EPA-230/1-73-020
SEPTEMBER 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
PETROLEUM REFINING INDUSTRY
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington. D.C. 20460
%.
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This document is available in limited
quantities through the U. S. Environmental Protection Agency,
Information Center, Room W-327 Waterside Mall,
Washington, D.C. 20460
The document will subsequently be available
through the National Technical Information Service
Springfield, Virginia 22151
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ECONOMIC ANALYSIS
OF
THE PROPOSED EFFLUENT GUIDELINES
FOR
THE PETROLEUM REFINING INDUSTRY
JUNE 1973
OFFICE OF PLANNING AND EVALUATION
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
CONTRACT NO. 68-01-1556
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EPA REVIEW NOTICE
This report has been reviewed by the Office of Planning
and Evaluation of EPA and approved for publication. Approval
does not signify that the contents necessarily reflect the
views and policies of the Environmental Protection Agency,
nor does mention of trade names or commercial products con-
stitute endorsement or recommendation for use.
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PREFACE
The attached document is a study prepared by Stephen
Sobotka and Company in conjunction with the Office of Planning
and Evaluation of the Environmental Protection Agency (EPA").
The purpose of the study is to analyze the economic impact
which could result from the application of alternative effluent
limitation guidelines and standards of performance to be
established under sections 304(b) and 306 of the Federal Water
Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development
Document") supporting the issuance of proposed regulations under
sections 304(b) and 306. The Development Document surveys exist-
ing and potential waste treatment control methods and technology
within particular industrial source categories and supports pro-
mulgation of certain effluent limitation guidelines and standards
of performance based upon an analysis of the feasibility of these
guidelines and standards in accordance with the requirements of
sections 304(b) and 306 of the Act. Presented in the Development
Document are the investment and operating costs associated with
various alternative control and treatment technologies. The
attached document supplements this analysis by estimating the
broader economic effects which might result from the required
application of various control methods and technologies. This
study investigates the effect of alternative approaches in terms
of produce price increases, effects upon employment and the con-
tinued viability of affected plants, effects upon foreign trade
and other competitive effects.
The study has been prepared with the supervision and review
of the Office of Planning and Evaluation of EPA. This report
was submitted in fulfillment of Contract No. 68-01-1556. Part I
was prepared by Stephen Sobotka and Company and Part II by the
Office of Planning and Evaluation of EPA. Work was completed
as of June 1973.
This report is being released and circulated at approximately
the same time as publication in the Federal Register of a notice
of proposed rule making under sections 304(b) and 306 of the Act
for the subject point source category. The study represents the
views of the staff of the Office of Planning and Evaluation, EPA
and the contractor and is not an official EPA publication. The
study will be considered along with the information contained
in the Development Document and any comments received by EPA
on either document before or during proposed rule making proceed-
ings necessary to establish final regulations. Prior to final
promulgation of regulations, the accompanying study shall have
standing in any EPA proceeding or court proceeding only to the
extent that it represents the views of the contractor and the
staff of the Office of Planning and Evaluation, EPA, who studied
the subject industry. It cannot be cited, referenced, or repre-
sented in any respect in any such proceeding as a statement of
EPA1s views regarding the subject industry.
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Table of Contents
EPA Review Notice
Preface
Paqe
Part I
Introduction and Summary
Section I. Demand
Section
A. The Products . 6
B. Market and Distribution 7
C. Government Influence on Market 9
Supply
A. Industry Operations 12
1. The production process 12
2. Type and location of raw
materials 15
3. Numbar and location of firms
and of plants 16
4. Types of firms 16
5. Types of plants 16
6. Employees 19
B. Financial Structure and Trends 21
1. Costs - fixed and variable 21
2. Profits 22
3. Cash flows 22
C. Refinery Technology and Technological
Trends 23
APPENDIX
D. Industry Utilization Rates
E. Competition
The Viability of Small Refineries
24
26
29
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Table of Contents (cont.)
EXHIBITS
1. Petroleum Administration for Defense (PAD)
Districts
2. Domestic Consumption of Petroleum Products
a) U.S. Sales of Distillate Fuel Oil by Uses
b) U.S. Sales of Residual Fuel Oil by Uses
3. Refinery and Terminal Prices
4. Functional Characterization of Petroleum
Refining Processes
5. Schematic Flow Diagram of Petroleum Refining -
A. Petroleum Product Manufacturing
6. Refinery Environmental Control Processes
7. Schematic Flow Diagram of Petroleum Refining -
B. Pollutant Collection arid Treatment
8. Number and Capacity of Refineries by States
9. Refineries - Distribution by Size - 1971 & 1973 ..
10. Refineries - Distribution by Size - 1966
11. Number of Refineries by Size Classes
12. Refinery Capacity by Size Classes
13. Employment, Earnings and Payrolls
14. Average Operating Costs of U.S. Refineries
15. Rate of Return on Net Worth
a) Estimated Investment in Fixed Assets
b) Estimated Financial Data
16. Estimated Petroleum Refinery Capital-
Requirements 1972-1981
Part II
Executive Summary 1
Introduction and Methodology 7
I.' Price Effects 17
\
II. Financial Effects 22
III. Production Effects 39
IV. Employment and Community Effects 41
V. Balance of Trade 41
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PART ONE
STRUCTURE OF THE INDUSTRY
By
Stephen Sobotka & Company
June 15, 1973
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INTRODUCTION AND SUMMARY
This' is Part One of a two-part report. In this Part
we present data and background information relevant to a considera-
tion of the economic impact of pollution abatement costs on the
petroleum refining industry.
Our choice of data and our description of the refining
industry are influenced by two considerations. First, to present
information valuable to persons who guide the making of public
policy for this industry. Secondly, to discuss those aspects of
the industry's relations with other industries which would be
useful in assessing the impact of pollution abatement costs in the
economy generally.
The petroleum refining industry in the United States
consists of some 250 plants owned by about 130 firms and located
in 39 of the 50 states. The refineries have a replacement value
at current prices in excess of $15 billion. The refining in-
dustry employs about 150,000 persons.
The bulk of refining is done by firms which also market
refined products or produce crude oil, or do both. In most firms
the refining portion of the business is not its major activity.
Refinery investment is less than 15 percent of total investment in
the domestic oil industry. Refinery employment is a somewhat
larger fraction of total employment.
The industry has grown at a fairly steady rate, but
slower than real GNP. Hence product imports have steadily in-
creased. Recent developments may lead to a more rapid industry
growth rate for the next decade or so.
The U.S. refining industry is in the early stages of
a period of profound change. For over 15 years the industry was
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protected from- lower cost foreign competition by an import quota
system. Nevertheless during the past 5 years or so various
pressures combined to cause oil product prices to decline relative
to the general price level. Industry capacity grew at a slower
rate than did product demand. Price controls were imposed during
August, 1971. They are still in effect for the 23 largest oil
companies. '
Demand for fuel oils has grown very rapidly in the past
2 or 3 years. This growth reflects a halt in the growth of natural
gas supply and of coal burning. The former change apparently re-
flects the results of about 15 years of price control; the latter
reflects existing and proposed environmental regulations.
Within the last year world crude oil prices have been
forced up by the cartel of producing countries to equal or greater
than U.S. prices. Despite these high prices, oil product import
volumes have continued to increase because U.S. refineries are
essentially at capacity. And crude oil imports have increased
because domestic production increases have failed to keep pace
with consumption. Recently the Federal Government proposed a set
of tariffs on imported crude oil and products that would, if enacted,
provide a strong stimulus to the construction of new refineries in
the U.S.
Compared to the above-discussed major changes in the
economic environment within which the industry operates, pollution
abatement costs will be small. So the impact on the refining in-
dustry of pollution abatement requirements will also be small. The
impact will be analyzed in Part Two of this study.
l) These companies manufacture and/or import nearly nine-tenths
of the domestic supply of product.
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SECTION I
DEMAI1I
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A. Tho Products
The industry manufactures hundreds of distinguishably
.different products. From the viev;point of environmental control
costs these may be grouped into four broad product classes:
gasoline, intermediates, residual, and other.
Gasoline accounts for about 45 percent of industry output.
It is typically priced at about 12 cents per gallon in cargo
lots on the Gulf Coast. Although other materials can be used as
gasoline substitutoc (prcpane, methyl and ethyl alcohol, electric
batteries) thoir use is negligible for cost reasons.
Intermediates include military and commercial jet fuel,
kerosene, space heating oil, also called No. 2 fuel or furnace
oil, and diesc-.l fuel. These products are typically priced at
about 10 cents per gallon and make up about 33 Percent of industry
output.. No substitutes exist for the transportation fuel portion
of the intermediates market. Natural gas is used extensive!}- in
the space heating market and may be more or less expensive than
oil, depending on user location. Some heating oil is imported,
.which reduces the demand for domestic product.
Residual is currently priced at from about 6 cents to about
12 cents per gallon or even more, depending on sulfur content and
location. Residual amounts to about 6 percent of domestic petroleum
production and 17 percent of domestic demand for oils. The dif-
ference is accounted for by imports. Because there are r.o limits
on residual imports into the Eastern states, the price of residual
in the U.S. is based on tho international market. Through most of
1) Average of 100 octane ''premium" at 13 cents per gallon and
octane "regular" at 11 cents per gallon. Platt's Oil Price
handbook.
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the I960's r::'idual v.ras priced sufficiently below crude- oil to
prompt increased investment in refineries in order to reduce
residual yields. In larre volume installations natural p;as and
coal compete directly with residual oil.
Other products include asphalt, lubricants, liquefied
petroleum r-.as (mostly propane), naphthas and solvents, coke,
petrochemicals and petrochemical feedstocks. (Asphalt and lu-
bricating oils are important products for many small refineries.)
These products account for about 16 percent of the domestic
industry's output. They are priced from k cents to $1.00 per
gallon. Most lubricants and liquefied petroleum ,Tas (LPG) have
no significant economical substitutes from outside the industry.
On the other hand, petroleum solvents face direct competition
from the chemical industry. Some of the "other" products, like
asphalt on the East Coast and petrochemical feedstocks ,-enerally,
are subject to international competition. Non-rnetallurrical
petroleum coke is exported in significant amounts. The market
for this product depends in part on emission rules in customer
countries.
B. Market and Distribution
The U.S. petroleum market has traditionally been divided
into five geographic regions called "PAD Districts." (See Exhibit 1)
Product consumption is also classified by end use.
Market data for 1965 through 1970 by product and district are shown
in Exhibits 2, 2a, and 2b.
Oil products are distributed fi"om refineries primarily
bv t>ir>oline and tankers or barges to terminals. From there local
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deliveries are fr.ade by truck. Some rail distribution is utilized.
The impact of new environmental standards on the distribution and
marketing of oil products does not fall within the scope of this
study. But the costs of mectinr new standards in moving the
product from the refinery to the final consumer and in the asso-
ciated storage facilities may be important.
From the viewpoint of dollar volume gasoline accounts for
50 percent of the refinini industry's value of output. Inter-
mediates account for 31 percent and residual for only 4 percent.
Well over one-half of total refinery output sold is through dis-
tribution and marketing facilities which refining companies own or
in which they have a financial interest. In general, sales of
hi~her-unit-value products (lubricants, ^asoline, jet fuel) are
more highly integrated than .those of lov;-unit-value products.
Most lar-e companies operate their ref-;.nin.r, distribution and
marketing functions in an integrated manner. Assif;nin.r- product
prices at various points within the operation is an internal
matter to most companies. Nevertheless, considerable product is
sold by refiners directly to customers at published prices. Thus,
conclusions adequate for this study can be drawn about the costs
associated with new environmental standards.
Over the.past five years the volume of gasoline produced
has increased at an average annual rate of 4-7 percent. Inter-
mediates consumption has grovm at 5*2 percent per year. Residual
production in domestic refineries has been stable but consumption
has increased at about 6.5 percent per year.
Oil product prices have increased at a slower rate than
oith.-r consumer or wholesale price indices, largely because the
1) Because of residual imports the relative contribution of the
various products to domestic refiners' rross dollar revenue
is different than the relative contribution at the consumer
level.
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industry has been able to utilize improved technology to offset
cost increases. In the short term however important price changes
do occur, mostly associated with changes in refinery utilization
and with seasonal factors. Also, as crude oil accounts for over
two-thirds of the cost of oil products at the refinery gate, product
prices change with the price of crude. Since 1966 there have been
several increases in the price of crude oil. In Exhibit 3 repre-
sentative major product prices are tabulated for the period 1966/
1972.
C. Government Influence on Market
Federal, state and local governments all influence the
oil product market. The Federal .Government's main influence is
through its price controls and proposed tariffs on imports of
crude oil and products. ' Price controls will hold prices down
and discourage investment. Tariffs will drive prices up and
encourage investment in new domestic refining facilities. It
is not nov; clear which program will remain in force for the next
decade. Perhaps a two-price system will evolve with controlled
prices for products from now-existing plants and supported prices
for new plants.
