Reducing POL Imports without Changing Consumer Culture

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Advance Summary (partial)

Author:  Tim Campbell

Framing the Problem

The United States is faced with the challenge of meeting two different great challenges at the same time.

  • Eliminating the financial and geo-political consequences of massive imports of petroleum to its economy
  • Minimizing the environmental consequences of lifestyle

Some have argued that imports should be encouraged and fuel prices driven up, as any effort to reduce fuel prices and/or the consequences of America's present dependence on petroleum, only slows responses to higher prices that will improve America's environmental stance.  This alternative policy and its consequences will be examined in a separate note. Separate papers will also examine 1.  approaches to reducing United States production of atmospheric carbon, nitrogen products, and other pollutants and time phased costs and benefits of alternative approaches and 2.  approaches to making the United States truly energy independent and a petroleum exporter again.

In performing energy and environmental analyses, the time frame of action is a critical consideration. In different time frames different technology is available, and different infrastructure can be prepared. And, with economies in distress as with patients in an emergency room, homeostasis must be established and maintained, so intervention can be effective. Thus the time phased consequences.

This paper examines steps that can be taken in a time period of ten years or less from the present to reduce oil imports without changing consumer culture. The constraint of minimizing the environmental footprint is assumed in all proposed alternatives, and the trade, economic, and environmental consequences of alternative policies are examined in a time phased manner.


The United States imports ______ barrels of crude oil per day and ______ barrels of refined petroleum products per day. This accounts for approximately ____ per cent of petroleum used. In addition the United States is a net importer of natural gas, a topic that will be discussed separately. Imports of petroleum result represent a trade flow of ­­­­­­______ billions of dollars per day (_______ per year) at the present rates and prices and is projected to increase to ____ by _____, barring implementation of significant policy changes.

Proposals to reduce importation of POL and natural gas have focused on:

  • increased domestic production of petroleum ("more drilling") (An analytic note on increased production is soon forthcoming.)
  • changing the patterns of energy use, particularly for cars buses and trucks, and implementing "green" sources of energy capture and concentration. (Analytic notes on these approaches are forthcoming at a later date.)

As a forthcoming note details, increased domestic production of petroleum liquids can only have the following effects over 5 years and 10 years, under the most generous assumptions. ____________________________. This leaves a growing import problem.

Similarly, proposed changes in gasoline and diesel fuel use in automobiles, buses, and trucks, other than the extension of fuel efficiency and emissions regulations to all new trucks, buses, and SUV's, require new technology, new infrastructure, and/or cultural shifts to make major changes. So, projected effects from these approaches over 5 and 10 year periods are _________. and even in 20 years, President Bush's total package of new production and end use savings only total to ______. (Footnote please)


There is a THIRD area in which it is possible to reduce importation of POL and NG which appears to have been largely overlooked. Interestingly, implementation of proposals resulting from this approach could also result in significant improvements in air quality. This approach focuses (1) on the proportion of crude petroeum that is refined into fuel, and how it might be increased, and (2) on specific uses of diesel fuel or fuel oil or bottoms where substitution of other energy sources is practical with existing technology and no change in consumer culture.
The percentage of a barrel of crude oil that is refined into quality fuels in the US today is _____. Using 20 year old technology this percentage could be increased to ______. While the detailed analysis will no doubt show, that achieving this full percentage is not desirable, were it to be done, updating of refining technology alone could reduce US Oil imports, by _____ barrels per day or ___ per cent. Assuming that the regulatory inhibitions are removed and incentives provided as discussed below, this could be accomplished in 6 to 7 years.
While many refineries in the United States do have fluid catalytic cracking capacity, the need to maximize yield per barrel by using pre-removal of sulfur and hydro-cracker technology is in short supply. The technology is well developed and has been deployed successfully for more than 30 years. Ironically, the technology is available through two American firms, UOP and Unocal, who hold the patents on it.
In the late 1980's the last new world scale 120,000 barrel per day refinery proposed for development was stopped by the Exxon Valdez accident. However, the planning and technology were prepared for construction bids up to that point. This type of new refinery can be developed throughout the United States if permitted by local authorities.
The hydro-cracker proposed for Alaskan North Slope crude oil (API 27 degrees) would yield 98.1% transportation and light yields (propane, butane, gasoline - unleaded premium and regular -, diesel and jet fuel. The balance of each barrel would be used as refinery fuel.

