Refineries Stagger Into Spring

Now that the crocuses are out in Washington, D.C., it's time to look for signs of a spring run-up in gasoline prices. The AAA motor club now has the average price of gasoline at about $3.17 per gallon, up from $2.97 per gallon a month ago, but the next few weeks—when prices typically pick up along with driving demand—could be crucial.

One statistic that does not bode well for motorists is that over the past eight weeks, the nation's oil refineries have been working less efficiently than they have, on average, over any of the past 10 years. I averaged the weekly figures that the U.S. Energy Information Administration compiles on refinery capacity use rates:

1997: 95.1 percent
1998: 95.3 percent
1999: 92.9 percent
2000: 92.3 percent
2001: 92.2 percent
2002: 89.9 percent
2003: 91.8 percent
2004: 92.3 percent
2005: 90.3 percent
2006: 89.4 percent
2007: 88.8 percent
2008 (first eight weeks): 85.9 percent

Note that the past eight weeks' average was less than even the average in 2005, when, in the wake of Hurricanes Katrina and Rita, the weekly refinery capacity utilization rate fell to its lowest point in the past decade, 69.8 percent.

The refining industry blames environmental regulations, in part, for reducing the efficiency of its operations—especially the rules, phased in beginning in 2006, that required a 97 percent reduction in the sulfur content of highway diesel fuel. To meet the ultralow-sulfur diesel rules, the refiners typically treat the fuel with hydrogen, and the "hydrotreating" complex within the refinery requires much more regular maintenance than the portions of the refinery that churn out gasoline.

The rules "have really taken the center of reliability away from our conversion units [catalytic crackers], which always were built to be very reliable, and have moved that center of reliability over to the units that remove sulfur," says Lynn Westfall, vice president and chief economist for Tesoro, the second-largest refiner in the West. "Those units were never really built to be that reliable because they were never historically that important to us. A 'cat' cracker, which is the main unit that makes gasoline, can go five years without major maintenance. But a desulfurization unit: 18 months or maybe 12 months."

The oil industry fought the ultralow-sulfur diesel regulations for many years, but they were approved at the end of the Clinton administration and finalized by the Bush administration because of the compelling health evidence. The Environmental Protection Agency has estimated the rules will prevent 20,000 premature deaths per year. The rules "are absolutely vital for protecting public health," says Frank O'Donnell, president of Clean Air Watch. Also, trucks, buses, and other vehicles with diesel engines have been switching over to modern pollution control equipment that will not work with the old high-sulfur fuel.

At the time the rules were being weighed in 2001, the Energy Information Administration noted there were new technologies on the horizon that remove sulfur from diesel more efficiently. Where are these technologies when we need them?

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