• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

NPRA Submits Statement for the Record to the Senate Judiciary Committee

Posted on: Tuesday, 14 March 2006, 12:00 CST

NPRA, the National Petrochemical and Refiner's Association, today submitted an official statement for the record of the Senate Judiciary Committee, presenting the Association's views on the current state of the domestic refining industry. NPRA submitted this statement in response to the Committee's hearing on "Consolidation in the Energy Industry: Raising Prices at the Pump?"

NPRA is urging Congress and the Administration to encourage domestic production of refined petroleum and natural gas products; increased domestic production is the most effective means of ensuring continued service and fair consumer prices. In opening, the NPRA statement outlined refined product market fundamentals: the cost of crude oil as the primary driver of the cost of refined product, the balance between limited supply and strong demand, and the free-market pricing system that ensures maximum benefit to consumers.

NPRA's statement illustrates that crude oil prices are the single most influential factor in consumer pricing of refined products. NPRA cited a landmark study of June 2005 by the U.S. Federal Trade Commission (FTC), entitled, "Gasoline Price Changes: The Dynamic of Supply, Demand, and Competition." The FTC study clearly stated that: "Worldwide supply, demand, and competition for crude oil are the most important factors in the national average price of gasoline."

NPRA responded to reports indicting the industry's mergers and acquisitions as partially responsible for reduced competitiveness and consequent price increases. The NPRA maintained that, in fact, "the U.S. refining industry remains highly competitive. There are 54 refining companies in the U.S., hundreds of wholesale and marketing companies, and more than 165,000 retail outlets. The largest U.S. refiner accounts for just 13% of the nation's total capacity, and large, integrated companies own and operate only about 10% of retail outlets."

Once again, NPRA cited multiple FTC studies that support the Association's position, including an FTC statement before the Judiciary Committee as recently as February 1, 2006. The FTC enunciated that, "No other industry is so carefully scrutinized by the FTC." The FTC published an FTC Staff Study in 2004, "The Petroleum Industry: Mergers, Structural Change, and Antitrust Enforcement," which declared that, "...mergers have contributed to the restructuring of the petroleum industry in the past two decades, but have only had a limited impact on industry concentration." Studies by the Attorneys General of both the State of Nebraska and the State of Florida have investigated price increases in the past two years, and have also reported that anti-competitive behavior is not responsible for price increases in those states. The State of Florida's findings concluded that major factors influencing prices were: "consumer demand for gasoline,""refinery capacity,""refinery utilization,""inventories,""supply issues," and "lagged response in gasoline imports," all consistent with NPRA's position.

The NPRA statement pointed out to the Committee that, "the tight balance between refining capacity and refined product demand must be taken into account when considering changes in (consumer) price...Over the past twelve years U.S. refining capacity has increased by over 2 million barrels/day (b/d)." U.S. refineries are operating at unusually high utilization rates and producing huge volumes of products, especially during the summer. Utilization rates at U.S. refineries often reach 98%, a figure that stands in stark contrast to the average peak rate of 82% in other manufacturing industries. As well, "in the ten year period 1993-2002, the average return on investment in the refining industry was only about 5.5 percent. This is less than half of the S&P industrials average return of 12.7% for the same period," as reported in the Wall Street Journal "Review & Outlook," September 28, 2005.

Additionally, extremely high rates of refinery utilization are directly linked to price changes caused by disruptions in the system Hurricanes Katrina and Rita demonstrated prices will increase dramatically during temporary disruptions of fuel supplies from the Gulf Coast. Without further investment in increased domestic refinement capacity, natural disasters and other events causing production disruptions will certainly lead to spiked prices in transportation fuels. NPRA cited the rapid return to service, and subsequent return to pre-storm price-levels, as attributable to several factors: "quick action by the federal government to waive temporarily regulatory requirements and release (of) crude oil from the Strategic Petroleum Reserve; (and) the efforts of the dedicated employees of the industry, as well as their employers, who managed to return significant assets to service in a short time."

NPRA made several policy recommendations to the Committee: "Make increasing the nation's supply of oil, oil products and natural gas a number one public priority,""Remove barriers to increased supplies of domestic oil and gas resources,""Expand the refining tax incentive provision in the Energy Act," and "Review permitting procedures for new refinery construction and refinery capacity additions," amongst others. In closing, the NPRA statement said: "The state of energy today reflects supply and demand, and the arithmetic is not complicated...With domestic demand for refined products outpacing our ability to supply those needs with domestic supplies, market volatility will continue. Although this situation is unsatisfactory, it can only be alleviated with increased supply."

NPRA is a national trade association with more than 450 members, including most U.S. refiners and petrochemical manufacturers.

Source: Business Wire

More News in this Category