)-1. Washington, DC: Governme nt Printing Office. Available at <http://www.census.gov/prod/2005pubs/am043 1gs1.pdf>. As obtained on October 23, 2006.

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 U.S. Department of Energy, Energy Inform ation Administration (EIA). 2006a. “A Primer on Gasoline Prices.” Available at <http://www.eia.doe.gov/bookshelf/brochures/ gasolinepricesprimer/printerversion. pdf>. As obtained on October 31, 2007.

 U.S. Department of Energy, Energy Info rmation Administration (EIA). 1999a. “Petroleum: An Energy Profile 1999 .” DOE/EIA-0545(99). Available at <http://tonto.eia.doe.gov/ FTPROOT/petroleum/054599.pdf>. As obtained on October 23, 2006.

 U.S. Department of Energy, Energy In formation Administration (EIA). 2006b. “Refinery Capacity Report 2006.” Available at <http://www.eia.doe.gov/oil_gas/petroleum/ data_publications/refinery_capacity_data/ref capacity.html/>. As obtained on October 23, 2006.

 U.S. Department of Energy, Energy Info rmation Administration (EIA). 2006c. “Petroleum Supply Annual 2005, Volume 1.” Available at <http://www.eia.doe.gov/pub/oil_gas/ petroleum/data_publications/petroleum_s upply_annual/psa_volume1 /historical/2005/psa _volume1_2005.html>. As obt ained on October 31, 2007.

 U.S. Department of Energy, Energy Info rmation Administration (EIA). 2007a. “Refinery Utilization and Ca pacity.” Available at <h ttp://tonto.eia.doe .gov/dnav/pet/ pet_pnp_unc_dcu_nus_m.htm>. As obtained on January 7, 2008.

 U.S. Department of Energy, Energy In formation Administration (EIA). 2007b. “Refiner Petroleum Product Prices by Sales Type.” Available at <http://tonto.eia.doe.gov/ dnav/pet/pet_pri_refoth_dcu_nus_m.htm >. As obtained on January 11, 2008.46  U.S. Department of Energy, Energy Info rmation Administration (EIA). 2007c. “Annual Energy Outlook.” Available at <http://www.eia.doe.gov/oiaf/archive/ae o07/pdf/0383(2007).pdf>. As obtained on January 21, 2007.

 U.S. Department of Justice and the Federal Trade Commission. 1992. Horizontal Merger Guidelines. Available at <http ://www.ftc.gov/bc/docs/horizmer.htm>. As obtained on October 28, 2006.

 U.S. Department of Labor, Occupational Sa fety and Health Administration (OSHA). 2003. OSHA Technical Manual, Section IV: Ch apter 2, Petroleum Refining Processes. TED 01-00-015. Washington, DC: U.S. DOL. Available at <http://www.osha.gov/dts/osta/ otm/otm_iv/otm_iv_2.html>. As obtained on October 23, 2006.

 U.S. Environmental Protection Agency. 1995. “EPA Office of Compliance Sector Notebook Project: Profile of the Petrol eum Refining Industry.” EPA/310-R-95-013. Washington, DC: U.S. EPA. Available at <http://www.epa.gov/compliance/resources/ publications/assistance/ sectors/notebooks/petrefsn.pdf>. As obtained on October 23, 2006.

 U.S. Environmental Protection Agency. 2006. “Proposed MHA Nation Clean Fuels Refinery.” Available at <http://www.epa.gov/Region8/compliance/nepa/refinerydeis.html>. As obtained on February 6, 2007.

