Planning the First U.S. Refinery in 30 Years

Arizona could be the home of the first new oil refinery to be built since the 1970s. Arizona Clean Fuels Co. has cleared one major hurdle: receiving a clean air permit from the state. Despite local opposition to the project, the highest hurdle may be raising the $3 billion needed to build it.

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Among the possible reasons for high prices at the gas pumps is a shortage of oil refineries. The last new refinery in the US was built 29 years ago. The industry has tried to keep up with demand by expanding existing facilities, but that hasn't been enough. NPR's Ted Robbins reports on one man's answer to the refinery shortage.

TED ROBBINS reporting:

Glenn McGinnis stands on the banks of an abandoned irrigation canal overlooking acres of sand and sagebrush, but that's not what he sees in his mind's eye.

Mr. GLENN McGINNIS (CEO, Arizona Clean Fuels): What I see, 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: McGinnis is CEO of Arizona Clean Fuels. He has years of experience running oil refineries, but now he's trying to build one in the middle of the desert just east of Yuma and north of the Mexican border. The location is important. Because the air is relatively clean here, the company was able to get a rare air quality permit to operate the plant. Oil economist Phil Verleger.

Mr. PHIL VERLEGER (Oil Economist): That is a real big deal, because it means that he's managed to satisfy the Arizona air quality regulators, that they have a program that will not lead to any degradation of the air.

ROBBINS: Well, at least not enough to violate air quality standards. Hence the name Arizona Clean Fuels.

Mr. McGINNIS: Our permitted emissions are less than a thousand tons a year. And it sounds like a big number, and it is, but it's less than half of the best refinery in the world today on a per-barrel basis.

ROBBINS: The company originally tried to build near Phoenix, but pollution there already exceeded air quality standards, so no permit. Pollution is one reason it's been so tough to build new oil refineries in the US. Another is community opposition. No one wants an oil refinery in their back yard, no one except a lot of people here in the rural Wellton-Mohawk Valley. Wellton Mayor John Nussbaumer is looking forward to 3,000 construction jobs, 600 permanent jobs and a lot of revenue.

Mayor JOHN NUSSBAUMER (Wellton-Mohawk Valley): And it's all on the tax rolls. There's no tax incentives being involved, so all of the schools are looking forward to some much needed revenue, and we local taxpayers are expecting a decrease in some of our taxes as a result of it.

ROBBINS: Still, even Nussbaumer admits it's not the ideal industry for the valley.

Mayor NUSSBAUMER: I'd much rather see this refinery in Chicago, but we have to be realistic about it. They need the refinery located in an area so that they can run a pipeline out of Mexico.

ROBBINS: The refinery would take crude through a 200-mile pipeline from Mexico and turn it into 150,000 barrels a day of gasoline, heating oil and jet fuel. Right now, Arizona gets its fuel via pipeline from Southern California and Texas. But there's another huge hurdle the project has to overcome: money. The company needs to raise almost $3 billion. Oil economist Phil Verleger says the fact that the West is short of gasoline bodes well for fund raising.

Mr. VERLEGER: I think I give it probably a 50-50 chance. If the US economy keeps going the way it's going and if interest rates remain low, I can see a very good possibility of it happening.

ROBBINS: Larry Goldstein of the non-profit Petroleum Industry Research Foundation sets different odds.

Mr. LARRY GOLDSTEIN (Petroleum Industry Research Foundation): Two-to-one against it.

ROBBINS: He says there's not much oil money left to invest. That's because intense competition and slim profit margins have forced a lot of small refiners out of business, and the remaining larger refiners have a lot of debt. So Goldstein says it'll take non-traditional players.

Mr. GOLDSTEIN: It's going to take entrepreneurial money. It's going to take Wall Street money. And it's going to take some hard sell.

ROBBINS: The next step: an environmental impact statement, then a zoning change, a State Department permit for the pipeline from Mexico, and an agreement with the Mexicans. If all goes well, the refinery would be running in 2009. Ted Robbins, NPR News.

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