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Gulf Refinery Expansion May Not Cut Gas Prices
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Gulf Refinery Expansion May Not Cut Gas Prices



You're listening to ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel. Here's a case where the law of supply and demand doesn't play out in quite the way you might expect. The United States is making gasoline like crazy, and it's been adding capacity to make more. For instance, Shell and Saudi Arabia's national oil company have more than doubled the capacity of a refinery in Port Arthur, Texas, making it the largest in the country. But all that production is not driving gas prices down at the pump. NPR's Jeff Brady explains why.

JEFF BRADY, BYLINE: The refinery business has been going through a tough period in recent years. Americans are buying less gas and other petroleum products - about 10 percent less than in 2005, according to the Department of Energy. Across the country, refineries are shutting down because they're no longer profitable. It's surprising then to hear someone in the oil business, like Bob Pease, get excited about a refinery expansion.

BOB PEASE: So, this is the largest manufacturing project every done in the state of Texas. So, you know Texas does things big. This is the biggest ever.

BRADY: Pease is president and CEO of Motiva Enterprises, that's a 50-50 partnership between Shell and Saudi Aramco. The Port Arthur refinery expansion really is a big project. It took five years and $10 billion to complete. At peak construction, there were more than 14,000 people working on the project. Now, Pease says the refinery can process 600,000 barrels of oil a day.

PEASE: Besides just capacity increases, the main thing we're getting out of this is considerable flexibility.

BRADY: Pease says the refinery can handle all kinds of oil, including the heavy crude that Saudi Arabia produces. At the other end of the refinery there's also flexibility in where the gasoline is sold. It can end up in U.S. gas tanks or it can be shipped from the Gulf Coast to wherever in the world it's most profitable to sell. That ability to export is bad news for U.S. drivers worried about gas prices. Neal Walters is with the consulting firm A.T. Kearney

NEAL WALTERS: Don't expect it to have any significant impact on the prices paid for gasoline at the pumps.

BRADY: Walters says in recent years the U.S. has become a net exporter of finished petroleum products, like gas and diesel.

WALTERS: So, in effect, what this does is it increases the capacity available to export and doesn't have, in the short term, any significant impact on the supply going into the United States.

BRADY: And it continues a trend of smaller, regional refineries shutting down in favor of production from larger, more efficient refineries like those on the Gulf Coast. While this expansion may not reduce gasoline prices, another development is. Oil prices have fallen amid bad economic news. World oil prices are down nearly $30 a barrel since mid-March. And that also has sent gasoline prices down in recent weeks. Jeff Brady, NPR News.

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