 Western Refining, Inc. March 8, 2007. 10K for year ended December 31, 2006. EDGAR Database. Available at <htt p://www.sec.gov/Archives/edgar/data/ 1339048/000095013407005096/h44360e10vk.htm>.47Appendix A. Parent Company Information for Petroleum RefineriesaFacility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment (#) SourceYear ofDataAGE Refining &Manufacturing San Antonio TX 12,200 D 287 52 Private D&B UnknownAlon USA Energy Inc. Big Spring TX 67,000 F SubsidiaryAlon Israel OilCompany LTD Private NA NAAmerican RefiningGroup Bradford PA 10,000 D 350 310 Private D&B UnknownBig West of CA Bakersfield CA 66,000 D Subsidiary Flying J Inc Private 11,350 16,300 Hoovers 2007Big West Oil Co. Salt Lake City UT 29,400 DSubsidiary Flying J Inc Private 11,350 16,300 Hoovers 2007BP Whiting IN 410,000 F SubsidiaryBP PLC Public 274,316 97,000 Hoovers 2007BP Texas City TX 437,000 F Subsidiary BP PLC Public 274,316 97,000 Hoovers 2007BP Prudhoe Bay AK 12,500 F SubsidiaryBP PLC Public 274,316 97,000 Hoovers 2007BP Carson CA 260,000 F SubsidiaryBP PLC Public 274,316 97,000 Hoovers 2007BP Ferndale WA 225,000 F Subsidiary BP PLC Public 274,316 97,000 Hoovers 2007BP Toledo OH 131,000 F SubsidiaryBP PLC Public 274,316 97,000 Hoovers 2007Calcasieu Refining Co. Lake Charles LA30,000 D 638 51 Private D&B UnknownCalumet SpecialtyProductsShreveport LA 42,000 D 1,641 350 Public Hoovers 2006Calumet SpecialtyProducts Cotton Valley LA 13,020 D 1,641350 Public Hoovers 2006Calumet SpecialtyProducts Princeton LA 8,300 D 1,641 350 Public Hoovers 2006Cenex Harvest States Laurel MT 55,000 D 11,900 6,370 PublicChevron USA Inc. Perth Amboy NJ 80,000 D SubsidiaryChevronCorporationPublic 210,118 62,500 Hoovers 2006Chevron USA Inc. Salt Lake City UT 45,000 D SubsidiaryChevronCorporation Public 210,118 62,500 Hoovers 2006Chevron USA Inc. Portland OR D SubsidiaryChevronCorporation Public 210,118 62,500 Hoovers 2006Chevron USA Inc. Pascagoula MS 330,000 D SubsidiaryChevronCorporationPublic 210,118 62,500 Hoovers 2006(continued)48Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment(#)SourceYear ofDataChevron USA Inc. El Segundo CA 260,000 D SubsidiaryChevronCorporation Public 210,118 62,500 Hoovers 2006Chevron USA Inc. Richmond CA 242,901 D SubsidiaryChevronCorporation Public 210,118 62,500 Hoovers 2006Chevron USA Inc.Honolulu (Barber'sPoint) HI 54,000 D SubsidiaryChevronCorporation Public 210,118 62,500 Hoovers 2006Citgo Corpus Christi TX 156,000 F SubsidiaryPetróleos deVenezuela S.A.(PDVSA)GovernmentOwned NA 49,180 Hoovers 2004Citgo AsphaltRefining Co. Paulsboro NJ 32,000 F SubsidiaryPetróleos deVenezuela S.A.(PDVSA)GovernmentOwned NA 49,180 Hoovers 2004Citgo Petroleum Savannah GA 28,000 F SubsidiaryPetróleos deVenezuela S.A.(PDVSA)GovernmentOwned NA 49,180 Hoovers 2004Citgo PetroleumCorp. Lake Charles LA 429,500 F SubsidiaryPetróleos deVenezuela S.A.(PDVSA)GovernmentOwned NA 49,180 Hoovers 2004CoffeyvilleResources LLC Coffeyville KS 112,000 D 3,038 577 PublicCVR EnergyInc. Hoovers 2006ConocoPhillips Westlake LA 239,400 D 188,523 38,400 Public Hoovers 2006ConocoPhillips Ponca City OK 194,000 D 188,523 38,400 Public Hoovers 2006ConocoPhillips Billings MT 58,000 D 188,52338,400 Public Hoovers 2006ConocoPhillips Borger TX 146,000 D 188,523 38,400 Public Hoovers 2006ConocoPhillips Sweeny TX 247,000 D 188,52338,400 Public Hoovers 2006ConocoPhillips Ferndale WA96,000 D 188,523 38,400 PublicHoovers 2006ConocoPhillips Linden NJ 238,000 D 188,52338,400 Public Hoovers 2006ConocoPhillips Wood River IL 306,000 D 188,523 38,400 Public Hoovers 2006ConocoPhillipsLA -Carson/WilmingtonCA 139,000 D 188,523 38,400 Public Hoovers 2006(continued)49Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment(#)SourceYear ofDataConocoPhillips SF - Rodeo CA 76,000 D 188,523 38,400 Public Hoovers 2006ConocoPhillipsArroyo Grande(Santa Maria) CA 44,200 D 188,523 38,400 Public Hoovers 2006ConocoPhillips Belle Chasse LA 247,000 D 188,523 38,400 Public Hoovers 2006ConocoPhillipsTrainer (MarcusHook) PA 185,000 D 188,523 38,400 Public Hoovers 2006ConocoPhillips Kuparuk AK14,000 D 188,523 38,400 PublicHoovers 2006CountrymarkCooperative, Inc. Mt. Vernon IN 23,000 D 87 300 PrivateCross Oil & RefiningCo. Inc. Smackover AR 7,200 D 49 110 PrivateDelek Refining Ltd Tyler TX 58,000 F SubsidiaryDelek GroupLTDPublic 6,237 2,803 Hoovers 2006Edgington Oil Co. Long Beach CA 26,000 F SubsidiaryAlon Israel OilCompany LTD Private NA NAErgon Refining Inc. Vicksburg MS 23,000 D Subsidiary Ergon, Inc. Private 1,300 2,300Ergon-West VirginiaInc. Newell (Congo) WV 20,000 D Subsidiary Ergon, Inc. Private 1,300 2,300ExxonMobil Corp. Baton Rouge LA 501,000 D 377,635 82,100 Public Hoovers 2006ExxonMobil Corp. Billings MT60,000 D 377,635 82,100 PublicHoovers 2006ExxonMobil Corp. Joliet IL 238,500 D 377,635 82,100 Public Hoovers 2006ExxonMobil Corp. Beaumont TX 348,500 D 377,635 82,100 Public Hoovers 2006ExxonMobil Corp. Torrance CA 149,500 D 377,635 82,100 Public Hoovers 2006ExxonMobil Corp. Chalmette LA 188,160 D 377,635 82,100 Public Hoovers 2006ExxonMobil Oil Corp Baytown TX 562,500 D SubsidiaryExxonMobilCorp.Public 377,635 82,100 Hoovers 2006Flint Hills Resources Corpus Christi TX 288,126 D SubsidiaryKoch IndustriesInc Private 51,500 85,000Flint Hills Resources North Pole AK 210,000 D SubsidiaryKoch IndustriesInc Private 51,500 85,000(continued)50Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment(#)SourceYear ofDataFlint Hills Resources Rosemount MN 279,300 D SubsidiaryKoch IndustriesInc Private 51,500 85,000Foreland Refining Co.Tonopah/EagleSpringsNV 2,000 D 56 100 Private D&B UnknownFrontier Oil & RefiningCo. Cheyenne WY 47,000 D Subsidiary Frontier Oil Corp Private 4,000 727Frontier Oil Corp El Dorado KS 106,000 D 4,000 727 PrivateGiant Refining Co. Yorktown VA 58,600 D SubsidiaryWestern Refining,Inc. Private 4,200 416 Hoovers 2006Giant Refining Co. Bloomfield NM 16,800 D SubsidiaryWestern Refining,Inc. Private 4,200 416 Hoovers 2006Giant Refining Co. Gallup NM 20,800 D SubsidiaryWestern Refining,Inc.Private 4,200 416 Hoovers 2006Goodway Refining LLC Atmore AL 4,100 D 3 18 Private D&B UnknownGreka Integrated Inc Santa Maria CA 9,500 D 22 145 PrivateGulf AtlanticOperations LLC Mobile Bay AL 16,700 D 9 32 Private D&B UnknownHess Corporation Port Reading NJ D 23,200 11,610 PublicHolly Corp. Woods Cross UT 24,700 D 4,023 859 Public Hoovers 2006Hunt Refining Co. Tuscaloosa AL 34,500 D 4,871 1,100 Private Ward's 2007Hunt SouthlandRefining Lumberton MS D SubsidiaryHunt RefiningCo. Private 4,871 1,100 Ward's 2007Hunt SouthlandRefining Sandersville MS 11,000 D SubsidiaryHunt RefiningCo. Private 4,871 1,100 Ward's 2007Kern Oil & RefiningCo.Bakersfield CA 26,000 D NA NA PrivateLion Oil Co. El Dorado AR 70,000 D 247 425 PrivateLittle America RefiningCo.Evansville(Casper)WY 24,500 D SubsidiarySinclairCompaniesPrivate 5,500 7,000Lunday-Thagard Co. South Gate CA 8,500 D Subsidiary World Oil Corp Private 277 475 Hoovers 2007(continued)51Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment(#)SourceYearofDataLyondell-CitgoRefining Co. Houston TX 270,200 D SubsidiaryLyondellChemical Co Public 18,600 10,880Marathon PetroleumCo. LLCRobinson IL 192,000 