All levels of government purchase large quantities and
a wide range of oil products. One of these purchases, military
grade jet fuel (JP-4)i is important to some small refiners. A
1) From 1957 to April 1973 importation of crude oil was limited by
a quota system and product imports were essentially forbidden,
except residual fuel oil. Foreign crude prices have until very
recently been lower than domestic so import rights normally have
had considerable value. These rights were allocated among re-
fining firms according to their size. Although large firms had
bigger quotas than small ones the latter wore given more "tickets"
per unit of throughput.
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gasoline-like material, JP-4 requires little processing beyond
separation from crude. In contrast, automotive gasoline is
produced in a complex processing scheme.
Government also influences the market for petroleum
products through imposition of environmental standards. This
can take the form of direct specification of product character-
istics, e.g., sulfur content in residual oil. Or it may take
the form of imposing environmental standards on petroleum users
which in turn affect the nature of the product, e.g., control of
auto emissions. In either case, the potential costs of changes
in product characteristics far exceed the cost of bringing refinery
operations up to environmental standards.
Government policy in pricing and regulation of natural
gas, an important refinery fuel, also affects refining costs.
This will be further discussed below.
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SECTION II
SUPPLY
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A. Industry Operations
1. The production process.
Although a typical oil refinery is technically
complex, the manufacturing process is conceptually simple.
Crude oil is the primary raw material used in
refining. Crude oils are liquid mixtures of many carbon-
containing chemical compounds. Crudes differ from one another
in the relative concentration of the various compounds. In
refining, crude oil is first separated into several groups of
varying molecular size known as cuts. The chemical composition
of some of these cuts is then altered by changing the average
molecular size. Some cuts are further processed to alter the
shape or structure of the molecules. Most of the original and
the altered cuts are "treated11 to make innocuous or to remove
impurities, notably sulfur. Treated cuts are then blended to
produce finished products. To these may be added various sub-
stances, known as additives, to impart certain desirable properties
Exhibit 4 classifies various refinery processes according to their
principal function in the refining of petroleum: separation,
alteration of molecules by size or shape, or treating. A schematic
flow diagram of a refinery is shown in Exhibit 5«
In refinery operation certain polluting materials
may be released into the environment. The pollutants are by-
products of the various refinery processes.
The principal ones arise in operations as follows:
a) Hydrogen sulfide (HpS) is present in many crude
oils and is formed in hydroprocessing (catalytic reforming,
hydrotreating and hydrocracking) and cracking (catalytic and
thermal, including coking). Only trivial amounts, which can be
ignored, are formed in other processes. Because H2S is highly
poisonous it is either recovered (and converted to elemental
sulfur) or burned. Burning forms sulfur oxides which are air
pollutants.
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Sulfur oxides are also formed in the combustion of sulfur-
containing liquids. (Also, when liquid fuels containing nitrogen
compounds are burnod, ths resultant nitrogen oxides may cause an
opaque stack "plume.")
b) Hydrocarbon vapors can escape from tanks
containing gasoline or crude oil.
c) Carbon monoxide (CO) is a by-product of catalytic
cracking. Also some catalyst dust occurs.
d) Substances which create a biological oxygen
demand (BOD) in waste water are formed in catalytic and thermal
cracking, and in sulfuric acid treatment of petroleum products
(notably naphthenic and Pennsylvania lubricating oils). Also
most of the solvents (phenol, furfural, etc.) used in manufacturing
solvent-refined lubricating oils create BOD.
e) Waste water from every refinery may contain oil
or the water may not have a neutral pH*
Processes used to control the emission of these
pollutants are shown in Exhibit 6. The schematic flow diagram
in Exhibit 7 shows the collection and treatment of pollutants
produced in each process.
EPA has assumed certain technological devices to be
necessary and sufficient to meet proposed new environmental
standards. They are:
(1) Hydrogen sulfide removal from refinery fuel gas
and conversion to elemental sulfur in plants equipped with tail-
gas scrubbing. The entire sulfur control system is to be paral-
leled with a redundant facility.
(2) Floating roofs on gasoline and volatile crude
oil storage tanks with more than 40,000 gallon capacity.
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(3) Catalyst removal from catalytic cracker re-
generator flue gas by electrical precipitation and incineration
of the flue gas in carbon monoxide boilers. An important EPA
assumption was that both particulate and carbon monoxide emissions
from catalytic crackers with fresh feed capacity below 10,000 .
barrels per stream day were so low that no equipment would be
needed in these units. '
(4) BOD removal in an effluent treatment plant
including equipment for water flow equalization, oil separation,
neutralization, flotation, sedimentation, coagulation and bio-
logical treatment.
(5) Oil and suspended solids removal and neutraliza-
tion in a water effluent treating plant simpler than that needed
for BOD removal. ...
The foregoing classification can be summarized as
follows:
Refining Processes Installed Effluent Control Reouired
Large Thermal or Hydro Lube Air Water
Cat. Small Cat. Proces- Mfg. H«S CO &
Cracker Cracker ses Cat. BOD
X XX X
X XX
X X
X X
In addition, all refineries will have to have floating
roofs on specified tanks and a water effluent treating facility
for removing oil and suspended solids and for neutralizing.
l) The assumption that small catalytic crackers will not need
control equipment is an important one. There are 27 catalytic
crackers(in 25 refineries - 10$ of the industry) with
capacity of loss than 10,000 barrels per stream day
(Oil and Gas Journal, March 22, 1971,' PP 98-120). A 7500
barrels per day catalytic cracker emits perhaps three tons
of sulfur oxides and 70 tons of carbon monoxide per day.
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The imposition of environmental controls on the
quality of refinery products will add additional processing
complexity to refineries. For example much more catalytic
reforr.in.n:, as well as some other processes, will be introduced
to make lead-free gasoline. Intermediates will require hydro-
desulfurization. The manufacture of low-sulfur residual will
require installation of considerable equipment. At the moment,
the lovr-sulfur residual picture is complicated by wide variations
in crude oil composition and varying sulfur content restrictions.
Residual desulfurization is expected to be expensive. These
matters, though of compelling economic importance to many refiners,
lie outside the scope of our study.
2. Type and location of raw materials
Crude oil is the most important raw material used by
the refining industry. Natural gasoline, a liquid product of the
natural gas industry, furnishes about 5 percent of refinery intakes.
There are no other significant raw materials. About #2 percent of
industry raw material is of domestic origin; lg percent is imported
from Canada, South America (largely Venezuela), Africa,
Indonesia and the Middle East. It appears likely that the U.S.
will in. years to come import an increasing fraction of its crude
oil requirements.
The major crude-producing states are Texas, Louisiana,
California, Oklahoma,-Wyoming and New Mexico, although 30 of the
50 states have some production. Texas and Louisiana together
1) U.S. Bureau of Mines, Mineral Industries Surveys - Petroleum
Dec. 1972 - Table 25.
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account for about 63 percent of the domestic industry's crude
oil production. 'Larr^e Alaskan deposits will be exploited v/her
a transportation system for thorn is built.
3. Number and location of firms and of plants
There are about 130 firms in the oil refining industry.
They ov/n some 250 refineries. Refinery locations are concentrated
along the Mississippi-Louisiana-Texas Gulf Coast, near Los Angeles
and San Francisco, in ths Pacific Northwest, near Chicago, near
Philadelphia and in New Jersey, in Ohio, and in Oklahoma. Exhibit
& shows the number of refineries and refinery capacity by state.
4. Types of firms
Firms in the oil refining industry can be classified
according to size, extent of integration, and the number and size
of refineries ovrned. All refineries are necessarily multi-product
and all perform the entire process of converting crude oil into
salable products. All larpe and medium size firms, and some small
ones, have diversified into chemical manufacturing. A very few
have further diversified into other industries but the fraction of
total capital employed in non-oil or chemical activities generally
is small.
5. Types of plants
Oil refineries are categorized by size and by the
range o.f their products. There is also considerable variation in
age of refineries. But classification by arc is not useful because
additions to and modifications of plants are the industry's principal
form of expansion.
1) Ibid., Table 3
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Exhibit 9a shows the distribution of refineries by
size. Refineries of over 100,000 barrels per day capacity account
for 53 percent of U.S. refinery capacity (a barrel is 42 U.S.
gallons). They number 41 out of a total of about 250 plants. Very
few new refineries have been built in the last seven years and few
have been abandoned. Of a total population of about 260 seven years
ago, 41 plants appear to have been shut down and 25 new ones built.
Exhibits 9a and 10 show the distribution of refineries by size in
1971 and 1966. Those newly built plants which appear to be fairly
complete refineries vary in size from 10,000 to about 150,000 bar-
rels per day of throughput. It appears that size is not a character-
istic which in itself accounts for turnover. Exhibits 11 and 12
depict the distribution of industry capacity by numbers of plants
and by plant size in 1966 and 1971-
Multiple plant operations are commonplace in the
industry. The 16 largest firms, each of which has over 200,000
barrels per day of total capacity, operate 109 refineries. These
109 plants account for 7S percent of the industry's capacity. A
few of these refineries have capacities of less than 26,000 barrels
per day. Half of all industry .re-fineriss (-125 plants) are smaller
than 26,000 barrels per day. They account for only 8 percent of
industry capacity.
Technological progress in the past 20 years has
induced construction of larger, lower-unit-cost process units.
Consequently there has been a trend toward larger plants. Although
no new plants of over 200,000 barrels per day have been built, the
industry's net growth in capacity has been the result of smaller
plants' expansion to this very large size class.
1) In the Appendix we discuss the characteristics of the shut-down
plants.
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The trends in the industry most significant to this
study are that the number of refineries has decreased slightly
and their average size has increased.
In general, very small refineries with intakes below
about 10,000 barrels per day have few units and manufacture only
a narrow range of products. Some small refineries in Pennsylvania,
southern Arkansas, Oklahoma, and South Texas take advantage of
local crude quality to manufacture lubricants. Asphalt is also
an important product for many small refineries. Over a third of
plants v/ith capacities below 10,000 barrels per day produce asphalt
as a principal product. Asphalt is costly to transport, especially
overland. Therefore a relatively large fraction of the industry's
asphalt output is produced in small refineries.
As regards refinery differentiation by product slate,
a small refinery may be designed to process low-sulfur crude oil
into the naturally occurring volumes of gasoline, intermediates
and residual, or asphalt which is essentially a special grade of
residual. Such a refinery requires only a crude oil distillation
unit, a catalytic reformer with feed pretreater, two or three
additional distillation columns and treating units. Some small
refiners in Southern California due to the characteristics of local
crude oil manufacture military jet fuel and residual with only a
crude oil unit. On the other hand a large refinery manufacturing
a full range of fuel products plus lubricants, industrial solvents,
liquefied petroleum gas and a few common chemicals will have a score
or more of process units.
A common technology is used throughout the industry.
The differences that do exist are small, and probably not significant
in tonne of a plant's ability to meet environmental standards
economically. There arc important differences in the extent to
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which environmental control equipment has been installed to date.
6. Employees
Data on employment and earnings are presented in
Exhibit 13. About 60 percent of petroleum refining employees are
production workers '. Their hourly and weekly earnings are con-
siderably above the averare for all manufacturing. Hourly earninrs
in 1971 in petroleum refinin~ are estimated at $4.32 versus $3.52
9\
for all manufacturing, weekly earnings $205.00 versus $142.00 .
Refinery employment as a whole has been fairly stable.
In 1964 there were 154,000 employees and in 19oS, 151,000. By 1970
employment had risen to 154,000^'. In the same period the industry's
capacity rose about 17/* mostly as a result of capacity increases
in existing refineries. A ^roat many refineries, about 2/3 of the
total, have been expanded in the last 7 years. It is likely that
the bull: of the net employment increases have taken place in very
large refineries, those over 100 or even 200 thousand barrels per
day of throughput which also account for almost the entire net
growth in output.
Perhaps one-third of refining industry employees have
skills which are not readily transferable to other industries.
While it was clearly beyond the scope of this study to make an
analysis of the transferability of the skills required by the
industry, an examination of the occupational titles indicates that
two-thirds of the employees have skills which are not special to
the industry, or they are unskilled.
1) Source: Chemical & Engineering Mews, Sept. 6, 1971, p. 33A
2) ibid.
3) Statistical Abstract of the U.S.,1972, Bureau of the Census, Dept,
of Commerce, p. 229- (Some refineries are operated in con-
junction with transportation and/or terminallinp: facilities.
It is not clear whether their employees are included in the
refinery worker count.)
