Building New Refinery a Difficult Prospect
ROBERT SIEGEL, host:
As the nation weighs its energy future, the U.S. still depends on an aging infrastructure to produce gasoline. We're talking about oil refineries. And the country hasn't built a new one in three decades. Cost is one hurdle; regulation is another.
NPR's Ted Robbins has the story of one man who's trying to open a refinery in the southwest.
TED ROBBINS: Arizona gets its gasoline from California and the Gulf Coast. Glen McGinnis, who's made a career expanding and operating oil refineries, wants to change that. A year ago, he stood on top of an abandoned irrigation ditch in the desert east of Yuma and imagined.
Mr. GLEN McGINNIS (CEO, Arizona Clean Fuels): What I see is, you know, is a state-of-the-art oil refinery sitting here between where we are here and the interstate that you can see in the distance.
ROBBINS: At that point, the company McGinnis had had just received a rare air quality permit from the state of Arizona. The state gave the permit because it agreed this refinery will put out about half the pollution as any other -hence, the company's name, Arizona Clean Fuels. Since then, though, the economic hurdles have been much bigger than the regulatory ones. The biggest? Raising $3 billion to build the refinery.
Now, in his office near Phoenix, McGinnis says the financing will be in place by the end of the summer, not from big U.S. oil companies, but from foreign investors. And the crude oil for refining will not come from the Mideast, but from the West.
Mr. McGINNIS: Essentially cantered in Mexico for the majority, and potentially some from Colombia and some of the South American countries.
ROBBINS: The plan is for oil tankers to put in on the coast of Mexico, unload the crude and pipe it 200 miles north. The proposed refinery's location would allow it to supply both fast-growing Arizona and fuel-hungry California. That, says McGinnis, could ensure a decent profit margin.
Mr. McGINNIS: The margins on - in the southwestern part of the United States are the best margins in North America. The margins in the southwest -California, Arizona, Nevada - are double the U.S. average.
ROBBINS: Historically, oil refineries have not made a lot of money. For the last few years, though, it's been the most profitable sector of the oil industry, at least for refineries that can produce cleaner, low-sulfur fuel now demanded by the EPA and the European Union.
But oil economist Philip Verleger says the profit picture could change again if the nation really adopts alternative fuels and conservation. So Verleger says Arizona Clean Fuels has to move quickly.
Dr. PHILIP VERLEGER (President, PKVerlerger LLC): Because there is probably a small window of opportunity to make a lot of money. They will be hurt if Congress really tightens down all the fuel-economy standards because then, the demand for petroleum products won't grow.
ROBBINS: Despite that possibility, Verleger thinks the Arizona refinery would be good for the country.
Dr. VERLEGER: As a national asset, this is a great idea. And if the military were smart, they'd put a bunch of money into this because it would protect us in case of a major hurricane or something that took out a lot of Gulf Coast refining. As a private investment, I think it's extremely risky.
ROBBINS: Arizona Clean Fuels has had to push back the refinery start-up date from 2009 to 2011. As Glen McGinnis says, compared with obtaining permits, securing financing, and putting together a skilled 600-person workforce, actually building the refinery will be the easy part.
Ted Robbins, NPR News, Tucson.