D SubsidiaryMarathon OilCorpPublic 65,449 28,195 Hoovers 2006Marathon PetroleumCo. LLC Catlettsburg KY 222,000 D SubsidiaryMarathon OilCorp Public 65,449 28,195 Hoovers 2006Marathon PetroleumCo. LLC Detroit MI 100,000 D SubsidiaryMarathon OilCorp Public 65,449 28,195 Hoovers 2006Marathon PetroleumCo. LLCCanton OH 73,000 D SubsidiaryMarathon OilCorpPublic 65,449 28,195 Hoovers 2006Marathon PetroleumCo. LLC St. Paul Park MN 70,000 D SubsidiaryMarathon OilCorp Public 65,449 28,195 Hoovers 2006Marathon PetroleumCo. LLC Texas City TX 72,000 D SubsidiaryMarathon OilCorp Public 65,449 28,195 Hoovers 2006Marathon PetroleumCo. LLCGaryville LA 245,000 D SubsidiaryMarathon OilCorpPublic 65,449 28,195 Hoovers 2006Montana Refining Co. Great Falls MT 8,200 F SubsidiaryConnacher Oiland Gas Limited Public NA NAMotiva Enterprises Norco LA 226,500 D 32,100 2,700 PrivateMotiva Enterprises Port Arthur TX 285,000 D 32,100 2,700 PrivateMotiva Enterprises Convent LA 235,000 D 32,100 2,700 PrivateMurphy Oil USA Inc. Superior WI 34,300 D Subsidiary Murphy Oil Corp Public 14,307 7,296 Hoovers 2006Murphy Oil USA Inc. Meraux LA 120,000 D Subsidiary Murphy Oil Corp Public 14,307 7,296 Hoovers 2006National CooperativeRefinery Association McPherson KS 81,200 D SubsidiaryCenex HarvestStates Public 11,900 6,370Navajo Refining Co. Artesia NM 75,000 D Subsidiary Holly Corp. Public 4,023 859 Hoovers 2006Paramount PetroleumCorp. Paramount CA 50,000 F SubsidiaryAlon Israel OilCompany LTD Private NA NAPasadena RefiningSystems Inc. Pasadena TX 100,000 F SubsidiaryPetroleoBrasileiro, S.A.GovernmentOwned 72,347 62,266 Hoovers 2006(continued)52Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment(#)SourceYear ofDataPDV Midwest Refining Lemont IL 167,000 F SubsidiaryPetróleos deVenezuela S.A.(PDVSA)GovernmentOwned NA NAPelican Refining Co.LLC Lake Charles LA D 29 62 PrivatePetro Star Inc. North Pole AK 17,000 D SubsidiaryArctic SlopeRegional CorpPrivate 1,500 5,743Petro Star Inc. Valdez AK 48,000 D SubsidiaryArctic SlopeRegional Corp Private 1,500 5,743Placid Refining Inc. Port Allen LA 56,000 D 1,400 200 PrivateSan Joaquin RefiningCo., Inc. Bakersfield CA 15,000 D 288 20 PrivateShell Chemical LP St. Rose LA 55,000 F SubsidiaryRoyal DutchShell, PLC Public 312,323 108,000 Hoovers 2006Shell Chemical LP Saraland AL 80,000 F SubsidiaryRoyal DutchShell, PLCPublic 312,323 108,000 Hoovers 2006Shell Oil Products US Anacortes WA 145,000 F SubsidiaryRoyal DutchShell, PLC Public 312,323 108,000 Hoovers 2006Shell Oil Products US Martinez CA 155,600 F SubsidiaryRoyal DutchShell, PLC Public 312,323 108,000 Hoovers 2006Shell Oil Products US Wilmington CA 98,500 F SubsidiaryRoyal DutchShell, PLC Public 312,323 108,000 Hoovers 2006Shell Oil Products US -Deer Park RefiningLimited PartnershipDeer Park TX 333,700 F SubsidiaryRoyal DutchShell, PLCPublic 312,323 108,000 Hoovers 2006Silver Eagle RefiningInc. Evanston WY 3,000 D NA NA PrivateSilver Eagle RefiningInc.Woods Cross UT 10,250 D NA NA PrivateSinclair Oil Corp. Tulsa OK 70,300 D SubsidiarySinclairCompanies Private 5,500 7,000(continued)53Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment (#) SourceYear ofDataSinclair Oil Corp. Sinclair WY 66,000 D SubsidiarySinclairCompanies Private 5,500 7,000Somerset Refinery Inc. Somerset KY 5,500 D Subsidiary Somerset Oil Inc Private 55 150South HamptonResources Inc.Silsbee TX D SubsidiaryArabianAmericanDevelopment CoPublic 80 118Suncor Energy Commerce City CO 62,000 F SubsidiarySuncor EnergyInc Public 13,583 5,152 Hoovers 2006Suncor Energy Denver CO 32,000 F SubsidiarySuncor EnergyIncPublic 