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Detailed occupational data for the petroleum refining
industry are. available for the year 1955. In that year 148,000
people were employed in the petroleum refining industry, B9»000
of whom v.'ere production workers. ' These figures include employ-
ment in central offices, research laboratories, etc. of refining
firms as well as in refineries. Refinery employment was about
106,000 including about 77»000 production workers. A Bureau of
2)
Labor Statistics study ; of a representative sample of 4^,000 of
the 77.000 showed that almost 1/3 of refinery production workers
were maintenance workers and 25/S of these were skilled craftsmen,
such as welders, mechanics, machinists, electricians, etc. One
half of production workers were skilled refinery operators such
as stillraen, treaters, compounders, testers, etc. These men's
skills are probably transferable only to other similar industries,
such as chemical manufacturing or food processing. The balance
of the production workers are either unskilled, or are helpers,
or have general skillls such as stock clerks or truck drivers.
Thus it appears that about one-third of the people
in the industry (probably a smaller fraction in small plants)
are skilled workers whose job opportunities at a comparable skill
level are dependent on re-employment in the "process" industries.
The other two-thirds are employable in other industries at their
present skill levels if job opportunities exist for them.
1) Ibid.
2) Industry V,ra/re Survey, Petroleum R.efining, Dec. 19&5>
Bulletin -"1526, U.S. Dapt. of Labor. Bureau of Labor
Statistics. t>. 12.
-------
- 21 -
B. Financial Structure and Trends
It is impossible to analyze the financial structure of
the petroleum refining industry usinp published data. Too few
firms and none that are typical of the industry are exclusively
or even primarily in the refining business. To discuss the
financial characteristics of the industry we shall use price data
which reasonably reflect the values of products made by typical
refiners, and v.re chall assume cost rip.ta we consider appropriate
for crude oil.
Sales volume in the oil industry has risen almost with-
out interruption and at a fairly steady rate for many years. The
history of bulk prices of major products is shown in Exhibit 3«
1. Costs-- fixed and variable.
No data are published which break down refinery
costs in a manner useable for this study. \'h- have therefore made
such an estimate for a plant manufacturing fuol products (no lub-
ricants). V/e caution the reader that no actual refinery will
2)
exactly match these figures. Refining costs are characterised
by a very hln-h ratio of raw material costs to total cost. Fixed
costs make up most of the balance. Our illustrative estimate of
costs follows. (See next page)
1) There is considerable variation in prices due to transport
costs.
2) Our estimate closely approximates that of W. L. Nelson.
See Exhibit 14.
-------
- 22 -
. Costs - Fixed and Variable (1971 prices)
Item Cost/barrel of Percent of total costs
refinery intake FixedVariable
Raw materials $ 3.50
Fuel and utilities .30 1%
Labor .25 5^
Chemicals, catalysts,
additives & materials .20
Insurance and taxes .05 1$
Capital charges1' .50
Total $ 4.SO
1) Basis £$ per year cost of capital.
2. Profits
No data on refinery profitability are available.
But v/e can assume that refining operations are, on the margin,
neither more nor less profitable than the rest of a typical oil
company's business. Exhibit 15 gives some relevant financial
data for the oil industry. V/hile profitability of the business
as a whole has been subject to some variability, industry earnings
have been adequate to attract capital to finance growth and
replacement.
3. Cash flows
Exhibit 16 shows our derivation of an estimate of
the rsfining industry's capital needs in the 10 years beginning
with 1972. This estimate indicates that roughly $15 billion
dollars will be used for expansion and normal replacement in the
-------
- 23 -
decade. Substantial amounts of additional capital will be required
for equipment to manufacture environmentally "clean" products.
Capital requirements for this purpose are expected to be about
$5 billion (EPA estimate). Finally, $1 billion will be needed to
conform refr'nery operations to environmental standards. V.re shall
discuss this further in Part Two.
It is useful to put our estimates of capital require-
ments for refineries in perspective with oil company capital ex-
penditures for all purposes. Data on a group of 2B large oil
companies show that roughly 22 percent (about $1.5 billion of
$6.6 billion) of domestic capital expenditures by this group
represents investment in refineries and chemical plants in 1970. '
Total domestic investment in that year for the same group of
companies is about 58 percent of worldwide investment.
C. Refiner^'- Technology and Technological Trends
Petroleum refining has been a high-technology industry
since World war I. The technology of the industry has steadily
improved. A few major breakthroughs, notably thermal and catalytic
cracking, catalytic reforming, and solvent extraction of lubricating
oils have had profound effects. But of almost equal importance in
the long run has been the improvement in existing processes. Tech-
nological improvements are utilized industry-wide because industry
members traditionally license the use of significant nev; technology
to competitors. There are no important trade secrets in the
refining industry.
1) Financial Analysis of a Group of Petroleum Companies 1970,
Chaco Manhattan Dank, p. 19.
2) ibid. p. 13
-------
A combination of product quality competition and
economies of building and operating larger plants has served to
push oil rcfininr firms toward bir:~er and more complex refineries.
Product quality competition has been achieved by the use of ad-
ditives and of quality-improving processes like catalytic reforming
to increase gasoline octane number, and by catalytic hydroren
treatment to reduce sulfur content of intermediates, This has led
to an increase in the amount and value of processing equipment per
unit of-output. Relatively low residual prices which have encouraged
investment to reduce residual yields also raise the value of
equipment per unit of output.
Thus, larger refineries and larger units within existing
refineries mark the industry's development. Once the capability
exists to build and. operate larger plants there is a strong economic
incentive to do so. Large plants cost less to build per unit of
intake than smaller ones. Typically it only costs 60 percent more
to build a plant with 100 percent more capacity (the "two-thirds
power rule").
This does not mean that an existing small plant is
necessarily unviable. Existing small plants are effective compe-
titors. But new small plants are not being built, except for an
occasional asphalt plant.
D. Industry Utilization Rates
U. S. refineries are currently processing crude
oil at an average annual rate of about 95 percent of re-
ported capacity. This is well above the typical long-
run figure for the industry of about 88 percent. But it
is important to differentiate between a refinery's capacity
6/73
-------
to process crude oil and its capacity to manufacture a particular
product.
Almost all refineries have the flexibility to alter their
product mix. They can to some extent increase the output of
gasoline at the expense of intermediates or they can produce more
intermediates at the expense of gasoline. Nearly all refineries
could increase residual manufacture above the design level but
this is uneconomic v,rhile the price of residual is below the cost
of crude oil. Published data on capacity utilization cannot
reflect the industry's ability to alter yields. .Hence they are
not useful in estimating the industry's ability to increase output
of specific products. Ue believe that at present there is little
or no excess capacity to produce gasoline at curent octane numbers
and lead content. ' . .
Requirement to manufacture products v;ith specific prop-
erties further influences capacity. A refinery that can manufacture
100 volumes of 94 octane leaded rrasoline mirht be able to make only
70 volumes of lead-free 94 octane.
Producing low-sulfur residual also presents special
problems. Residual is essentially a by-product of the refining
process, its sulfur content is predominantly dependent on the
sulfur content of the crude the refinery uses. It follows that
most refineries have no "capacity" to produce low-sulfur residual
from their normal crude stream.
Availability of fuel of acceptable quality for internal
refinery use also affo'cts refinery capacity. Refiners normally
burn in their internal ODcrationc the lowest valued material
1) No data are available to Throve this assertion but prices on
the "carro" and "bid" markets indicate that this must be the
case. Those prices arc well above long-run marginal costs.
6/73
-------
- 26 -
available. Thoy first use the rases produced as a by-product
of refining operations because these gases generally have no
market. The next choice is purchased natural gas, if available,
because it is priced below residual (per BTJ) in most parts of
the U.S. and the facilities needed to burn gas are cheaper than
those needed to burn liquids. The remaining requirement, about
120,000 barrels a day ' currently, is met largely with residual
fuel. A small amount of coal is also used. Residual and coal
normally contain considerable sulfur. Thus, if low sulfur rules
are imposed some refinery capacity will depend on availability of
low-sulfur residual.
Similarly, the availability of gas in some instances
affects capacity. Refineries with no facilities for burning
liquid or solid fuels would have to install new equipment if gas
were not available in sufficient quantity. This vrauld be expensive
as well as time consuming.
2)
E. Competition '
The market for wholesale oil products is competitive in
the economist's meaning of the term. That is, the price elasticity
of demand facing individual firms is high. Despite a strong and
continuing industry effort to establish brand differentiation for
retail consumers, the wholesale market operates on a commodity
basis. Perhaps one-third of gasoline , about 50 percent of
intermediates and almost all residual are sold as commodities.
With such large volumes sold by many refiners an active brokerage
business exists. Non-branded marketers maintain aggressive purchas-
ing staffs, and oil companies compete vigorously on various "bid"
markets.
l). Minerals Industry Surveys, op. cit.
2) This section reflects normal industry conditions. As of summer
1973 a U.S. and international shortage of oil products (occasioned
by a shortage of crude oil and/or refining capacity) has pushed
"spot" prices to extraordinarily high levels.
3) So-called unbranded sales at retail by independent oil companies,
commercial sales direct to users and sales to government aggregate
to somewhat over 30 percent of total gasoline sales.
6/73
-------
Prices.on the various unbranded markets typically are
close to short-run marginal costs. This indicates that the
industry is highly competitive. Because the competitive nature
of the refining industry affects its ability to pass cost increases
on to consumers in the short run, we shall discuss it in some
detail.
"Did" prices, appearing in various industry publications,
give the price at which product is sold, usually to governmental
agencies or to other large buyers. For example,, for the year
starting November 1970 a major oil company bid 10.74 cents per
gallon on 94 octane gasoline to be delivered in Dallas, Texas.
This delivery is in small lots by truck. In order to estimate
realization at the refinery gate we must deduct the following costs:
deliver-/, terminalling in Dallas and pipeline transportation from
the refiner1/. Typical delivery costs are about 1/2 cent per gallon,
termir.allinr about 1/4 cent, pipeline costs also about 1/4 cent.
Thus th° refinery r.etback on the Gulf Coast on this sale v;as at
le^st 9 3/4 centc per gallon. It might but was unlikely to have
been as high as 10 1/4 cents if surplus capacity was present in
the distribution system.
Besides raw material costs the marginal cost of manu-
facturing rasoline includes cost of additives, mostly lead, which
is roughly 1/2 cent per gallon, plus refinery fuel, catalyst and
a few minor items which together cost about another one cent per
gallon. Since considerable spare capacity to make gasoline existed
durinrr the period covered by this sale, it is reasonable to assume
that the biddin- company could, on the margin, convert crude oil
with only a email by-product output. Thus we need only to add
1) Platt's Oilgram, October 4, 1971.
-------
the cost of crude oil to manufacturing costs, then deduct the sum
from the refinery netback to arrive at a differential over marginal
costs. During the bid period crude oil delivered to a Gulf Coast
refinery was priced at S cents per gallon, or slightly more. Thus
the marginal cost of gasoline manufactured for this bid vras about
9 1/2 cents per gallon, or somewhat more. Since the refinery
netbacl: nay have been as lov: as 9 3/4 cents per gallon, and surely
was no higher than 10 1/4 cents, it seems clear that short-run-
marginal refinery cost and the revenue received from this sale
were close together.
We believe this example to be typical of the then current
market conditions. It shows together with our estimate of typical
refining costs (see B.I above) that bid prices were inadequate
to provide an incentive to increase refining capacity. Hence some
price increases are to be .expected quite apart from those which
will be caused by the costs associated with the impact of environ-
mental standards.
Prior to 1972 foreign crude oil was less expensive than
domestic. Although the domestic price was protected by an import
quota, production failed to keep pace with demand. Recently the
prices have become equal due to the success of the oil cartel
(Organization of Petroleum Exporting Countries). At the same time,
U.S. refinery capacity has become insufficient to meet the U.S.
demand for light products (gasoline, heating oil, etc.). Also,
price controls are in effect on domestic products. A program has
been announced to encourage ffoTnftRt.ir pmdiir;fp_r>n and refining by
imposition of a tariff svstem. So the industry is now in transition
from a quota system to a tariff system via a price control system.
It is not clear how market conditions will develop during the
transition.
-------
APPENDIX
The Viability of Srr.all Refineries
Unfortunately no data are available on the economic
viability of small refiners. In order to make a useful f^uess
about their operations we examined the email refineries which
have discontinued operations in the period 1966-71. Due to
changes in ownership it was not possible to be sure that we
correctly identified all plants. Kence our analysis may not
be completely accurate. '7e identified, from the total refinery
population of about 2oO ', 25 refineries operating in 1966 which
had ceased operating by 1971. Of these about 12 apparently made
fuel products and. the balance v;ere primarily asphalt plants and
lube plants.
