Big emission cuts may reduce U.S. refining capacity

WASHINGTON (Reuters) - U.S. oil companies may scale back expanding their refineries, or shut some facilities altogether, if they face high costs to meet future mandatory cuts in greenhouse gas emissions, an industry official warned on Monday.

Several bills in the U.S. Congress would require specific reductions in emissions linked to global warming that are spewed by oil refineries, power plants, other industrial facilities and passenger cars and trucks.

Speaking at the Reuters Environment Summit, American Petroleum Institute Chief Economist John Felmy said oil companies would have to balance boosting their refining capacity to make more gasoline and other petroleum stocks with spending money on upgrades at their facilities and buying government permits to spew emissions.

"If you have spending that goes (to cut emissions), it's spending you can't put on capital expenditures" to increase refining capacity, Felmy said.

Felmy said the API prefers that the U.S. government allow companies to voluntarily take steps to reduce their emissions, which is the Bush administration's current policy, instead of setting specific targets for mandatory cuts.

There is not enough U.S. refining capacity to produce the almost 21 million barrels of gasoline, diesel fuel, heating oil and other products American consumers and businesses use daily. Imports are needed to close the gap between supply and demand.

A new U.S. refinery has not been built from the ground up since the 1970s, though oil companies have increased output and have announced plans to add more capacity at existing facilities in the years ahead.

While oil companies have racked up tens of billions of dollars in record profits over the last year, Felmy said if they are hit with new expenditures that "severely disadvantages" their earnings companies may have to reconsider their refinery expansion projects.

"If you impose much higher costs on say refineries to be able to process products ... then you may either see: 'We just simply don't do it here or we do it somewhere else,'" Felmy said.

However, Eileen Claussen, President of the Pew Center for Climate Change, said the costs oil companies would incur to reduce emissions would not be so drastic to curb refinery expansions or shut facilities.

"I would never say there was not costs here, because nothing is free. But big costs, I don't think so," Claussen told the Reuters summit.

She pointed out that three big oil companies, BP, Shell and ConocoPhillips, that are API members are also members of the U.S. Climate Action Partnership (CAP), which the Pew Center helped found and calls on Congress to impose mandatory emissions reductions in the United States.

"It would be bizarre to think the oil companies that are part of U.S. CAP are not thinking about the costs when they signed on to those targets, and they seem to think they were perfectly manageable," Claussen said.