13,583 5,152 Hoovers 2006Sunoco, Inc. Westville NJ 145,000 D 38,715 14,000 Public Hoovers 2006Sunoco, Inc. Marcus Hook PA 175,000 D 38,715 14,000 Public Hoovers 2006Sunoco, Inc. Toledo OH 160,000 D 38,715 14,000 Public Hoovers 2006Sunoco, Inc. Tulsa OK 85,000 D 38,715 14,000 Public Hoovers 2006Sunoco, Inc.Phil. (Girard Pt &Pt Breeze)PA 335,000 D 38,715 14,000 Public Hoovers 2006Ten By Inc. Oxnard CA 2,800 NA NATesoro Mandan ND 58,000 D Subsidiary Tesoro Corp Public 18,104 3,950 Hoovers 2006Tesoro Salt Lake City UT 58,000 D Subsidiary Tesoro Corp Public 18,104 3,950 Hoovers 2006Tesoro Anacortes WA 120,000 D Subsidiary Tesoro Corp Public 18,104 3,950 Hoovers 2006Tesoro Golden Eagle CA 166,000 D Subsidiary Tesoro Corp Public 18,104 3,950 Hoovers 2006Tesoro Kapolei HI 93,500 D SubsidiaryTesoro Corp Public 18,104 3,950 Hoovers 2006Tesoro Kenai AK 72,000 D SubsidiaryTesoro Corp Public 18,104 3,950 Hoovers 2006Total SA Port Arthur TX 232,000 F 175,189 95,070 Public Hoovers 2005Trigeant Ltd. Corpus Christi TX D 5 50 Private D&B UnknownUnited Refining Co. Warren PA 65,000 D SubsidiaryRed Apple GroupInc Private 4,200 7,000US Oil & Refining Co. Tacoma WA 37,850 NA NAValero Energy Corpus Christi TX 142,000 D 91,833 21,836 Public Hoovers 2006(continued)54Appendix A. Parent Company Informationfor Petroleum Refineries (continued)Facility Name City StateCapacity(bbl/cd)ForeignorDomesticSales($million)EmploymentCompanyType(Private orPublic orSubsidiary)OwningCompanyOwningCompanyTypeSales($million)Employment (#) SourceYear ofDataValero Energy Houston TX 83,000 D 91,83321,836 Public Hoovers 2006Valero Energy Texas City TX 213,750 D 91,833 21,836 Public Hoovers 2006Valero Energy Krotz Springs LA 80,000 D 91,833 21,836 Public Hoovers 2006Valero Energy Benicia CA 144,000 D 91,83321,836 Public Hoovers 2006Valero Energy Wilmington CA 6,200 D 91,83321,836 Public Hoovers 2006Valero Energy Norco LA 185,003 D 91,833 21,836 Public Hoovers 2006Valero Energy Delaware City DE 181,500 D91,833 21,836 Public Hoovers 2006Valero Energy Lima OH 146,900 D 91,833 21,836 Public Hoovers 2006Valero Energy Memphis TN 180,000 D 91,833 21,836 Public Hoovers 2006Valero Energy Three Rivers TX 90,000 D 91,833 21,836 Public Hoovers 2006Valero Energy Sunray TX 158,327 D 91,833 21,836 Public Hoovers 2006Valero Energy Ardmore OK 83,640 D 91,833 21,836 Public Hoovers 2006Valero Energy Wilmington CA 80,887 D 91,83321,836 Public Hoovers 2006Valero Energy Paulsboro NJ 160,000 D 91,833 21,836 Public Hoovers 2006Valero Energy Port Arthur TX 260,000 D 91,833 21,836 Public Hoovers 2006Western Refining, Inc. El Paso TX 116,000D 4,200 416 Public Hoovers 2006Wynnewood RefiningCo. Wynnewood OK 54,000 D 97 200 SubsidiaryGary-WilliamsCo PrivateNote: All data were collected from the 2007 D&B Million Dollar Direction unless noted other wise. Data collected from the 2006D&B Small Business Databaseare indicated using “D&B” in the source column. Data collected from Ward’s BusinessDirectory are identified using “Ward’s” inthe source column.aThese data are shown with the permission of D&B.Sources: Dun & Bradstreet. 2007.2007 D&B Million Dollar Directory. Pennsylvania: Dun & Bradstreet Inc.Dun & Bradstreet Small Business Solutions. Small Business Database. Available at <http://smallbusiness.dnb.com/default.asp?bhcd2=1107465546>.Gale Research Inc. 2007. Ward’s Business Directory ofU S Private and Public Companies. Detroit: Gale Research.Hoovers. 2007. Free Content, Company Information. Available at <http://www.hoovers.com/free/>. As obtained on April 11, 2007.55 2.0 Requirements for the Final Rule