The viability of an asphalt refinery is greatly dependent
upon the local asphalt market. A reduced local demand may be met
more economically by shipment of product into the area. All of
the closed asphalt plants except one were very small. The ex-
ception was on the Eastern Seaboard. That plant may have become
uneconomic due to the imposition of crude oil import limitations.
On the lo fuel producers, 5 reported no equipment except
a crude distillation unit. Of the other 13, seven were closed as
a result of consolidations with other plants, in almost all cases
owned, by the same firm. These refineries tended to be the larger
of the .rrroup of closed plants. Several were located in metro-
politan areas, and the resultant consolidated units had larger
throu.rhputs than the sum of the previously separate plants. It
appears that coma of the consolidations were instigated by land
limitations.
1) Oil and Gas Journal, March 28, 1966, pp. 154-172.
- 29 -
-------
Appendix (cont'd)
- 30 -
Deducting the eight consolidated plants, there remained
a group of five fuel producing refineries which were
closed in the five year period. The largest of them had a throu.rh-
put of less than 15,000 barrels per day. Their total throughput
was 33,500. These five refineries account for about .1$ of industry-
capacity. The closinf of 17 refineries, including seven asphalt
plants, in five years out of a population of 2oO refineries is a
small percentage. Consequently we conclude that small firms were
on the whole, viable business enterprises. However, their viability
vasenhanced, (or even made possible) by the value of import tickets
(rights to import then-lower-priced foreign crude oil).
Re
Op
or
'.fineries All Ref's
>erating Closed
i 1/1/65 '66/'71
260
, ]>.
10,200
25
325
^
f
7
"IT
-
Asphalt
Plants
Closed
Mo. of Refineries
Combined Capacity
Thousands of
Barrels per Day
All Fuel Simple
Ref's Fuel Ref
Closed Closed
18
292
^
"
5
12
f
13
280
N
C.
f
mtn^ff»
\.
>
g
242
Fuel Rsf's
Closed du(
to Consol:
dations
Other Fuel
Ref's Closed
6/73
-------
EXHIBITS
-------
PETROLEUM ADMINISTRATION FOR DEFENSE (PAD) DISTRICTS
(Incl. Alaska
and Hawaii)
x
-------
Exhibit 2.
Product
Automotive
Gasoline
Jet Fuel
Naphtha
Type
Jet Fuel
Kerosene
Type
Kerosene
(Ex Jet)
Distillate
Fuel Oil
Residual
Fuel Oil
Year
1967
1963
1969
1970
1971
1972
1967
1963
1969
1970
1971
1972
1967
1963
1969
1970
1971
1972
1967
1963
1969
1970
1971
1972
1967
1963
1969
1970
1971
1972
1967
1963
1969
1970
1971
1972
DOMESTIC CONSUMPTION
Thousand Barrels Per Day
P.A.D. DISTRICT
I
1,706
1,317
1,904
2,000
2,041
2,161
31
93
30
66
77
64
205
233
265
234
303
332
145
153
144
126
130
119
1,164
1,250
1,272
1,303
1,326
1,396
1,250
1,277
1,412
1,643
1,715
1,376
II
1,743
1,333
1,930
2,003
2,030
2,206
51
51
46
43
49
45
107
123
145
150
153
167
35
34
33
33
77
67
669
635
715
733
733
.333
171
170
173
190
131
219
III
621
660
705
729
325
334
53
70
59
37
40
40
37
43
50
50
43
50
37
33
39
43
32
33
127
157
176
191
206
273
75
63
73
37
76
37
IV
151
164
170
136
199
133
7
3
3
7
6
7
16
19
19
20
19
19
5
4
6
6
5
6
60
71
72
71
32
34
2S
31
35
25
26
26
V
732
737
317
361
369
937
114
124
104
94
33
36
153
131
215
212
223
235
2
2
3
5
5
4
222
226
231
232
264
272
261
230
231
257
297
321
U.S.
4,953
5,261
5,526
5,734
6,014
6,376
306
346
297
247
260
242
513
609
694
716
751
303
274
231
275
263
249
234
2,242
2,339
2,466
2,540
2,661
2,913
1,736
1,326
1,979
2,202
2,295
2,529
Source: Bureau of Mines, Mineral Industry Survey - Petroleum
6/'73
-------
U. S. SALES OF DISTILLATE FUEL OIL, BY USES 1964 - 1971
(Thousands of Barrels)
Year
1971
1970
1969
1963
1967
1966
1965
1964
Vessels
1971
1970
1969
1963
1967
1966
1965
1964
20,959
19,503
18,877
13,235
17,478
16,642
15,532
16,001
Heating
523,643
521,135
511,768
510,632
501,026
472,778
475,992
451,360
Gas and
Electric
Public-Utility
Power
Plants
35,329
24,770
12,158
3,509
2,853
3,612
3,661
3,849
1)
'Military
17,427
12,447
13,953
12,593
17,325
16,303
14,953
13,609
Railroads
86,251
88,416
86,429
84,030
83,638
89,104
86,436
88,198
Fuel for
Oil
Company
Use
14,033
11,513
13,367
9,975
3,997
10,435
10,430
10,576
Industrial
49,553
43,663
42,456
45,795
44,997
47,103
42,434
36,007
Total Domestic Sales
Diesel Engine
Miscel-2x
laneous '
10,154
10,374
12,534
11,508
147,331
153,681
137,403
127,451
Excluding
Fuel for
Oil
Company
Use
957,232
915,732
886,433
863,125
820,203
799,223
776,461
736,975
All Uses
971,320
927,250
900,300
373,100
829,200
809,713
786,891
747,551
Fuel (Excl.
Railroads)
213,906
194,919
183,253
171,773
2)
1) Beginning in 1967» represents use by electric public-utility power plants only.
Beginning in 1968, includes data for gas turbine plants.
2) Diesel- engine fuel included in "Miscellaneous" prior to 1968.
H-
cr
H-
fa
Source:
c. 7-7-3
Bureau of Mines, Mineral Industry Surveys, "Shipments of Fuel Oil and Kerosine,"
Annual.
-------
U. S. SALES OF RESIDUAL FUEL OIL, BY USES, 1964 - 1971
(Thousands of Barrels)
Year
1971
1970
1969
1963
1967
1966
1965
1964
1971
1970
1969
1963
1967
1966
1965
1964
Vessels
78,727
39,350
33,431
37,575
30,630
73,641
73,639
33,024
Heating
132,639
135,331
173,095
174,326
175,990
167,471
156,254
126,215
Gas and
Electric
Public-Utility
Power -, N
Plants'1'
371,320
312,420
247,634
134,956
153,417
140,642
114,334
97,595
Military
29,217
23,704
31,750
34,990
40,465
41,361
40,330
35,563
Railroads
1,262
2,222
3,331
4,296
5,494
3,792
4,001
5,350
Miscel-
laneous
6,109
7,295
7,375
3,343
3,794
10,333
10,004
3,606
Fuel for
Oil
Company
Use
32,626
33,313
36,559
39,329
37,330
35,177
34,354
43,093
Total
Industrial
135,647
139,647
133,754
135,664
131,319
141,050
140,602
157,176
Domestic Sales
Excluding
Fuel for
Oil
Company
Use
305,243
765,969
635,970
630,155
601,659
573,795
539,764
513,534
All Uses
337,369
304,237
722,529
669,434
639,539
613,972
574,113
556,632
1) Beginning in 1967, represents use by electric public-utility power plants only.
Source: Bureau of Mines, Mineral Industry Surveys, "Shipments of Fuel Oil and Kerosine,"
Annual.
H-
cr
H-
6/73
-------
Exhibit 3
REFINERY AND TERMINAL PRICES 1966 - 1972
- CARGOES -
1966 196?
Motor Gaso-
line 100
Octane -
Gulf 13.26 13.1^
11 94 Octane
- Gulf 11.37 11.31
1963 1969 1970
Cents Per Gallon
12.63 12.99 12.53
10.64 10.99 10.53
1971
1972
No. 2 Fuel
Oil - Gulf 3.74 9.43 9.40 10.13
" - New York
Harbor 9.51 10.16 10.34 10.30 10.25
$ Per Barrel
Bunker C -
Gulf 2.10 1.93 1.67 1.47 2.44
Bunker C -
Gulf (Max.
13.12 13.56
11.12 12.64
9.30 10.10
10.37 10.90
2.35 2.22 2.24
2.03
3.01
2.31 2.05
3.72 3.69
1) Annual averages of high and low posted price.
Note: Posted prices are not always transaction prices,
Source: Platt's Oil Price Handbook and Oilmanac, 1972 prices.
6/73
-------
Exhibit 4.
FUNCTIONAL CHARACTERIZATION
OF
PETROLEUM REFINERY PROCESSES
A. HYDROCARBON REFINING PROCESSES
o
(X,
CD
Q
B
o
o
1-i
EH
CO
E
O
O
o
a
o
H
^O
13
! k
I rt
CO
o
0)
H
O
Q)
4J
O
d
W -P
CL, CO
K 5-
CO flJ
rH
O
O
PRINCIPAL PROCESS PURPOSE
Separation
Distillation (atmospheric
and vacuum crude frac-
tionation, naphtha split-
ting, depropanizing, de-
butanizing, vacuum flashing)
Absorption (recovery of ethane-
or propane-and-heavier from
saturated or cracked gas)
Extraction (deasphalting)
Extraction (solvent extraction
for separating aromatics
from naphtha, lube oil, etc.)
Crystallization (dewaxing of
lube oil)
Alteration (Conversion)
Thermal Cracking
(visbreaking, coking)
Catalytic Cracking
Hydrocracking
Alkylation
Polymerization
Catalytic Reforming
Isomerization
B. TREATING PROCESSES
Hydrotreating
Caustic Treating (Merox,
Bender, etc.)
Clay Treating
t
Acid Treating
6/73
-------
SCHEMATIC FLOW DIAGRAM OF PETROLEUM REFINERY
A. PETROLEUM PRODUCT MANUFACTURING
CRUDE
OIL
DESALT-
ING
RUN NAPHTHA
LIGHT STRAIGHT
HEAVY STRAIGHT RUN GAS OIL
STRAIGHT
t RUN RESIDUE
HYDRO- '
! CRACKING '* T0 6ASOLINE BLENDING
' I» TO CATALYTIC REFORMING
LUBRICATING
OIL
MANUFACTURE
I . , 1
VACUUM
DISTILLATION
NAPHTHA
CAT. CRACKED
TREATING PROCESSES
(1) AQUEOUS LIQUID
(2) AQ.LIQ. OR HYDROGEN
REFINERY
FUEL GAS
PROPANE (LPG)
PREMIUM
GASOLINE
REGULAR
GASOLINE
KEROSENE &
JET FUEL
DIESEL FUEL
HEATING OIL
RESIDUAL
FUEL OIL
ASPHALT
LUBRICATING OILS £
2".
OPTIONAL PRODUCTS ~
OPTIONAL PROCESSES
-------
Exhibit 6.
REFINERY ENVIRONMENTAL CONTROL PROCESSES
Environmental Problem
Hydrogen sulfide. Highly poisonous
to animal life. Reacts to form
sulfur oxides if burned.
Sulfur oxides. Emitted to the
atmosphere with flue gases from
burning fuels containing sulfur.
Irritating to eyes and respira-
tory system. Also cause opaque
"plume."
Control Process(es)
1. Gases containing hydrogen
sulfide (HpS) are treated
with a liquid (usually an
amine solution) which pref-
erentially absorbs HpS.
The HpS is recovered by
stripping it from the liquid.
It is subsequently converted
to sulfur and recovered.
2. Sour water stripping. Aqueous
effluents from refinery pro-
cesses which contain H^S are
steam stripped to remove the
1.
H2S.
H2S
Gas desulfurization.
is removed from gas before
combustion - see above.
2. Hydrodesulfurization. Sulfur-
containing oil is reacted with
hydrogen at elevated tempera-
tures and pressures in the
presence of a solid catalyst.
Sulfur is converted to H2S
which is recovered. (Hydrogen
for the hydrodesulfurization
. process is generally recovered
as a by-product of catalytic
reforming, or is manufactured
from either natural gas or
refinery by-product gases).
6/73
-------
Exhibit 6 (contJ)
-2
Environmental Problem
Carbon monoxide. Present in
stack gas from catalytic
cracking units. Poisonous
to animal life.
Smoke. Produced when in-
sufficient air is used in
firing boilers and furnaces or
by incomplete incineration
of process materials vented
and flared because of upsets.
Soot and fly ash. Entrained
in stack gas from furnaces or
boilers fired \vith residual,
coal or coke.
Hydrocarbon vapors. Evaporated
from tanks or small leaks and
spills. React in atmosphere
to cause smog.
