Should U.S. oil companies spend their money to build more refineries in this country to produce more gasoline and heating fuel here?
Probably not, the General Accounting Office said yesterday in a report to Congress on the future of domestic refining operations.
At a time when both imported and domestic crude oil are in short supply, the watchdog agency said, investments by the oil industry should be directed toward increasing domestic crude oil production rather than toward building more refineries. Refineries are plants that turn crude oil into gasoline and other petroleum products.
The agency said it would be better for U.S. firms to buy refined products from Caribbean and European refineries than to invest in expensive new refining plants that would not be able to operate at full capacity because of a shortage of crude oil.
With this conclusion, GAO effectively sided with the major oil companies in a continuing dispute between them and smaller, independent refiners about future U.S. refining capacity.
The major oil firms, which operate worldwide, generally own refineries in the United States and regions elsewhere, including the Caribbean, South America and Europe. They have urged that the United States would be wiser to purchase some refined products from their overseas refineries than to invest in new domestic capacity.
Smaller, domestic refiners, on the other hand, want to built more refineries at home. But they have faced serious local opposition around the sites of proposed plants and from from what they say is a strong policy bias within the federal government against new domestic refineries.
The GAO report said a bias against new refineries makes sense because "free-world oversupply of refining capacities will persist through the few remaining years of increasing world crude oil productions and thereafter."
If U.S. firms do invest in new refining capacity, the report said, the money would best be spent to build plants that can refine crude oil with a high sulfur content -- known in the trade as "sour" crude. Many U.S. plants now operating can handle only low--surfur, or "sweet" crude, but the world supply of "sweet" is depleting faster than the supply of "sour," according to the report.
The GAO'S conclusions met, predictably, with a harsh reaction from a local independent refiner, Jack Morris, president of the Baltimorebased Crown Central Petroleum Co.
"We're already importing too much crude oil for our own good," Morris said. It's a disaster for the balance of payments. So now the government says we should import more refined products, too. It can only compound the balance-of-payments problem."
Morris said that increasing U.S. reliance on foreign refineries would permit the major oil companies to circumvent U.S. price controls and earn a higher net profit on each barrel of refined product.
"I don't blame [the major oil companies], in a way," Morris said. "If I owned a bunch of refineries in Europe, I'd want the U.S. market to buy more gasoline there.I could sell more product and change a higher price."
The GAO report said basic supply-and-demand principles dictate against expansion of U.S. refining capacity. With U.S. and foreign refiners already operating at less than capacity, the report said, there is no need now for more capacity.