2.1 Introduction The current National Emissions Standard for Hazardous Air Pollutant (NESHAP) from Petroleum Refineries (40 CFR Part 63 Subpart CC) applies to miscellaneous process vents, storage vessels, wastewater streams, equipment leaks, gasoline loading racks, and marine vessel loading operations, and is commonly referred to as Refinery

MACT 1. Based on this review , the final amendments add requirements for monitoring for leaks in heat exchange systems to reduce HAP emissions from these sources. 2.2 Heat Exchange System Monitoring Requirements

The final amendments add provisions for th e control of HAP emissions from heat exchange systems, which includes closed-loop recirculation systems with cooling towers and once-through cooling water systems. Under these requirements, owners and operators of heat exchange systems that ar e in organic HAP service at new and existing sources are required to conduct monthly sampling and analyses using the Texas Commission on Environmental Quality’s (TCE Q) Modified El Paso method, Revision Number One, dated January 2003. 3 For existing sources, a leak is defined as 6.2 parts per million by volume (ppmv) total strippable VOC in the stripping gas collected via the
Modified El Paso method. For new sources, a leak is defined as 3.1 ppmv total strippable

VOC collected via the Modified El Paso met hod. The amendments require the repair of leaks in heat exchangers in organic HAP serv ice within 45 days of the sampling event in which the leak is detected, unless a delay in repa ir is allowed. Delay in repair of the leak is allowed until the next shutdown if the repair of the leak requires the process unit served by the leaking heat exchanger to be shut dow n and the total strippable VOC concentration is less than 62 ppmv. Delay in repair of the leak is also allowed for up to 120 days if the total strippable VOC concentration is less than 62 ppmv and if critical parts or personnel are not available. During the delay, the owner or operator is required to continue monthly monitoring and to repair the heat ex changer within 30 days if sampling results

3 “ Air Stripping Method (Modified El Paso Method) for Determination of Volatile Organic Compound Emissions from Water Sources,” Revision Number One, dated January 2003, Sampling Procedures Manual, Appendix P: Cooling Tower Monitoring, prepared by Texas Commission on Environmental Quality, January 31, 2003 (incorpo rated by reference—see §63.14).56 show that the leak exceeds 62 ppmv total strippable VOC. All new or existing refineries with a heat exchange system “in organic HAP service” are required to maintain records of a ll heat exchangers and which of those heat exchangers are in organic HAP service, th e cooling towers and once-through systems associated with heat exchangers in organic HAP service, monthly monitoring results, and information for any delays in repair of a leak. The final requirements for heat exchange systems will reduce HAP emissions from cooling towers by 630 ton/yr, and will also reduce VOC emissions by 4,100 ton/yr. Reducing VOC emissions provides the added be nefit of reducing ambi ent concentrations of ozone and may reduce fine particulate matte r. The annualized nationwide cost impacts of these final standards for heat exchange systems are estimated to be $3.0 million.

2.4 Other Amendments and Clarifications The final amendments also clarify certai n aspects of the existing NESHAP. For example, 40 CFR 63.650(a) of subpart CC is amended to replace “gasoline loading racks” with “Group 1 gasoline loading rack s” to clarify the a pplicability of the requirements, and cross-references to subparts R and Y of 40 CFR part 63 in the rule text and in Tables 4 and 5 of subpart CC are amended because subparts R and Y were

amended and the revised cross-references clarify the requirements of subpart CC.

The final amendments include revisions to Table 6 to 40 CFR part 63, subpart CC (General Provisions Applicabil ity to Subpart CC) to bring the table up to date with requirements of the General Provisions that have been amended since this table was
created, to correct cross references, and to in corporate additional se ctions of the General Provisions that are necessary to implement other subparts that are cross referenced by this

rule.

These amendments effectively clarify th e requirements of the existing NESHAP and are not expected to result in additional costs to the refinery.

2.5 Cost Summary The total capital investment cost of th e final amendments is estimated at $16 million. The controls required by the final amendments are expected to yield a net savings of $3.0 million (2007 dollars) in the total annualized cost, which includes $2.257 million credit for recovery of lost product and the annualized cost of capital. The final

amendments will achieve a nationwide HAP em ission reduction of about 630 ton/yr with

a concurrent reduction in VOC emissions of about 4,700 ton/yr. Table 2-1 summarizes the cost and emission reduction impacts of the final standards and amendments. Table 2-1. Nationwide Impact s to Heat Exchange Systems

3.0 Details on Costs and Emission Reducti ons for Regulatory Options Considered

in the Final Rule

3.1 Heat Exchange System Impacts Nationwide impacts were developed ba sed on the nationwide number of heat exchange systems and the proportion of h eat exchange systems represented by each model plant. Detailed information on the number of heat exchange systems and the proportion represented by model plant can be found in the memorandum containing the impacts of heat exchange system control options that is in the rulemaking docket. 4 Based on facility-specific crude cap acities (EIA, 2006), we estimat ed that there would be 540 heat exchange systems that receive cooling water from at least one heat exchanger in HAP service, that approximately 10 percent ar e already conducting he at exchange system monitoring sufficient to comply with the rule , and that 486 heat exchange systems would need to implement the heat exchange system monitoring requirements. The model plant baseline emissions were multiplied by the num ber of heat exchange systems represented by each model plant to develop the nationwide baseline emissions. Table 3-1

summarizes the nationwide ba seline emission estimate.

