1. Introduction Policymaker’s View of the Refining Industry Policymaker’s View of the Refining Industry Increasing Domestic Refining Capacity Increasing Domestic Refining Capacity The Mid-terms The Mid-terms

2. Policymaker’s View of the Refining Industry Economics Economics

3. Historically Cyclical -But Is The Cycle Broken Or Is the Industry Entering a Golden Age?

5. China’s Growth China’s energy consumption is projected to 5 quadrillion Btu higher than the U.S. by 2030 China’s energy consumption is projected to 5 quadrillion Btu higher than the U.S. by 2030 Source: EIA, IEO 2006 Outlook

6. Policymaker’s View of the Refining Industry Economics Economics Market Distortions Market Distortions

8. Industry “From 1994 to 2003, the industry spent $47.4 billion to bring refineries into compliance with environmental regulations... by 2010 the U.S. refining industry will have invested upwards of $20 billion to comply with new clean fuel regulations..” Red Cavaney, President & CEO – American Petroleum Institute, Testimony before House Energy and Commerce, 09-07-05 Red Cavaney, President & CEO – American Petroleum Institute, Testimony before House Energy and Commerce, 09-07-05. Red Cavaney, President & CEO – American Petroleum Institute, Testimony before House Energy and Commerce, 09-07-05 Red Cavaney, President & CEO – American Petroleum Institute, Testimony before House Energy and Commerce, 09-07-05.

9. Regulators at EPA “Approximately 100 permits have been issued to refineries since 2000... Approximately 60 of the permit applications in 2000-2003 involved projects to comply with Tier 2 gasoline requirements and may not necessarily involve increased production capacity.” Brian Mannix, Associate Administrator, EPA. Testimony before Senate Environment and Public Works, A legislative hearing on S. 1772, “The Gas Price Act of 2005,” 10-18-05 Brian Mannix, Associate Administrator, EPA. Testimony before Senate Environment and Public Works, A legislative hearing on S. 1772, “The Gas Price Act of 2005,” 10-18-05

10. Tight Refining Capacity = Higher Prices “We need more refining capacity. One of the reasons why you’ve got high prices is the demand is greater than the supply. And when demand is greater than supply, the price goes up.” President discussing refining capacity in Biloxi, Mississippi, 04-27-06. President discussing refining capacity in Biloxi, Mississippi, 04-27-06.

11. Tight Refining Capacity = Higher Prices “ If we don’t get more refineries built then fuel prices could literally rocket to $US 100 to $US 200 (per barrel of oil) and the world economy would come to a grinding halt.” Richard Branson, “Virgin’s Branson Wants Oil Refinery,” MSNBC, 09-13-05 Richard Branson, “Virgin’s Branson Wants Oil Refinery,” MSNBC, 09-13-05

12. Refining Capacity and Security “Besides feared shortfalls in crude oil capacity, the status of world refining capacity has become worrisome as well.” “Besides feared shortfalls in crude oil capacity, the status of world refining capacity has become worrisome as well.” Remarks by Chairman Alan Greenspan, Economic Club of New York, 05-20-05 Remarks by Chairman Alan Greenspan, Economic Club of New York, 05-20-05

13. Refinery Capacity and Security “[T]he Refining system cannot shift quickly to meet unexpected needs. With Refinery capacity running at high utilization levels in many parts of the world, including the United States, product balancing is frequently done through international trade, which means products must travel long distances...” Guy Carouso, Administrator – Energy Information and Administration, Testimony before Senate Energy and Natural Resources, 09-06-05. Guy Carouso, Administrator – Energy Information and Administration, Testimony before Senate Energy and Natural Resources, 09-06-05.

