The last new refinery to open in the United States finished construction in 1976. That record is about to fall with the construction of a small refinery scheduled to open late this year in North Dakota. Since the mid-1980s, though, some 150 or more refineries closed. However, the refineries that remained open expanded their operational capacity to keep up with the increasing demand for refined petroleum products. Current U.S. refining capacity (roughly 18 million barrels per day) appears to satisfy if not exceed demand as the increasing export of refined petroleum products would seem to suggest. The refining industry even shows signs of expanding to take advantage of less expensive U.S. crude oil and export more products. The perception remains, nevertheless, that the United States needs new refineries but economic and regulatory barriers stand in the way of their construction. Thus far, the industry has managed to negotiate regulatory hurdles in expanding refinery capacity, an option preferred over new construction and driven by the economy of scale. In general, new entrants into refining may find steep competition with existing operators. However, for some "teapot" refineries, the door is wide open, and the cost of admission is comparatively little when processing light-sweet crude oil or condensate, whether in the mid-continent or elsewhere. Some may argue that there may be only a short window of opportunity to get in and then get out. A change in crude oil prices could quickly disadvantage them. Small refineries do face many of the same economic, market, and environmental factors that affect large refineries, but they may also benefit from exemptions in complying with certain federal regulations. Further, some federal policies have had the effect of displacing petroleum products in the market place, and introduced refineries to direct challenges, such as the Renewable Fuel Standard. We begin this report with a brief discussion on the state of refining in the Unites States, paying particular attention to regulatory criteria that define refining (as this has taken on new significance), the threshold between small and large refineries, and potential opportunities for small businesses. In the discussion on " Economic Challenges ", we examine the pace of refinery construction and capacity expansion, and the profitability of operating refineries. Current economic challenges for the industry also include competition from ethanol and biodiesel producers, many of which are considered small businesses; the potential displacement of refined petroleum products by these alternative fuels, as mandated by the Renewable Fuel Standard; and the erosion in demand for refined petroleum products, due to both consumer and government-mandated trends toward increased automotive fuel efficiency. Like any other industrial facility, refineries are subject to certain environmental laws that regulate their construction and operation. In the discussion on Environmental Permitting and Regulatory Requirements, we summarize some of the major environmental requirements associated with refinery construction and operations, few of which are unique to refineries compared to any industrial operation with similar potential emissions. This discussion focuses on air emissions control requirements, often regarded as the most significant challenge in permitting the expansion of existing refineries or constructions of new refineries. By CRS's recent count, some 115 refineries/refinery complexes process roughly 18 million barrels per day (Mb/d) of crude oil in the United States. All have atmospheric distillation in common, which involves heating crude oil in a furnace then condensing it in an atmospheric distillation tower (or crude unit)—the tall, narrow columns that give a refinery its distinctive skyline (see Figure 1 ). Refineries vary in complexity, and can include, for the purposes of this report, stabilizers, condensate splitters, simple topping plants and hydroskimmers to more complex cracking and ultimately coking plants. Coking has become an increasingly important capability of the U.S. refining industry with nearly three-quarters of the fuel-producing refineries having some capacity to convert heavy crude oils into refined products. Beginning in the late 1970s, U.S refineries began facing a dwindling supply of light-sweet crude oils favored for making motor fuels. Many refineries began switching to increasingly available heavy-sour crude oils, and began adding "cracking" and "coking" processes to convert petroleum "resid" into high value motor fuels. The resid that remained after atmospheric distillation found earlier use as low value "ship's bunker fuel" and as boiler fuel in electric power plants. Cracking and coking processing upgrades came at considerable investment costs. Coking dates back to the late 1920s, but became the defining characteristic of the U.S. refinery during the 1980s and 1990s. U.S. refineries have the capacity to convert some 2.5 Mb/d of petroleum resid into higher value motor fuels. In other