4 U.S. Environmental Protection Agency. “Cooling Towe rs: Control Alternatives and Impact Estimates.” Memorandum from Bob Lucas, U.S. EPA/OAQPS to Docket No. EPA-HQ-OAR-2003-0146. October, 2008. Affected source Total capital investment ($ million) Total annualized cost without
recovery ($ million) Product recovery credit

($ million) Total annualized

costs ($ million/ yr) HAP emission reductions

(ton/yr) Costeffectiveness ($/ton HAP) Heat Exchangers 16 5.2 (2.2) 3.0 630 4,70058 Table 3-1. Nationwide Baseline Emission s for Refinery Heat Exchange Systems

Model Plant Flow rate, gpm Percent of total, % Nationwide No. of heat exchange systems in the leak size range No. that would need to implement requirements Baseline Emissions, TO

HAP, ton/yr Model Plant 1: 5,000 38.9 210 190 46 Model Plant 2: 15,500 28.9 160 140 100 Model Plant 3: 42,000 28.9 160 140 280 Model Plant 4: 105,000 3.4 18 16 82 Totals* 100% 540 486 520 *Totals may not match reported value column totals due to rounding.

Nationwide emissions associated with monitori ng of heat exchange system leaks (i.e., controlled basis following implementation of m onitoring) were likewise estimated based on assumptions regarding the leng th of time of the leak and the number of he at exchange system leaks that are repaired as soon as po ssible (50 percent) and the number that delay repair (50 percent). The nationwide emi ssions reductions were estimated as the

difference between the baseline and controlled emissions levels.

Nationwide cost impacts for conducting h eat exchange system monitoring for the

three alternatives evaluated were estimated based on the control alte rnative unit costs and the number of heat exchange systems nationw ide that must implement heat exchange system monitoring requirements to comply with the rule.

Table 3-2 provides a summary of the nati onwide impacts. The nationwide emissions reductions and costs presented in Table 3-2 ar e expected to span the ranges of costeffectiveness for the different control alternatives.

Total annual costs and nationwide impacts we re also considered using VOC emission reduction credits. Heat exchange system mon itoring reduces loss of products from heat exchangers and cooling towers. Therefore, the product not lost as a result can be sold, and the monitoring costs are offset, to some extent, by the increased product sales. The VOC credit was calculated assuming the va lue of VOC to be $1.75/gallon, based on59 average crude and gasoline spot prices in 2007 5 . Assuming an average refinery process stream specific gravity of 0.75, the VOC cred it is $560 per ton VOC reduced. Table 3-3 provides a summary of the nationwide imp acts considering VOC emission reduction

credits.

Table 3-2. Summary of Nationwide Impact s of Refinery Heat Exchange System Regulatory Alternatives (without VOC emission reduction credits)

Alternative Total capital investment, million $/yr a Total Annualized Costs, million $/yr Emission Reduction, TO HAP tpy Costeffectiveness, $/ton TO HAP Incremental cost effectiveness, $/ton MACT Floor $11 $4.6 430 $10,700 NA Alternative 1 $11 $4.9 450 $10,900 $14,600 Alternative 2 $55 $12 460 $25,400 $1,030,000

Table 3-3. Summary of Nationwide Impact s of Refinery Heat Exchange System Regulatory Alternatives, with VOC Emission Reduction Credits

Alternative Total capital investment, million $/yr a Total Annualized Costs, with VOC

credits, million $/yr Emission Reduction, TO HAP tpy Costeffectiveness, with VOC credits $/ton

TO HAP Incremental cost effectiveness,

with VOC credits, $/ton MACT Floor $11 $2.3 430 $5,300 NA Alternative 1 $11 $2.5 450 $5,500 $8,750 Alternative 2 $55 $9.1 460 $20,000 $1,020,000

4.0 Economic and Small Business Impact Analysis – Background Information The costs presented in this section ar e calculated based on the control cost methodology presented in the EPA (2002) Air Pollution Control Cost Manual prepared by the U.S. Environmental Protection Agency. 6 This methodology sets out a procedure by which capital and annualized costs are defined and estimated, and this procedure is often used to estimate the costs of rulemakings such as this one. The capital costs presented in this section are annualized using a 7% interest rate, a rate that is consistent with the

5 Based on September 7, 2007 crude oil crack sp read spot prices of $74.96/bbl ($1.78/gal) for Brent crude and $87.04/bbl ($2.08/gal) for product value per barrel; as reported in Oil and Gas Journal , September 17, 2007, p. 90.

6 U.S. Environmental Protection Agency (EPA) Air Pollution Control Cost Manual. Section 1, Chapter 2. EPA-452/B-02-001. July 2002. Available on the Internet at http://epa.gov/ttn/catc/products.html#cccinfo60 guidance provided in the Office of Manage ment and Budget’s (OMB’s) Circular A-4

issued in 2003. 7 The annualized compliance costs of the final rule are $3.0 million (2007 dollars). A reduction in produc t losses of $2.2 million (2007 dollars) is in cluded in the annualized compliance cost total. The HAP emission reductions for this final rule are estimate at 630 tons per year and VOC em ission reductions are estimated at 4,700 tons

per year There are two likely reasons why the savings in costs from reduced product losses

are reasonable and credible. 1) The rates of return for capital invest ments in the refinery industry have been relatively low for a long period of time.