Control Process(es)
Stack Gas Scrubbing. The
sulfur-oxide-containing
combustion gas is contacted
with a solid or liquid material
that preferentially absorbs the
sulfur oxides. Sulfur oxides
are then generally recovered
in concentrated form from the
absorbing material and converted
to sulfur or sulfuric acid.
Combustion. The stack gas is
i
enriched with fuel gas and
burned. Useful heat is re-
covered and the carbon monoxide
is burned to harmless carbon
dioxide.
Proper control of boilers
and furnaces.
Incinerate vented materials
in a "smokeless flare."
1. Electrical precipitation.
Install floating roofs or
vapor recovery system on
tanks.
Good housekeeping practices -
fix leaks, maintain pump seals,
clean up spills, etc.
-------
Environmental Problem
Oil (and water-insoluble non-
hydrocarbon liquid organic
compounds) entrained in
refinery waste water. Harm-
ful to aquatic life and dirty.
Water-soluble organic compounds,
Dissolved in refinery waste
water. Many compounds toxic
to aquatic life. Also reduce
oxygen content of receiving
water body which leads to
aquatic life damage. May also
smell badly.
Phenolic compounds. Produced
in cracking processes and ex-
tracted from cracked products.
Toxic to aauatic life.
Exhibit 6 (cont.)
-3
Control Process(es)
1. API Separator. Oil is allowed
to rise to the surface of the
contaminated water and is
skimmed off.
2. Aeration. Air is blown throurh
the contaminated water. Oil
rises to the surface as froth
and is skimmed off.
1. Biological treatment.
a) Trickle filter. Contaminated
. water is trickled through a pile
of rocks on which live colonies
of bacteria. The bacteria
convert the contaminants into
harmless compounds (mostly
water and carbon dioxide).
b) Activated sludge treater.
Contaminated water is contacted
with a suspension of bacterial
colonies, nutrients and air.
The bacteria convert the con-
taminants into harmless compounds.
Clean water is separated by
settling of bacterial sludge.
1. Sold to Chemical industry.
2. Incinerated.
3. Barged to sea and dumped.
4. Pumped into underground forma-
tion which is sealed to prevent
contaminating fresh water.
5. Hydrotreat the cracked product
to eliminate the need to ex-
tract
-------
Environmental Problem
Fluid catalyst. Entrained in
stack gas from catalytic crack-
ing units.
Exhibit 6 (cont.)
Control Process(es)
Centrifugal separation. The
stack gas is passed through
a stationary centrifugal device
(cyclone) at high speed. The
resultant force throws the dust
to the outside wall from which
it is collected.
Electrical precipitation. The
stack gas is passed between
metal plates which are elec-
trically charged to a high
voltage. The dust is attracted
to, and settles on, the plates
from which it is recovered.
-------
SCHEMATIC FLOW DIAGRAM OF PETROLEUM REFINERY
t. POLLUTANT COLLECTION
TREATMENT
SOUR GAS
IRICATING
OIL
UFACTURE
If >fr __._*..WASTE WATER- *. -,
SURFACE AND J
STORM DRAINAGE i
~«
COKING
WASTE WATER
SOUR WATER
SOUR GAS
HYDROGEN SULFIDE
COOLING __«,__._A
TOWER SLOWDOWN
WASTE
SULFUR
WASTE
WATER
TREATMENT/
^CLEAN
* WATER
W
«
cr
M-
cr
M-
rt-
-O
-------
Exhibit 8
NUMBER AND CAPACITY OF OPERATING REFINERIES,
BY STATES, AS OF JANUARY 1, 1973
State
Number of
Refineries
Crude Oil
Distillation Capacity
(B/D)
Alabama
Alaska
Arkansas
California
Colorado
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Jersey
New Mexico
New York
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
5
4
4
34
3
1
1
2
2
11
7
11
18
2
6
3
5
1
8
1
6
2
2
8
12
1
11
1
1
40
5
1
7
3
1
9
247
35,800
53,550
47,830
1,714,900.
49,450
140,000
5,000
12,300
. 63,300
1,041,500
537,579 -
387,000
158,500
1,551,292
23,900
132,400
173,300
306,300
103,000
138,549
5,000
592,000
47,200
102,600
52,750
548,800
461,440
16,500
647,87.0
7,500
29,000
3,487,605
121,300
48,000
339,100
19,550
35,500
142,790
13,382,955
Source: Oil and Gas Journal, April 2, 1973, p. 100
6/73
-------
REFINERIES
DISTRIBUTION BY SIZE
1973
ExMbft 9.
Refinery
Capacity
MB/CD*
REFINERIES
Number
Per Cent
of Total
Cum.
CAPACITY
Per Cent Cum
MB/CD* of Total %
Below 4
4 to 6.9
7 to 14.9
Median 26
15 to 29.9
30 to 49.9
50 to 69.9
70 to 99.9
100 to 199.9
200 and up
TOTAL
MEAN
30
3^
23
30
14
27
19
21
25
16
245
12
15
11
13
11
&
3
10
7
lOO/o
27
.33
50
56
67
75
33
93
100
100°/o
63
133
237
1117
1116
1326
3291
4570
13431
55
.5
1.4
2.1
7.3
3.3
3.3
13.6
24.5
34.0
10055
1.9
4.0
3.3
11.3
19.6
27.9
41.5
66.0
100.0
100#
* Thousands of barrels per calendar day
Source: Oil and Gas Journal, 4/2/73,
-------
Exhibit 9 a
REFINERIES
DISTRIBUTION BY SIZE
1971
Refinery
Capacity
OOO'/B/CD*
Below 4
4 to 6. 9
7 to 14.9
MEDIAN 25
15 to 29. 9
30 to 49. 9
50 to 69. 9
70 to 99. 9
100 to 199
200 and up
TOTAL
MEAN
REFINERIES
Number
38
35
37
--
40
32
17
22
22
14
251
Per Cent
of Total
15
14
12
--
16
13
7
9
9
5
100%
Cum.
%
--
29
41
50
57
70
77
86
95
100
100%
CAPACITY
OOO's
B/CD*
82 '
187
329
--
909
1306
970
1854
2940
4028
12605
50
Per Cent
of Total
.6
1.5
2.6
--
7.2
10.4
7. 7
14.7
23.3
32. 0
100%
Cum
%
--
2. 1
4.7
8.1
11.9
22. 3
30.0
44.7
68.0
100. 0
100%
*Thousands of barrels per calendar day.
Source: Oil and Gas Journal, 3/22/71, pp. 98ff.
Data as of 1/1/71 - with minor adjustments.
-------
Exhibit 10
REFINERIES
DISTRIBUTION BY SIZE
1966
Refinery
REFINERIES
Capacity
000 '/B /CD*
Below 4
4 to
7 to
6.9
14. 9
Number
53
25
35
Per Cent Cum.
of Total
20
10
14
MEDIAN 20
15 to
30 to
50 to
70 to
100 to
29. 9
49-9
69.9
99.9
199
200 and up
TOTAL
MEAN
46
38
15
20
20
6
258
17
15
6
8
8
2
100%
%
20.
30
44
50
61
76
82
90
98
100
_ _
OOO's
B/CD*
111
122
371
--
1008
1512
860
1595
3018
1650
10247
40
CAPACITY
Per
Cent Cum
of Total %
1.
1.
3.
-
9.
14.
8.
15.
29.
16.
1
2
6
-
8
8
4
6
4
1
1.
2.
5.
8.
15.
30.
38.
54.
83.
100.
1
3
9
7
7
5
9
5
9
0
100%
*Thousands of barrels per calendar day.
Source: Oil and Gas Journal, 3/28/66, pp. 154ff.
Data as of 1/1/66 - with minor adjustments.
-------
NUMBERS OF REFINERIES
BY SIZE CLASSES
1966-1971
Exhibit 11
(0
UJ
E
UJ
ui
cc
u.
o
cc
Id
CO
1 I 1966
1971
MMM
__M
1
\
\
1
MB
1
1
1
H
ll
r^
i
i
>
^
i
^
i
§
< 4
4
to
7
to
15
to
30
to
50
to
70
to
100 >
to
6.9 14.9 29.9 49.9 69.9 99.9 199.9
REFINERY CAPACITY
THOUSANDS OF BARRELS PER CALENDAR DAY
200
-------
Exhibit 12
3500
3000
1 .
.o: 2500
0)0
3u
O ° 2000
1500
to
o
1000
500
<4
REFINERY CAPACITY
BY SIZE CLASS
i
1966-1971
\
I
I
i
£ ji
J
\
%
1
i
4
to
6.9
7 15 30 50 70
to to to to to
14.9 29.9 49.9 69.9 99.9
»,.
200
11966
ES3I97I;
REFINERY CAPACITY
THOUSAND BARRELS PER CALEND,^ DAY
-------
Exhibit 13
EMPLOYMENT, EARNINGS AND PAYROLLS
IN PETROLEUM AND ALL MANUFACTURING, 1964-1968
Production and Related Workers
1
Total
Number of
Employees'
(Thousands)
Number of
Workers
(Thousands)
Average
Weekly
Earnings
Average
Hours
Worked
Weekly
Average
Hourly
Earnings
YEAR
1968
1967
1966
1965
1964
19,740
19,434
19,214
18,062
17,274
ALL MANUFACTURING
14,485
14,300
14,297
13,434
12,781
$122.51
114.90
112.34
107.53
102.97
40.7
40.6
41.3
41.2
40.7
$3.01
2.83
2. 72
2. 61
2.53
1968
1967
1966
1965
1964
151
148
148
148
150
PETROLEUM REFINING
92
90
89
89
90
$166.27
159.09
151.56
145.05
139.52
42.2
42.2
42.1
41.8
41.4
$3.94
3.77
3.60
3.47
3. 37
Includes non-salaried workers.
^Includes both salaried and non-salaried employees.
Authority: Bureau of Labor Statistics, "Employment and Earnings."
Reprinted in Petroleum Facts & Figures, API, 1971, pp. 526.
-------
Exhibit 14
AVERAGE OPERATING COSTS OF U. S. REFINERIES, 1965-1969
(Cents Per Barrel)
Year
1969*
1968
1967
1966
1965 ....
Purchased
Fuel
15.8
, . . . 15. 5
. . . . 16. 3
. . . . 14.5
. . . . 13.2
Total
Labor
47.7
46. 1
46. 3
44.0
44. 3
Purchased
Power
3.8
3.9
3.8
3. 3
3.5
TEL,
Chemicals
and
Supplies
24. 6
25. 5
26. 4
26. 8
24. 5
Main-
tenance
Materials
7.6
7f\
. 3
71
. 1
7. 0
6 A
. 9
19691 . .
1 Q68
1 Q&7
1966
1965 . . . .
Insurance
and
Taxes
. . . . 5.4
... 5.5
... 5.2
... 5.2
. . . . 5. 1
Royalties
or
Research
9.2
7. 7
6. 3
4.8
4.6
Obso-
lescence
and
Improve-
ments
11.7
11.8
11.4
11.3
11.0
Interest
on Capi-
talization
11.2
11.4
10.9
10. 8
9.4
Total
Costs
137.0
134. 7
133. 7
127. 7
122. 5
1 Preliminary.
Authority: Wilbur L. Nelson, Petroleum Refinery Engineering; Consultant.
Source: Petroleum Facts & Figures, API, 1971, p. 209.
-------
Exhibit 15
RATE OF RETURN ON NET WORTH FOR PETROLEUM,
MANUFACTURING, AND ALL INDUSTRY
IN THE U. S., 1964-1972
(Per Cent)
Year
1972
1971
1970
1969
196g
1967 . . . . ,
1966 . . . . ,
1965
1964
Petroleum
Industry
10. 8
11.2
11.0
, . 11.9
13.1
, . 12. £
, . 12.6
, . 11.9
, . 11.5
All
Manufacturing
Industry
12.1
10. &
10.1
12.4
13.3
12.6
14.2
13.9
12.6
All
Industry
10.5
9.7
9.0
10.3
10. &
10.6
11.3
11.1
10.3
Source: First National City Bank, "Monthly Economic Letter,"
1964/69
-------
ESTIMATED INVESTMENT IN FIXED ASSETS BY THE U.S. PETROLEUM INDUSTRY, 1971
(As of December 31)
Gross Per Cent Net -, \ Per Cent
Investment of Investment ' of
(Billions of Dollars) Total (Billions of Dollars) Total
Production:
Crude oil and natural gas
Natural gasoline and cycling
plants
Total production . . .
Transportation :
Pipelines
Marine
Total transportation .
Manuf a c turing :
Refineries.
Chemical plants
Total manufacturing
arketing:
ther
Grand total .....
