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ENVIRONMENTAL STANDARDS AND PETROLEUM SUPPLIES MUST BE BALANCED

Washington, DC, June 28, 2000 — "NPRA believes that expanded dialogue between the refining industry and government decisionmakers is the first step towards obtaining a greater understanding of the problems that face our industry," said Bob Slaughter, General Counsel, NPRA. In testimony presented before the House Judiciary Committee, he said that NPRA hopes that fuller and more frequent discussions and expanded understanding will in turn lead to much-needed improvement in America's energy policies.

NPRA, which represents almost all U.S. refiners, agrees that many of the problems we are now experiencing are due to readily understandable factors: the cost of our major input, crude oil; a new grade of environmental gasoline; regional supply disruptions; and low inventories of crude and products. "Experts who have looked at the situation seem to agree with our assessment," said Mr. Slaughter. A Congressional Research Service study of the Midwest situation focused on the factors just mentioned. The National Petroleum Council, a joint industry-government advisory body, issued a report that explains why the same or a similar situation can be expected to recur if we persist in pushing the edge of the envelope on environmental improvements while taking continued energy supplies for granted. A Cambridge Energy Research Associates study, headed by Daniel Yergin, the author of The Prize, recently issued a report "Gasoline and the American People," and it also finds predictable market forces and the impact of public policies at work in the current gasoline market.

"The refining industry has been coping with difficult times. According to the NPC Report, the refining industry's return on invested capital over the past ten years averaged 4%, roughly the passbook savings rate at the local bank. During much of the same period, refiners were called upon to invest about $20 billion in environmentally-related expenditures. An earlier NPC study determined that those expenditures were likely to exceed the book value of the entire refining industry."

"The outlook for the next ten years is for continued difficulties. Refiners will face a blizzard of regulatory initiatives over the next ten years. These environmental initiatives are largely uncoordinated and, if history is any guide, their impact on energy supplies will be ignored or downplayed. They are also very expensive. The gasoline sulfur reduction program will cost the refining industry $8 billion, according to the NPC report. Diesel sulfur reduction, if done in conformity with EPA's proposal, will cost around $10 billion. And the cost of responding to MTBE-related problems will take the combined total above $20 billion. And these are just three programs facing the industry."

Mr. Slaughter stated that the refining industry is committed to providing cleaner, more environmentally acceptable products to consumers. "Experience tells us, and the NPC study confirms, that refiners will continue to invest to provide petroleum products to consumers. Also, the NPC study tells us that supply disruptions will occur more frequently as we implement environmentally-driven fuel specification changes. In English, this means that situations like the recent one in the Midwest will occur more often. The refining system is already stretched to the breaking point in producing and distributing a multitude of products, some seasonal, some not. "

New environmental fuel requirements are certain, and that they will increase the stresses on our refining system which are already evident. Industry and policy makers must work together to balance environmental standards and the need to maintain and expand the supply of petroleum products. We can set reasonable goals in the form of performance standards and give the industry enough time to meet them. We can sequence new environmental programs to avoid unnecessary overlaps and try to foresee situations that might lead to supply and price disruptions which are harmful to both refiners and consumers.

"NPRA hopes that we can learn from the mistakes of the past and follow the second path," he said. "A good place to start is EPA's proposed diesel sulfur rule, which is fantastically expensive and threatens the loss of as much as 30% of America's diesel supply. Let's work together to fashion improved energy policies for the future. Protecting America's supply of highway diesel, our premium commercial fuel, is an excellent place to start."

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