June 4, 2007 / 4:17 PM / 10 years ago

U.S. refiners cut expansion plans: EIA

3 Min Read

<p>Administrator of Energy Information Administration Guy Caruso speaks during an interview in Washington, June 4, 2007.Larry Downing</p>

WASHINGTON (Reuters) - Energy companies have cut U.S. refinery growth plans by one-third since last year due to uncertainty over future gasoline demand and higher costs for raw materials and labor, the head of the U.S. Energy Information Administration (EIA) said on Monday.

Oil company expansion plans out to 2012 have been cut to 1 million barrels per day (bpd) of refining capacity from the 1.5 million bpd on the books a year ago, EIA head Guy Caruso said at the Reuters Global Energy Summit.

Talk of a boom in U.S. biofuels production and soaring steel and labor costs have spurred refiners to rethink their plans, Caruso said.

"It is definitely giving some of the refiners reason for pausing and thinking about these investments," he said. "They're saying, 'We maybe have to think twice about the pace of expansion, if indeed we're not sure the demand for the refined products is going to be there.'"

Refiners who have considered building new facilities in the United States and the Middle East have seen cost projections double over the last two to three years to about $20,000 per barrel of new capacity, Caruso said.

U.S. refiners say they are worried that they could spend billions of dollars to build new plants only to find that demand for their products has diminished.

The Bush administration has called for the industry to boost capacity but also wants to reduce U.S. gasoline use by 20 percent over 10 years. That has given refiners "conflicting signals," said Bill Holbrook, a spokesman for the National Petrochemical and Refiners Association, which lobbies for big U.S. refiners like Valero Energy Corp. (VLO.N)

"A company could reinvest billions of dollars to expand capacity only to have that investment stranded ten years later," Holbrook said in a written statement.

U.S. gasoline prices have topped $3 a gallon three years in a row and hit a new record in May, in part because of tight refining capacity and rising demand.

U.S. refiners have not built new facilities since the late 1970s, but instead have added about 200,000 bpd a year to existing refineries in an attempt to keep up with soaring demand for gasoline, jet fuel and other refined products.

U.S. refineries have capacity to process about 17.5 million bpd of crude oil, but the United States consumes about 21 million bpd of oil, meaning imports must make up the shortfall.

For more on the Reuters Global Energy Summit, see ID:nSP307799]

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