By converting all United States refining capacity to optimize yield per barrel of light products, as was done in the North Slope refinery design, imports could be reduced from 17 million barrels per day to between 7 and 10 Million Barrels per day while still producing the same amounts of transportation fuels and "light products". What is being done here is converting "bottoms," the low value very heavy products including asphalt, paraffin, petroleum coke, and residual heavy oils, into high quality light transportation fuels. (The paper will examine how bottoms are now being used to see what substitutions can be made. Notes on specific substitutions may appear while the work is in progress. )

This improved processing would result in cleaner refineries, fully compliant with current federal standards, and cleaner fuel. The fuel products would have dramatically less sulfur content. The uniform standard formulation would also facilitate reduction of Nitrogen pollution as well.

As a result of improved refining, economic oil use would be largely restricted to use as feedstock for petrochemical processing (for example plastics) and for transport, and every bit of a barrel would be used, with a resulting conservation of 7 to 10 million barrels per day. In addition, the increased effectiveness of refinery production would release enough capacity in all markets to permit United States distributors and refiners to move all refining onshore with a resulting additional reduction of $_________ per day in trade outflow. (The paper will examine alternative economic and political approaches and their consequences for dealing with the commercial implicationss of displacing the bottoms markets and reducing overall refinery demand.)

tim:  please walk me through this last piece of arithmetic -- CSS

A decreased demand on international sources in the range of 7 Million Barrels per day would mitigate world demand and prices and in fact extend productive capacity of all oil fields currently stressed by world wide crude oil demands.  Such a change in all world refining would also create better long term supply and certainly lower costs of production.

The advent of new refining strategies will allow for consideration of the flexibilities of modern refinery designs.  A modern hydrocracker type refinery can allow for large shifts in products produced, for example the facility can easily be shifted to meet demand differences in either gasoline by type, diesel or jet fuel. The new refinery can be shifted for maximum demand groups as the situations arise.  This allows for production of the higher demanded fuels on a month to month basis.  The technology available today can make the formulations required for better environmental based fuels with modest additive requirements.

The modern refinery itself can be fueled by the residual hydrocarbons left after maximum transportation fuels production.  Converting a barrel of oil to 98.1% transportation fuels uses only the least valuable products of a barrel as fuel sourcing for the plants.

For the United States to embark on a large scale building of new refineries and retrofitting its refining sector would involve decisive action in many areas.