) Gross investment minus accumul
ource: Energy Economics Division
$ 52.5
3.3
$ 55.8
7.0
1.3
8.3
13. £
7.1
20.7
13.5
3.2
51.7
3.3
55.0
6.9
1.3
8.2
13.4
7.0
20.4
13.3
3.1
$ 24.4
1.7
26.1
3.7
0.6
4.3
5.9
3.9
9.8
8.8
1.8
$101.5 100.0 $ 50.8
ated reserves for depreciation, depletion,
, The Chase Manhattan Bank, December 1972.
48.0
3.3
51.3
7.3
1.2
8.5
11.5
7.8
19.3
17.3
3.6
100.0
and amortization. *
H-
cr
H-
773
-------
ESTIMATED FINANCIAL DATA FOR THE U.S. PETROLEUM INDUSTRY, 1965-1969
(Thousands of Dollars)
1969
Production:
Crude oil and natural gas $ 4,525,000
Natural gasoline and cycling plants . 225. OOP
Total production 4, 750, 000
Transportation:
Pipelines 300,000
Marine 100,000
Tank cars and motor transport . . . 50, OOP
Total transportation . 450,000
lufacturing:
.efineries . 950, OOP
hemical plants 575. PPP
Total manufacturing 1,525, POO
rketing. 1,250,000
er 200.000
1968 1967
Capital Expenditures
$ 4,675,000
250.000
4,925,000
425,000
50,000
35.000
510,000
800,000
650.000
1,450,000
1,150,000
315.000
$ 3,750,000
275.000
4,025,POO
360,000
40,000
40.000
440,000
775,000
825.000
1,600,000
1,250,000
335.000
1966
$ 3,600,000
170.000
3,770,000
275,000
25,000
60.000
360,000
775,000
800.000
1,575,000
1,100,000
320.000
1965
$ 3,600,000
160.000
3,760,000
225,000
40,000
35.000
300,000
600,000
525.000
1,125,000
1,000,000
190.000
Total capital expenditures . . . .$ 8,175,000 $ 8,350,000 $ 7,650,000 $ 7,125,000 $ 6,375,000
S3-
ludes cost of drilling dry holes and lease acquisitions but excludes exploration expenses and lease rentals charged to cr
:ome account. Includes offshore lease purchases: 1968, $1..5 billion; 1967, $560 million; 1966, $26P million; 1965, £.
)0 million. . ' oi
(Cont'd. )
-------
ESTIMATED FINANCIAL, DATA FOR THE U.S. PETROLEUM INDUSTRY, 1965-1969
(Thousands of Dollars)
(Cont'd. )
1969
1968
1967
1966
1965
Gross Investment In Fixed Assets
Production:
Crude oil and natural gas1 $ 49,900,000 $ 47,875,000 $ 45,915,000 $ 44,265,000 $ 42,500,000
Natural gasoline and cycling plants . 3,025.000 2.875.000 2.510.000 2.335.000 2.200.000
Total production 52,925,000 50,750,000 48,425,000 46,600,000 44,700,000
Transportation:
Pipelines 6,175,000 5,960,000 5,610,000 5,300,000 5,100,000
Marine 1,150,000 1,115,000 1,115,000 1,100,000 1,100,000
Tank cars and motor transport . . . 675.000 650.000 625.000 600.000 550.000
Total transportation 8,000,000 7,725,000 7,350,000 7,000,000 6.750,000
lanufacturing:
Refineries 11,925,000 11,200,000 10,525,000 9,875,000 9,525,000
Chemical plants 6,475,000 6.050.000 5.550.000 4..800. OOP 3.975.000
Total manufacturing 18,400,000 17,250,000 16,075,000 14,675,000 13,500.000
Marketing 11,550,000 10,700,000 10,000,000 9,200,000 8,550,000
)ther 2.251.000 2. 150.000 1.950.000 1.700.000 1.5^00.000
Total gross investment in
fixed assets $93,125,000 $ 88,575,000 $ 83,800,000
$ 79,175,000 $ 75,000,000
As of December 31.
M
oS-
o **
3 cr
~ £'
a _
"
(Cont'd.)
-------
ESTIMATED FINANCIAL DATA FOR THE U. S_ PETROLEUM INDUSTRY, 1965-1969
(Thousands of Dollars)
1969 1968 1967 1966 1965
Gross Assets Employed
Current assets. $ 18,850,000 $ 18,250,000 $ 17,000,000 $ 15,750,000 $ 14,300,000
Fixed assets 93,125,000 88,575,000 83,800,000 79,175,000 75,000,000
Other assets 3,000.000 2.750.000 1. 800. OOP 1,800.000 1.600.000
Total gross assets employed . . $114,975,000 $109,575,000 $102,600,000 $ 96,725,000 $ 90,900,000
As of December 31.
:hority: Energy Economics Department, The Chase Manhattan Bank.
Reprinted in Petroleum Facts & Figures, 1971, pp. 508/9.
W
oS-
o **
3 O-
~ ~
0. ,-
L, w
cr
-------
ESTIMATED PETROLEUM REFINING
CAPITAL REQUIREMENTS 1972 - 1981
Exhibit 16
Refinery capacity, 1/1/72
(Oil & Gas Journal, 3/22/71)
Growth in capacity will be
3i;/Vyr. (estimated)
Resultant forecast capacity, 1/82
Increase in capacity, 1972/1981
Unit capital cost of new capacity
is about $1400 per barrel per day
(Oil Daily, October 12, 1971)
Total capital cost for new capacity,
1972/1921
Barrel/Day
13,070,000
Billion $
18,430,000
5,360,000
7.5
Average capacity during the decade 15,750,000
Unit capital cost to replace and
modernize existing capacity is
$50/yr. per bbl/d. (from data
published by W. L. Nelson in
Oil & Gas Journal)
Total capital cost for maintaining
existing capacity, 1972/1981
Total capital cost to conform to
environmental standards in
refinery operations 1972/1976
(Environmental Protection
Agency, Oct. 1971) 1977/1981
Total cost to convert to no/low lead
gasoline, 1972/19S1 (SPA
Total cost to convert to low sulfur
fuels, 1972/19C1 (EPA).
7.9
0.9
0.1
3.0
2.0
Total Capital Requirement
$21.4
-------
PART TWO
ECONOMIC IMPACT
I
ANALYSIS
This part of the report has been prepared by EPA.
-------
- 1 -
EXECUTIVE SUMMARY
Overview
Although from the data available, there appears to be no
definite indication that any significant economic impact will
result from the imposition of the proposed guidelines for petro-
leum refineries, the conclusions depend heavily upon the
assumed scenario of government involvement in the industry.
The three most likely scenarios include:
1. Free competition of U.S. crude oil and products
in the world markets.
2. U.S. market price controlled at roughly the current
prices of crude oil and products, with price increases
permitted to recover increased costs.
3. U.S. markets for crude oil and products protected by
import "license fees" at world price plus 1/2 cent
per gallon for crude oil, and world price plus ~L\
cents per gallon for products.
Although all scenarios have been analyzed, the scenario which
we feel to be closest to what will actually occur (scenario #3)
is presented in more detail in this paper. Under this scenario,
we expect no price increases due to pollution control, since
domestic prices will be dictated by the "license fees." Under
this system, each refinery will realize an added cash flow of
approximately 42 cents per barrel. Thus, if pollution control
7
-------
-2-
costs are less than this "subsidy," we can anticipate no shutdowns
of refinery capacity. This indeed turns out to be the case. We
estimate that only 2 to 11 small refineries may be threatened by
these guidelines by 1977. These refineries represent on the order
of .02% -.3% of total refinery capacity.
Under the price controlled scenario, pollution control costs
would certainly be allowed to be passed on - this could create
problems for many small refineries which will incur unit costs
much greater than those of the large refineries. Depending upon
the Federal Government's protective interest in maintaining all
refinery capacity and the extent of the actual refinery capacity
shortage, many refineries will become solely dependent upon govern-
mental policy to maintain their economic viability.
The free market scenario is similar to the above price-
controlled situation, except that allowable price increases may
be even less, effecting-many more refineries.
Prices
As shown in Table I, aggregate costs of water pollution abate-
ment will be approximately 5.4 cents per barrel by 1977 and 9.4
cents per barrel by 1983. Although many refineries will be forced
to provide additional capital for in-plant alternatives for water
conservation (average of 2.3 cents per barrel by 1977), only a
-------
-3-
TABLE I
WATER POLLUTION CONTROL COSTS
($mm)
1977-Existing Sources
(Best Practicable Technology)
1983
(Best Available Technology)
New Source Standards
(by 1977)
Capital .Investment
Total c/bbl
$637
$625
$ 75
$49
$33
$31
Annual
Total c/bbl
$255
$250
$ 26
5.8c
4c
3C
SOURCE: Roy F. Weston, Inc. Effluent Guidelines Development
Petroleum Refining. Draft report submitted June 1973.
-------
-4-
small portion of these expenditures would be reflected in price
increases, if price controls or free market economics dictates
prices. Thus, in the absence of the import fee system, we could
expect price increases of 5-6 cents per barrel (0.12-0.14£/gal)
by 1977 and 9-10 cents per barrel (0.21-0.24C/gal) by 1983.
As previously stated, however, no price increases due to
pollution control are expected as a result of the dramatic change
in refinery profitability which will be caused by implementation
of the import license fee system.
Profitability
There is tremendous variability of the treatment costs in
the less than 25,000 barrel capacity range, as compared with the
relative stability of the range for larger refineries. Overall, the
costs for end-of-pipe treatment range from 3.5-22.5<:/bbl for 1977
requirements, and 8.5-42C/bbl for 1983. Since it is expected that
these costs will be charged directly against refinery profitability,
wide ranges of profitability for the small refineries will be
observed.
A further impact on profitability will be the cost of in-
process controls. These costs range from 0.01-0.3C per million
gallons of water, and water-use ranges from less-than-10 to
greater-than-500 gallons of water per barrel of crude. This factor
acts to compound the problem of accurately assessing the afore-
mentioned variability in profits.
-------
-5-
Production Effects
Combining the above cost data to calculate the total cost
of water pollution abatement yields an estimate of potential
impact. It is estimated that 2 to 11 small refineries may incur
pollution abatement costs that might force their closure. These
"critical" refineries represent from 0.02%-0.3% of current
refining capacity.
Employment Effects
From the above conclusion regarding production curtailments,
only a small number of the refinery workforce appears to be in
danger of job dislocation. If we assume industry average pro-
ductivity per employee for these threatened refineries, approximately
100-500 out of the 150,000 refinery employees would be the maximum
number to face job losses. Since these refineries are located in
several geographical areas, the community and regional impacts of
even this highest estimate of job losses does not appear to be
substantial.
Effects on Industry Growth
Although the $1 billion required expenditure for water
pollution control appears to be relatively large, it is not
expected that this requirement will jeopardize the petroleum
industry's capacity for expansion throughout the decade. Esti-
mated capital expenditures for the petroleum industry in 1971
were approximately $7 billion. Furthermore, the industry itself
-------
De-
$288 million were spent in 1972 alone on water pollution
abatement. Even the 1977 guidelines would require equal annual
capital expenditures of only $250 million. With rapidly increasing
profitability, the industry should find the capital markets responsive
to their needs.
Balance of Trade
No balance of trade effects are expected due to the magnitude
of the impact of the import license fee system on domestic petroleum
product prices.
I/Environmental Expenditures of the United States Petroleum
Industry 1966-1972. American Petroleum Institute Publication
No. 4176
7*2-
-------
- 7 -
INTRODUCTION AND METHODOLOGY FOR ANALYSIS
OF ECONOMIC IMPACT OF WATER POLLUTION CONTROL
REQUIREMENTS FOR THE PETROLEUM REFINING INDUSTRY
The major focus of this as well as other microeconomic impact
studies for water pollution control has been on such variables as
prices, profits, plant closings, employment, community development
and the balance of trade.
The analysis of the economic impact of the proposed effluent
limitation guidelines on the petroleum refining industry involved
four basic steps:
1. Estimation of the incremental cost of pollution control
to be incurred by various types and sizes of refineries
for installing end-of-pipe treatment.
2. Estimation of the cost of water conservation for pro-
fligate water-users.
3. Assessment of the climate for price increases by the
industry, analyzing the most likely scenario regarding
government influences on the economic dynamics of the
industry.
4. Assessment of the impact of the calculated water pollu-
tion costs on the petroleum refining industry in terms
of plant closures, or decreases in profitability.
-------
- 8 -
End-of-Pipe Treatment Costs
The costs of treating refinery waste water to the Best
Practicable Control Technology Currently Available and Best
Available Technology Economically Achievable requirements were
developed for EPA by a technical contractor.-^ Their costs were
then adjusted from 1971 construction costs to 1973 construction
costs, and from an after-tax cost of capital of about 16% to a
more reasonable 12%. It was found that the resulting costs depended
2/
essentially solely on waste water flow rate. There is a slight
effect of contaminant lead (represented by "refinery category" as
defined by the technical contractor), but it is negligible compared
to the flow effect.