words, refineries increased motor fuel production without having to increase nameplate capacity by adding cracking and coking units. Several Midwest refineries have recently added coking/conversion capacity to take advantage of the increasing supply of heavier crude oils from Canada's oil sands projects. The increasingly available light sweet crude oils produced from unconventional shale resources, like North Dakota's Bakken formation and the Texas Eagle Ford formation, are changing U.S. refining prospects and have revitalized some refinery operations that formerly depended on imported light crude oil. Some have raised questions and concerns about the role of condensates in the market. The domestic market for condensate is somewhat limited, however, and "lease" condensate (a term applied to Outer Continental Shelf production) is subject to current export restrictions. Condensates are volatile light hydrocarbons in the range of ethane, propane, butane, iso-butane, and iso-pentane (natural gasoline) associated with crude oil. The elevated pressures in oil and gas reservoirs keep condensates in a condensed liquid-state. However, the drop in pressure at the surface can cause condensates to "flash" or vaporize when transferred to the stock tanks. To avoid flashing, the crude oil stream is directed through a separator or "splitter" that separates the condensates into various product streams. A splitter operates as a series of stages, each calibrated to release a particular condensate product based on its characteristic temperature and pressure. The process has similarities to refining, but at temperatures in the range of 100°F to 250°F, and under controlled pressures. In the generic three-stage splitter shown in Figure 2 , progressively heavier volatiles are separated with each stage ending with degassed crude oil entering the stock tank. From the small business perspective, several legislated provisions define small refineries, but inconsistently. According to the U.S. Small Business Administration (SBA), only refiners that employ fewer than 1,500 employees and produce less than 125,000 barrels per calendar day may qualify for a federal small business contract. By CRS count, 27 refineries make up 50% of U.S. refining capacity. Almost half of the U.S. refineries (some 50 or more) produce less than 125,000 b/d, but in total they make up only 21% of total refining capacity (roughly 18+ Mb/d). Both Title XV (Ethanol and Motor Fuels) of the Energy Policy Act 2005 and Title II (Energy Security Through Increased Production of Biofuels) of the Energy Independence and Security Act of 2007 defined a small refinery as having less than 75,000 b/d in average aggregate daily crude oil throughput. EPA regulations temporarily exempted small refineries and small volume refineries, which have a capacity below 155,000 b/d, from complying with the Renewable Fuel Standard (RFS) through 2010. The Clean Air Act regulations set 65,000 b/d as the small business threshold for complying with vapor recovery provisions. Finally, the North American Industry Classification Codes (NAICC) identifies the construction costs for small oil and gas structures at below $33.5 million. However, the smallest refinery currently under construction, a 20,000 b/d refinery in North Dakota, reportedly will cost $350 million. Smaller oilfield equipment used to treat crude oil before it reaches a refinery (e.g., oil and gas separators, splitters, and stabilizers) may line up close to NAICC costs given the mobile and temporary application of the equipment. For example, a "skid-mounted" 2,500 b/d crude oil condensate stabilizer operating in the Texas Eagle Ford shale play cost roughly $400,000 (exclusive of tanks, pipelines, and pumps) in 2012. A permanent 60,000 b/d condensate stabilizer plant might cost upwards of $80 million. Small business opportunities in refining may strongly depend on a number of factors, including regional demand for refined products, available crude oil supplies, regional price differences, and unique state environmental regulations, among others. In addition, some fuels are easier to produce than others are. The unique "boutique" fuel requirements for some regions can affect the decisions of individual companies to produce, distribute, and market them. While evaluating opportunities would exceed the scope of this report, some key factors have emerged as of late. The frequency that refinery-ownership changes hands suggests that buying an existing refinery offers the most straightforward opportunity to expand capacity quickly. This has been the case for refineries serving regional markets as well as those operating in the major refining centers of the Gulf Coast and the West Coast. The availability of light sweet crude oil in the mid-continent region (North Dakota, Colorado) presents some opportunities for constructing a small topping or hydroskimming refinery. A greater opportunity may lie in installing condensate splitter and stabilizer plants to handle the excess condensate production in North Dakota now being flared, or in Texas.