14. Global Security Global Security China China Venezuela Venezuela OPEC Nations OPEC Nations

15. Market Uncertainty Vs. Regulatory Uncertainty Market Uncertainty Limited Government Role – Tax Policy (EPAct 2005) Market Uncertainty Limited Government Role – Tax Policy (EPAct 2005) Regulatory Uncertainty Regulatory Uncertainty

16. Uncertainty “Uncertainty over regulations can delay investment decisions and permitting processes can add to investment lead times. Both of these factors will slow the industry’s response to bringing additional supplies to the market.” National Petroleum Council, “Observations of Petroleum Supply,” I-27, December 2004 National Petroleum Council, “Observations of Petroleum Supply,” I-27, December 2004

17. Boutique Fuels

18. Streamlining Permits “Streamlining should provide for expeditious overall review and a clearly defined process for obtaining a permit, with agency roles and responsibilities well-defined and specific deadlines for making permitting decisions.” “Streamlining should provide for expeditious overall review and a clearly defined process for obtaining a permit, with agency roles and responsibilities well-defined and specific deadlines for making permitting decisions.” National Petroleum Council, “Observations on Petroleum Supply,” I-27, December 2004. National Petroleum Council, “Observations on Petroleum Supply,” I-27, December 2004.

19. Streamlining Permits “NACS and SIGMA urge this committee and this Congress to build on progress made through EP Act 2005 in the following ways: - streamline permitting and siting procedures for expanding existing domestic refining capacity and for the construction of new grassroots refineries...” William Shipley III, Representing NACS, Testimony before Senate Energy and Natural Resources, 09-06-05. William Shipley III, Representing NACS, Testimony before Senate Energy and Natural Resources, 09-06-05.

20. The Senate’s Answer S.1772, The Gas Petroleum Refiner Improvement and Community Empowerment Act or Gas PRICE Act S.1772, The Gas Petroleum Refiner Improvement and Community Empowerment Act or Gas PRICE Act

21. New Competition - Biofuels Vote Counting -Forty-five States offer local policies supporting ethanol fuel Vote Counting -Forty-five States offer local policies supporting ethanol fuel Conservatively limiting the scope to the nine ethanol producing states in the Corn Belt, ethanol supporters command a decisive seventy- seven electoral votes Conservatively limiting the scope to the nine ethanol producing states in the Corn Belt, ethanol supporters command a decisive seventy- seven electoral votes In the 100 member U.S. Senate, there are at least forty-three explicit fuel ethanol advocates In the 100 member U.S. Senate, there are at least forty-three explicit fuel ethanol advocates

23. The Midterm Elections Status Quo Status Quo Democrats control House Democrats control House Democrats control Senate Democrats control Senate

24. Status Quo - Policy Increased OCS production Increased OCS production Refinery permit streamlining Refinery permit streamlining Improved regulatory certainty Improved regulatory certainty Lower taxes Lower taxes

25. Democrats Control House Energy and Commerce Chairman Dingell – supported President Carter’s energy proposals including windfall profits tax, voted nine times for higher gas taxes, and voted against refinery expansion bills Energy and Commerce Chairman Dingell – supported President Carter’s energy proposals including windfall profits tax, voted nine times for higher gas taxes, and voted against refinery expansion bills

26. Democrats Control House Speaker Pelosi – Pelosi spokesman Drew Hammill – “Expanding offshore drilling is something she has historically opposed. It is not included in any of the proposals on energy the Democrats have put out there.” Speaker Pelosi – Pelosi spokesman Drew Hammill – “Expanding offshore drilling is something she has historically opposed. It is not included in any of the proposals on energy the Democrats have put out there.” Pelosi voted to increase gas taxes at least five times. Pelosi voted to increase gas taxes at least five times.

27. Democrats Control Senate ???

29. Environment and Public Works Chairman Boxer – Supports command and control climate policy, increased environmental taxes, voted for an amendment that would give the EPA authority to site, construct, and operate refineries. Environment and Public Works Chairman Boxer – Supports command and control climate policy, increased environmental taxes, voted for an amendment that would give the EPA authority to site, construct, and operate refineries. Majority Leader Reid – 1 of only 19 Democrats to vote against the 2005 Energy Bill, supported increasing gasoline taxes. Majority Leader Reid – 1 of only 19 Democrats to vote against the 2005 Energy Bill, supported increasing gasoline taxes.

30. Democrats Control Senate Majority Whip Durbin – Sponsor of windfall profits tax Majority Whip Durbin – Sponsor of windfall profits tax Energy and Natural Resource Chairman Bingaman – Supports mandatory climate policy, unlikely OCS compromise. Energy and Natural Resource Chairman Bingaman – Supports mandatory climate policy, unlikely OCS compromise.

31. Thank You