The economies of scale in waste water treating are evident
from the following table:
jL/Roy F. Weston, Inc., Effluent Limitation Guidelines Development
Document - Petroleum Refining
2/The costs are adequately represented by intersecting straight
lines on log-log paper through the following plot points:
BPCT: 0.025 million gallons per day/$0.14 million per year
0.50 million gallons per day/0.04 million per year
10.0 million gallons per day/$3.9 million per year
BAT: 0.025 million gallons per day/$0.29 million per year
0.54 million gallons per day/$0.96 million per year
10.0 million gallons per day/$6.8 million per year
-------
- 9
Cost to Achieve Best Available Technology
Standards With End-of-Pipe Treatment
Cost of Treatment
$ million
per year
0.20
0.50
1.5
6.8
cents per
million gallons
5.5
1.4
0.4
0.2
Flow Rate, million
gallons per day
0.01
0.1
1.0
10.0
The table also shows the large incentive for reducing waste water
flow volume.
In-Plant Water-Use Reduction Costs
Normal refinery practice exists which permits waste water flows
of less than one-tenth of crude oil intake (4 gallons per bbl.)
2/
But some plants discharge over 100 times as much. If the cost of
conserving water within the refinery is less than the cost of
treating waste water, it will be advantageous for a plant to
optimize the combination for minimum cost.
Almost no data exists on the cost of in-plant flow reduction.
However, the following three data points have been developed through
case examples:
I/Roy F. Weston, Inc., op.cit.
2/Ibid.
_3/Based on:
Amortization
Instant
Operating and Main-
tenance + Energy
Total
% of Investment Cost
12% (Assumed same breakdown
of costs as for end-of-
pipe treatment)
13%
25%
-------
- 10 -
Waste Water Flow Reduction
Million Gallons Per Day
78
62
40
Cost, Million 3/
Investment Annual
11
12
8
2.75
3.0
2.0
These annual costs, on a unit basis, are roughly 0.01 cents
per million gallons, which is one to two orders of magnitude less
than the unit waste water treating costs for end-of-pipe treatment.
Hence, it will be much cheaper for profligate water users to install
in~plant modifications plus smaller waste water treating facilities
than to install large treating facilities.
It is unfortunate that the three data points represent fairly
large refineries, because such plants will clearly be able to afford
to install facilities to conform to environmental regulations. It
is the smallest plants, those with crude processing capacity of less
than about 10,000 barrels per day, that may be adversely affected
by the FWPCA. The most profligate water users in this size class
discharge roughly 5 million gallons per day of waste water, which
is only a tenth as large as the flows encompassed by the three
data points.
The problem of establishing reasonable waste water flow
reduction cost estimates for small refineries remains to be adequately
solved. In order to complete this study, the three data points
-------
- 11 -
were used as a basis for extrapolating small refinery costs.
Two extrapolations were used.I/) They yield costs of reducing
waste water flow by 0.1 million gallons per day of 0.3 or 0.1 cents
per million gallons respectively. Such costs are only 1/5 to
1/10 as great as the end-of-pipe treating costs. It is obvious
how important it is to establish reasonable estimates of the
optimum costs for the combined in-plant and end-of-pipe facilities.
Combined Costs
Although the extrapolated costs in the preceding section
cannot be adequately supported, the analysis was completed
recognizing this serious limitation. "Example" combined
minimum costs of in-plant plus end-of-pipe modifications were
computed for three refinery sizes, four waste water discharge
rates and the two extrapolations of the cost of in-plant modifi-
cations to reduce waste water flow. In these calculations waste
I/ Both are straight lines on log-log graph paper. (See Figure 1)
"a" goes through the points
78 million gallons per day/$2.75 million per year
40 million gallons per day/$2.0 million per year
"b" goes through the points
70 million gallons per day/$2.87 million per year
40 million gallons per day/$2.0 million per year
-------
- 12 -
9 10
-------
- 13 -
water flow was not permitted to be reduced below 7 gallons per
barrel of crude oil processed, a minimum achievable rate
recommended by the technical contractor/ for BAT- Also,
the minimum cost for in-plant flow reduction was arbitrarily
set at the extrapolated cost of reducing flow by 0.1 million
gallons per day.
It will be shown at a later point in the analysis that a
waste water control cost of about 40 cents per barrel is the
maximum that some refineries will be able to absorb. So in-
plant modification costs are important. Note that in-plant
cost extrapolation "a" says that a 2,000 barrel per day refinery
with 500 gallons waste water per barrel is not viable under BPT
I standards, whereas extrapolation "b" says that it may be
viable. It is obvious that technical research on the costs of
in-plant modifications will be needed before more valid conclus-
ions can be drawn about the impact of the FWPCA.
i
Price Increases
i
The impact of these pollution control costs was analyzed
i
under the following three scenarios regarding Federal Government
control over the petroleum markets.
1. Free competition of U.S. crude oil and products in
the world markets.
1/Itoy F. Weston, Inc., Effluent Limitation Guidelines Development
Document - Petroleum Refining
-------
- 14 -
2. U.S. market price controlled at roughly the current
price of crude oil and products, with price increases
permitted to recover increased costs of pollution
control.
3. U.S. markets for crude oil and products protected by
import license fees at world prices plus 1/2 cent
per gallon for crude oil, and world price plus 1^
cents per gallon for products.
The effects of these scenarios on the small (10,000 bpcd
or less refineries would be:
1. Under free market competition, they would be at a
20 cent per barrel disadvantage relative to 1971
< i
(under import quota system). Assuming these
i
refineries were operating at close to breakeven with
import quota tickets, this would be a severe blow,
resulting in many refinery shutdowns. The effect
of this scenario would overshadow the impact of
pollution control costs on these refineries.
2. With price controls holding major U.S. oil company
refined product prices well below world prices, there
i
is potential capability for the government to allow
pollution control costs to be passed through to the
consumers. Since the small refineries would be forced
-------
- 15 -
to pass along greater unit costs than the large
companies, the possibility for them to pass all
costs along (loss of import tickets plus pollution
control) seems doubtful unless products are in such
short supply that the major companies cannot increase
their markets at the expense of the smaller refineries.
Unless a supply/demand situation of such magnitude
exists, the effect of price controls could be as severe
as the free market scenario.
3. With import license fees, small refineries will
be about 42 cents per barrel (42+21-21, assuming no
increased cost for domestic crude for these refineries)
better off in 1977 than they were in 1971. Hence, they
will be able to spend up to this amount for pollution
control. (Water plus air plus low-lead regulations).
Since the import license fee system is already in
effect, it is expected that scenario #3 will be the
most likely operating environment. Given the govern-
ment's concern for domestic refining capacity, this
fee system, which creates an incentive for domestic
capacity expansion, should continue at least through
1977.
-------
- 16 -
Impact Analysis
From refinery size and wastewater distribution data from
the 1972 EPA/API Survey, critical size and water-use categories
were determined based on the pollution abatement costs coupled
with the analysis of the projected economic position of the
small refineries. AS the analysis suggests, very few small
refineries will close due to water pollution abatement costs,
although other factors dictating the disappearance of the small
refinery may be EPA unleaded gasoline regulation and inability
of these refineries to find crude sources.
C.yL
-------
- 17 -
I. PRICE EFFECTS
The pricing mechanism of this industry is currently in a
state of flux due to the recent movement from the import quota
system to an "import license fee system" via price controls.
Under the current Import License Fee System, it appears that
prices will not increase to reflect the cost of pollution
control. Under a continuation of price controls, however, prices
may increase to allow for a full pass-through of pollution
control costs.
(a) Fee System
The fee system, currently being administered by the
Office of Oil and Gas at the Department of Interior, is designed
to encourage new refinery expansion and construction within
the United States. Basically, the fee system will require
a tariff on imported crude oil and refined products. This system
will allow domestic product prices to increase up to the
imported price of world petroleum products plus the tariff. The
scheduling of the fee system is as follows:
-------
- 18 -
Fee (C/bbl)
Resid, Distillates
Timing
May
Oct.
May
Oct.
May
Oct.
'73
'73
'74
'74
75
75
Crude Oil
10.5
13
15.5
18
21
21
and Unfinished Oils Gasoline
15
20
30
42
52
63
52
54.5
57
59.5
63
63
Thus, if a refiner buys crude at world-plus-fee prices
(after October 1975), and sell his products on the same basis,
he is receiving an added incentive of 42
-------
- 19 -
Air Pollution Control Costs=/
1972
1973
1974
1975
1976
Total
Existing and
New Facilities - $MM)
Capital Investment2-/ Ooeratinq
$43.9
66.7
181.0
203.8
66.7
562.1
Economics of
Maintenance
0.7
2.1
6.9
12.3
13.7
13.7
Clean Air, EPA, 1973
Annual^/
5.4
14.0
37.8
64.9
73.5
73.5
2/ Plus or minus 25%
_3/ O&M + amortization @ 7% over 20 years
On the aggregate, this cost translates to a cost of 1.7 cents
per barrel (on an estimated basis of 4.9 billion barrels of
throughput in 1976). An additional cost due to air pollution
requirements is the cost for substituting low sulfur for high
sulfur refinery fuels. It is estimated that these fuel costs
for refineries will total $108 million per year by 1976. On an
aggregate annual basis, the cost incurred for low sulfur fuels
is approximately 2 1/4 cents per barrel.
By 1976, then, the total annual cost of air pollution
control for the refining sector is approximately 4 cents per
-------
- 20 -
barrel, although there will be significant variation around
this number from refinery to refinery.
Water
EPA estimates the following costs of water pollution
control:
Water Pollution Control Costs ($MM)
Capital Investment Annual
Total $/bbl Total $/bbl
1977-Existing Sources $637 $49 $255 5.8$
(Best Practicable
Technology)
1983 $625 $33 $250 4$
(Best Available
Technology)
New Source Standards $75 $31 $26 3<=
(by 1977)
The total annual cost to be incurred by 1977 is $281
million ($255 + $26) or 5.4 cents per barrel, and 9.4 cents per
barrel by 1983. An added cost of approximately $400 million
investment and $110 million annual are estimated to be incurred
-------
- 21 -
by in-plant controls on water-use by 1977. This would add
another 2.3 cents per barrel to the above costs (on an aggregate basis)
(c) Price Increases
The above discussion illustrates that the average
cost of water pollution abatement is well below the 1^ cent
per gallon subsidy available under the Interior Department's
Fee System. Even when the 7.7 cents (5.4 +2.3) per barrel cost
for 1977 is added to the total costs of 4 cents per barrel
for air pollution control, the total by 1977 amounts to only
20% of the total Fee System incentive realized by the refiners.
(d) Secondary Effects
Although the secondary effects of increased prices of
petroleum products will be significant, it is the Fee System plus
increased crude oil prices rather than the cost of pollution control
which will encourage major price increases.
-------
- 22 -
II. FINANCIAL EFFECTS
A) Effects On Profitability - Industry Aggregate
As we have discussed previously, refinery profitability
data is unavailable, although we can estimate that the typical
small refinery operates on very narrow margins. For example,
our previous estimates of operating costs show that typical
costs average around $4.80 per barrel. If we assume gross revenues
of 12 cents per gallon of product ($5.04 per barrel), net pretax pro-
fits will be about one-half, cent per gallon (24 cents per barrel).
Thus, if a refinery were unable to pass on these costs, the
total pollution abatement costs (11.7 cents per barrel) would
cut this margin by less than 50%, and the water pollution
abatement costs alone would account for a 23% decline in pretax
profitability.
The more realistic assumptions, however, places this
analysis under the License Fee System scenario which may add as
much as 1% cent per gallon to the current refinery margins.
Pollution abatement costs will certainly detract from the benefit
of this increased margin (18% for total pollution costs and 12%
for water pollution abatement alone). Since the effect of the Fee
System is to greatly increase domestic refinery profits, a decrease in
the added profits of the above magnitude poses no financial
burden on the industry as a whole.
-------
- 23 -
B) Effects on Profitability - By Refinery Characteristics
Although we have demonstrated above that on the aggregate,
the added costs of pollution control will not significantly effect
the industry's profitability under the new Fee System, certain
classes of refineries will be effected to a greater degree than
the previous analysis indicates. Two basic characteristics have
a great impact on the effect of water pollution abatement costs
on refineries - size and water use.
