US refiners say climate laws are biggest challenge

HOUSTON, Oct 29 (Reuters) - U.S. refiners face a bigger problem beyond the economic downturn in the form of federal legislative proposals to prevent climate change that will boost costs and possibly shutter refineries, industry executives said on Thursday.

"Economic recovery is not going to make us whole again," said Tom Botts, executive vice president of global manufacturing, downstream for Royal Dutch Shell Plc (RDSa.L).

An estimated 750,000 barrels in U.S. refining capacity has been turned off by the current economic downturn, executives said during speeches at a Houston refining conference.

"The economy is not the only issue we have to contend with," Botts added. "In fact, it's not biggest issue we have to contend with."

Legislation pending before Congress to reduce carbon emissions could lead to one in six U.S. refineries closing, said Gary Heminger, president of Marathon Oil Corp's (MRO.N) refining subsidiary.

"We believe there could be the potential closure of 1.5 million barrels per day (in refining capacity)," Heminger said.

Those cuts are expected in the U.S. Northeast, Midwest and Gulf Coast regions, he said.

Proposed cap-and-trade programs in bills under consideration by Congress would give few allowances for the U.S. oil and natural gas industries, the executives said, at the same time making those companies responsible for emissions from automobiles.

"Carbon legislation is coming sooner rather than later," Botts said. "If they hand out allowances, refiners will be somewhere near the end of the line. Any cost that's passed on to the consumer will limit demand."

A part of a cap-and-trade system gives companies allowances, essentially the amount of carbon they can generate. Beyond those allowances, companies would have to buy credits from other companies not using all of their allowances.

Industry analysts have predicted since early this year that environmental proposals to limit use of fuels made from crude oil could cause up to 2 million barrels of crude capacity to shut permanently. (Reporting by Erwin Seba; Editing by Christian Wiessner)