Rates of return on investment in the refi nery industry have averaged about 5.5%

from 1993-2002. 8 The refinery industry has, un til recently, experienced relatively low profits as part of their oper ations as shown by the profit ma rgin data provided earlier in Section 1.5.5 of this report. This is due to the capital intensive natu re of their operations and a high barrier to entry. Hence, there has b een little incentive for refineries to invest in greater capacity un til recently. With the recent increa se in profits per barrel of oil refined, this has begun to change. However, re fineries may be slow to invest further in new capacity or to upgrade existing equipment given that high profitability for refined product is a recent phenomenon that could chan ge in the future. Also, the DOE/EIA

assumes a 9% after-tax rate of return on investments for cap acity expansion as part of their modeling of energy production in prep aring their Annual Energy Outlook forecasts ( http://www.eia.doe.gov/oiaf/aeo /assumption/introduction.html , at p. 5). Thus, historically low returns on capital investment s may lead refineries to be cautious with investing further in their facilities even if the expected return is positive.

2) There has been limited ability until r ecently to measure emissions from particular source categories such as heat exchange systems; hence, there has

7 U.S. Office of Management and Budget. Circular A-4. Issued on September 17, 2003. Available on the Internet at http://www.whitehouse.gov/omb/circulars/a004/a-4.html

. 8 National Petroleum Refiners Association. Writte n Statement for the U.S. House of Representatives, Committee on Government Reform, Subcommittee on Energy and Resources. October 19, 2005. Available on the Internet at http://www.npra.org/news/testimony/NPRATestimony&Attachments10-19- 05.pdf61 been little understanding of the possible returns to refinery owners from reducing leaks from this category.

5.0 Small Business and Economic Impacts 5.1 Small Business Impacts The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Proce dure Act or any other statute unless the agency certifies that the rule will not have a significant ec onomic impact on a substantial

number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For the purposes of assessing the impacts of this rule on small entities, small entity is defined as: (1) a small business that meets the Small Business Administration (SBA) size standards for small businesse s at 13 CFR 121.201 (a firm having no more than 1,500 employees; (2) a small governmental jurisdiction that is a government of a city, county, town, school dist rict, or special district w ith a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated a nd is not dominant in its field. After considering the economic impacts of this rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. Based on our economic impact analys is, the final amendments will result in a
nationwide annualized costs of about $3.0 m illion that includes $2.2 million per year from reductions in product losses previously me ntioned in this report. Of the 24 small refinery-owned entities affected by this fina l rule, no affected small entity will incur an impact of an annualized compliance cost of greater than 0.02 per cent of its revenue; therefore, no “significant” adverse economic impacts are expected for any small entity.
Thus, the costs associated with the final amen dments will not result in any “significant” adverse economic impact for any small entity. For more information, please refer to the economic impact analysis that is in the docket for this rulemaking. Although the final rule will not have a significant economic impact on a

substantial number of small en tities, we nonetheless tried to reduce the impact of the rule62 on small entities. We held meetings with industry trade associations and company representatives to discuss the rule and received comments from them, and have responded by making revisions that would reduce impacts to small entities. 5.2 Economic Impacts For economic impacts on all firms and consumers, all of the 58 firms that own an affected refinery (or more) are estimated to have positive compliance costs associated
with the rule. However, no affected refi nery-owned firm will incur an annualized compliance cost from this rule of no more than 0.02 percent in 2012 (the year of full implementation for the final rule). The screening analysis employed here is a “sales test” that computes the annualized compliance costs as a share of sa les for each affected company. The “sales test” is the impact methodology EPA employs in analyzing small entity impacts. The use of a “sales test” for estimating small business impacts for a rulemaking such as this one is consistent with guidance offered by EPA on compliance with SBREFA, 9 and is consistent with guidance published by the US SBA’s Office of Advocacy that suggests that cost as a percentage of total revenues is a metric fo r evaluating cost increases on small entities in relation to increases on large entities. 10 All other firms are estimated to experience annualized costs ranging from $17,950 to $291,507. Given that these cost estimates are quite low relative to firm revenues, and that as mentioned earlier in section 1.0 of this report that petroleum products such as gaso line have very low price elasticities of
demand associated with them, then the ec onomic impacts on consumer and producers, both small and large refineries as defined by the SBA, associated with this final rule should be minimal. More information on the costs per refinery can be found in the options and impacts memoranda for each source type that are available in the public

docket for this rule.

9 The SBREFA compliance guidance to EPA rulewriters regarding the types of small business analysis that should be considered can be found at http://www.epa.gov/sbrefa/docum ents/rfafinalguidance06.pdf , pp. 24-25.
10 U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory Flexibility Act, Implementing the Presid ent’s Small Business Agenda and Executive Order 13272, May 2003.63 United States Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC May, 2009