(1) The effects of size on pollution control costs
Since the size of petroleum refineries varies from small
topping plants of 2-3,000 barrel per day to large complexes of
400,000 barrels per day, economies of scale play an important
part in an impact analysis. Figure 2 illustrates the varying
impact of water pollution costs by refinery class (categories
according to complexity) and size. As shown by these curves,
the effect of the scale economies becomes most pronounced within
the range of refineries with less than about 30,000 barrels per
day of crude throughput. Since half of the refineries in the
United States are 25,000 barrels per day or less (but only 8%
refining capacity), this makes a good cut point for this analysis.
An analysis of a 25,000 barrel per day refinery yield air pollution
control investment costs of $1.74 million, or about 4 cents per
barrel on an annualized basis. Water pollution control requirements
(excluding in-process changes) will place an added burden of about
-------
-- 44
FIGURE A
COSTS OF BPCT AND BAT EFFLUENT '
GUIDELINES VS REFINERY CAPACITY
1
i
A 1 '
i
f
i -
i
f '
/ j
/ i
/ i 1
X , ,
- ' i :
x-"" ' !
** ~* ~~ t I
. "'" ** " ' 1
- *" " -*' '
-""' 'D""" -'"^"' ''''// j '
* "*" 4?^^ ^ *""""" ^^^^"^ i
-""_ ^-^-^^-^y '
BPCT ' " ^ "~"~ "" \^^^1^^
rj A rp . ^» ^, ^^ J-
1 1 1 i 1 J ' 4- 1. , ! , 1. I....I- 1
r. 42
t
- 40
*-^
' 28
26
24
22
20
18
16
14
12
10
'8
. 6
. 4
2
0
£2
|
8
en
f-3
CO I
< N)
<> £>,
co i
CO
f<
280 260 240 220 200 180 150 140 120 100 80
60
40
20
SOURCE:
REFINERY CAPACITY (MBPCD)
Effluent Limitations Guidelines Development Document - Petroleum Refinery, Roy F. Weston, Inc., Draft Rpt'72
-------
- 25 -
5 cents per barrel on the same refinery by 1977, and an additional
7.5 cents per barrel by 1983 (excluding water conservation costs).
The total 1977 burden of 9 cents per barrel is 37% of the estimated
current profit margin, and 11% of the margin plus the 1% cent per
gallon incentive from the Fee System. Thus, although profitability for
this refinery will be impaired by pollution control costs, the magni-.
tude of this impact will not require the refinery to close.
a) Refineries greater than 25,000 bbls/d
In our calculation above we found that a hypothetical
refinery of 25,000 barrels per day capacity can, without question,
continue to operate profitably in compliance with new standards.
For several reasons the larger the refinery, other things being
equal, the greater its cost advantage.
First the economics of scale favor larger installations.
The EPA estimates that a completely new plant to treat 10 million
gallons per day of water would cost only 19 times as much as one
to treat 0.1 million gallons per day (one hundredth as much).
This is an exponential scale factor of about 0.65 which is typical
of oil processing units. The same scale factor applies to
controlling particulate and carbon monoxide emissions from catalytic
crackers.
Further, because of the larger absolute amounts involved
it is profitable for larger refineries to install relatively more
equipment to recover heat used in the refining process. Since much
-------
- 26 -
of the water consumed by a refinery is used for cooling, the more
heat recovered the less water used (though heat may also be rejected
to air). There is an offsetting effect in that smaller refineries
in general produce a lower fraction of processing-intensive products
(gasoline and lubricating oil) and therefore use less heat per unit
processed.
Again, because of the absolute magnitudes involved, it is
profitable for a larger plant to conserve relatively more water.
Finally, larger refineries are probably closer to full com-
pliance with environmental standards than smaller ones. There
are several reasons for this. The pollutants discharged from a
large refinery may have been sufficient to have required control
in the past. Also, larger refineries are more clustered than
small ones. This amplifies the effects of pollutants and the
pressure to eliminate them. Some small refineries, on the other
hand, are in rather isolated areas where environmental problems
in the past may not have been of high concern.
We conclude that on the basis of their size, refineries
with a crude oil distilling capacity of 25,000 barrels per day
or more should encounter no difficulty in operating profitably due
to new control costs. We shall therefore give our attention
hereafter to the smaller plants.
-------
- 27 -
b) Refineries less than 25,000 barrels per day
As seen in figure 2, the effect of economies of scale
on this range of refineries is much greater than refineries in the
larger size categorier?. Thus, even assuming an "average" profi-
tability .for these refineries, one expects to find a dramatically
greater impact on -profitability from pollution control costs
Table 1 demonstrates the economic effects of size on this range
of smaller refineries:
Table I
Pollution,. Control Costs Of
Small Refineries
Total Annual
Capacity Air Investment Water $/bbl/ Air Watery Total
(HPLS/Day) ^MM $/bbl/day ,$MM $/bbI/day das 0/bbl Q/bbl O/bbl,
25 1.74 $70 $1.09 $43 113 40 5* 90
15 1.22 $81 .88 59 140 4.50 6.50 110
10 .91 $91 .73 73 164 50 80 130
5 .57 $114 .56 112 226 60 170 230
In the absence of the License Fee System, these costs would
certainly have a substantial impact on these small refineries. In
reality, including import tickets these refineries were running
very close to break even (i.e., under the import quota system,
which provided small refineries approximately .^ cent per gallon
added revenues, operating revenues equalled operating costs) and
therefore had a very low "going-concern value" the dollar value
-------
- 28 -
of the refinery as it continues in operation. Under the Fee
System Scenario, however, a $42 per barrel increase (63$-21$
for import quotas) greatly enhances the small refinery's going
concern value. Assuming a 12% capitalization rate over 4 years
(to account for the high degree of risk associated with the long-
term future of this incentive) a break-even refinery will have a
going concern value of approximately $485-^ per daily barrel (new
refineries were built for $1400 per daily barrel in 1971). Although
scale economies greatly effect the magnitude of pollution control
costs,under these assumptions the costs of pollution control even
for the very small refineries would not dictate a decision to
shutdown on a going-concern-value basis.
It should be recognized that this analysis does not account
for the great uncertainty associated with the License Fee System
scenario. Import fees are currently being waived, and the im-
plementation of the system could be delayed indefinitely. Also,
it is being discussed that the Fee System not apply to petroleum
products used as chemical feedstocks. This could have a profound
impact on the assumptions used in this analysis.
(2) The effects of water-use characteristics on effluent
control costs.
The above analyses have been carried out assuming water
pollution treatment costs based on constant hydrolic loadings.
These loadings were assumed to be representative of the median
i/($.42Ablx365i.316 [capitalization factor])=$485
-------
- 29 -
water-use for each refinery class of those refineries recycling
all cooling water. In some cases, refineries combine cooling and
process waters at various points in the operation, such that the
final effluent discharged is many times that of a "total recycle"
refinery.
A recent survey taken by the American Petroleum Institute
and the Environmental Protection Agency reveals the following ranges
of water-use within each refinery category:
Refinery Water-Use
;egory Water-Use (Gal/bbl)
A
B
C
D
E
Min
2.17
4.12
5.53
22.2
26.9
Median
18
40.4
42.6
47.3
86.9
Max EPA-Effluent Guidelines Basis
620
6861
1188
644
1691
12
17-21*
25
37
__
*In the proposed effluent guidelines, category B is separated into
two groups by cracking as a % of throughput. Two water-use bases
were developed for these categories.
Figures 3 through 7 show the distribution of these ranges for each
category as reported by the API/EPA survey.
The difficulty in this analysis is in obtaining good data on
the costs to these high water-use refineries above the end-of-pipe
"typical" costs presented by the technical contractor. -*
]./Roy F. Weston, Inc. Draft Development Document for Effluent
Limitation Guidelines Petroleum Refining, August 1973.
-------
BEE 20x20 TO INCH
co
O
-------
BEE 20x20 TO INCH
-------
SEE 20x20 TO INCH
I
CM
-------
BEE 20x20 TO INCH
n
CO
-------
BEE 20x20 TO INCH
n
-------
- 35 -
TABLE II
"EXAMPLE" OPTIMUM COSTS (END-OF-PIPE PLUS IN-PROCESS)
REFINERY WASTE WATER TO FWPCA STANDARDS (CENTS PER
BARREL CRUDE OIL PROCESSED)
Waste Water Flow Before
In-Plant Modifications
Level
of
Treatment
BPCT
BAT
BPCT
BAT
BPCT
BAT
In-Plant
Cost Extrapolation
Identification
1. 2,000 barrels per calendar
a
b
a
b
2. 6,000 barrels per calendar
a
b
a
b
3. 18,000 barrels per calendar
a
b
a
b
gallons per barrel
Crude Oil Processed
7 22
day refinery
16
-------
- 36 -
-). i <-U-<
i^L
^;\^ Jvi.= t ;;^!;gq:;:g ^
_., _.._.,_ -rr-r-r ~'__.._.!'tTT--, ._._ _(£"; "-'":"?:.ij-'iETTjJi.:.: .F'/S^
;,-. ;:.-,:. :..:r
9 10
-------
- 37 -
Figure 8 presents the relationship between capital investment
and waste water reduction, assuming the cooling water can be
segregated and recycled. Using this data, we can approximate
the additional expenditures that would be incurred by the "high
water users". Table II calculates combined costs of end-of-pipe
treatment and the added cost per annual barrel of reducing water
usage for small refineries.
(b) Capital Availability
In comparison with other industries, the 1977 pollution
control price tag appears to be very large. The following factors
argue that even this amount will not in aggregate significantly
reduce the industry1s ability to attract new capital for expansion:
1. 1971 capital expenditures for the industry totalled
$7 billion. The required 1977 expenditure is only 14%
of this figure for all four years combined.
2. The industry itself claims water pollution control
capital expenditures in 1972 totalling $288 million.
The capital required by 1977 spread equally over the
next four years is only $250 million annually.
3. With rapidly increasing profitability, and a federal
incentive to build new domestic capacity, the refining
.!/ Environmental Expenditures of the United States Petroleum
Industry 1966-1972, American Petroleum Institute. Publication
4176
-------
- 38 -
industry should have no trouble attracting
needed capital.
Unfortunately, we cannot evaluate the capital availability
question for individual refineries or companies, since the
data is not readily available. For the small refiner, this
may indeed be a problem both for refinery modification and capacity,
and for pollution control expenditures. In perspective, however,
the most difficult problem envisioned for the small independent
refinery, is the availability of crude supplies. If closures
do occur, this will most likely be the cause.
-------
- 39 -
III. PRODUCTION EFFECTS
A) Plant Closings
Since production curtailments in this industry would
more than likely result in plant closings, only the potential for
the latter will be examined. From Table II, Part 2, page ),
Table III was computed for "example" refineries falling into the
critical ranges, dictated by the preceding analysis. Since data
on water use and costs of water conservation are scarce, this
Table is only meant to show relative magnitudes, and should in no
way be taken as an actual prediction of plant closings. However,
it may be safe to conclude that, given the above costs and analysis
and the current level of federal concern over refining capacity,
very few refineries will close because of pollution control.
It should be noted that the costs of air pollution control
may add several more critical "example" refineries to the list.
This may be particularly true with current regulations on lead
in gasoline, which will have a significant impact on small refineries
which do not have cracking capabilities.
B) Effects on Industry Growth
We have calculated that the New Source Standards will
add an additional $31 per barrel per day capacity to the cost of
a new refinery. With new refineries requiring $1500-2000 per barrel
per day capacity, the added burden appears to be too small to act
as a deterent to growth.
I/Stephen. Sobotka, "The Impact on Small Refineries of " 3d Content
in Gasoline Regulations", Working Paper prepared for h ». in 1973.
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TABLE III
ESTIMATED NUMBERS OF THREATENED REFINERIES
Refinery Capacity Range,
thousand barrels per day
Number of Refineries in Class
Waste Water Flow Requiring
'"Example" Abatement Cost
in Excess of 42 cents per
barrel,* gallons per barrel
% of Refineries in Class with
This, or Greater, Waste
Water Flow
Number of Refineries
Jeopardized by Waste Water .
Control Costs
0/2 2/4 4/7 7/10
13 17 35 13
35 230 700 1700
43 17
8 Nil
For refinery size at class median, i.e., 1.0 MB/D, 3.0, 5.5, 8.5
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IV. EMPLOYMENT AND COMMUNITY EFFECTS
If we assume that our "example" threatened plants actually
close, employees exposed to potential job losses would be approximate-
ly 100-500 out of 150,000 refinery workers. Since these refineries
are located in several geographical areas, the regional and
community impacts of these potential job losses would be minimal.
V. BALANCE OF TRADE
The United States is becoming more and more dependent upon
foreign crude, while simultaneous exports of products have been
decreasing. This trend is expected to continue. Since the domestic
prices of crude and products by the mid-decade will be determined
by the import license fee system, pollution control expenditures
will have no effect on the future balance of payment for petro-
leum products.
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