First, the United States would need to insure the refining sector would have stable, common formulation standards so that only one formulation would fit all markets and the standard would change at long enough intervals (5 to 8 years) so that the investment in production capability to meet that formulation can be recovered. This has several benefits.
a.  At present different formulations are used in different markets making it impossible to shift to non-local supply in the event of a capacity crunch. With common formulations all fuels could be transported nation wide by trucks or pipelines as no variances or discriminations in fuel quality would restrict all fuels from geographical disqualification. (This would also have the advantage of permitting product rather than crude oil to be transported, a significant environmental benefit as will be elaborated in a forthcoming note.) (The paper will also examine changes in transportation systems enabled by a standard formulation and examine their environmental as well as economic costs and benefits and provide maps of existing and alternative)
b.  Despite arguments that not all markets require the highest protective formulations the benefit globally and nationally for higher standards of emissions would be a significant environmental benefit.
c.  Since specified product formulations have changed as often as        , it has been hard for refiners to recover the investment in modifications of facilities to produce a formulation and thus much harder to justify investment to optimize production of a specific formulation.  With a stable, national standard formulation, the investment needed would be more assured of resulting recovery by the refiners over a period of time; in consequence they would be more willing to invest.
Second, there would have to be serious change in permitting processes to permit siting of new refineries and major reconstruction or removal of older refineries to allow the necessary upgrades in de-sulfurization, refining technology, and pollution control to be be approved.
a.  The siting problem for new refineries (as well as nuclear power plants, conventional power plants, nuclear waste dumps, . . . ) is caught in a conundrum. Nationally we know that we need these facilities, but locally every neighborhood says Not In My Back Yard. In addition, there are groups that say B A N A N A. An unintended consequence of the environmental legislation of the 60's and 70's was to give such a strong procedural consideration to all possibly interested parties as to permit NIMBY's and BANANA's to completely block all new constructions of petroleum and natural gas refineries and nuclear plants nearly 30 years. Permitting processes have dragged on for as long as fifteen years. No company can rationally tie up its financial assets or sink management and overhead cost into a permitting process that takes that long. So, companies have chosen to build refineries outside the United States, but not inside. (The study will make explicit the implicit policy inherent in the present permitting protocols, and examine alternative policies and how they might be expressed in law, regulation, and procedure.)
b.  The permitting problem for building and operating specific refinery designs and improvements is in itself tortuous and capable of being stretched indefinitely. As for siting above, this process and especially its length and uncertainty has discouraged much updating, and encouraged a tendency to make the minimal modification rather than to make technological improvements. (The study will examine this protocol, community and corporate behaviours, and possible alternative policies and protocols and their consequences.)
c.  Some existing refineries have become SINCE THEIR CONSTRUCTION so encroached by housing as to make their continued operation in that location without amelioration of encroachment, a safety concern.  (The study will examine this problem and alternative approaches to addressing it.)
Third, it has been claimed that one reason for the continued opposition to siting and permitting is lack of confidence by some community elements in the enforceability of compliance to environmental restrictions and standards by the refinery or other industrial activity seeking permits. (The study will examine this hypothesis and propose possible approaches to addressing what is found as part of its treatment of a and b above.)
Fourth, other incentives of various forms may be desirable or necessary to ensure rapid conversion of petroleum refining, distribution, and consumption to a policy of environmental compliance, operational safety, and maximal efficiency in utilizing each barrel of crude. These incentives may be necessary for the refiners themselves, for the assurance of third parties like local environmental groups, or for legislators to know that the laws they pass will produce the desired results. (The study will examine possible incentives, and their consequences.)

The effect of changing the quantitative and qualitative yields of refining in the United States would have enormous financial gains for the United States economy and a stability of supply and a lowering of costs.

On a worldwide basis, the similar change would substantially change the costs of crude oil and benefit the expanding demands of countries now emerging as demand components of higher crude oil prices. Specifically India and China as well as Russia could benefit from a higher yield in their refining sectors and the development of an international standard for formulations of fuels will result in a better environmental consequence as well. Due to the nature of much of the world supply of crude oil evolving from lower quality crude oil produced within China and even Saudi Arabia, Iraq and Iran, the better yield of products per barrel will allow lower demand on available crude oil stocks and a lower cost per barrel. The report will not examine this in detail, but would hope that the Energy Information Administration would conduct a comparative analysis of international oil prices under alternative policy assumptions similar to those in this analysis.

The Diogenes Report will provide the technical and economic analyses to support rational discussion of the alternative policy choices, including the following -

  • A table of all refining units in the United States and their capacities will be outlined.
  • A projection of capital costs per barrel shall be shown and the fiscal benefits put forward.  A table of possible new refineries and updates to existing refineries will be outlined in support of this analysis.
  • Using existing formulations required in the United States and specific demand for crude oil for the United States, Diogenes will project costs and savings of alternative policies over time, as well as other benefits and side effects. Maps showing the current segmentation of the US Market will be provided.
  • Maps of all present and alternative transportation routes by pipeline for products and crude oil supplies will be provided for United States facilities.
  • A table of historical and projected sources of imported crude oil supply by volume with notes about crude quality.
  • A table of historical and projected domestic crude oil supply by volume with notes about crude quality.
  • A table of present uses of a barrel of crude oil and projected uses of a barrel of crude oil under different assumptions.
  • A table(s) of environmental consequences of different assumptions.
  • A table of "encroached" refineries and of alternative solutions and costs for addressing the safety risk.
  • A table of historical imports of refined products by PAD and type of product.


Alternative Considerations

NG  issues, home heating, railways

A major shift in production of transportation fuels will result in the loss of heating oil production.  However, consideration must be given to replacing the heating oil component of the hydrocarbon stream to fueling home heating with natural gas OR ELECTRICITY. The natural gas supply would cause a relocation of power plant sources of fuel from natural gas to coal, or nuclear sources.

The Power Plant and Fuel Use Act of 1978 caused "new" oil fired plants producing electricity to convert to natural gas supply. It was only the home heating market which took on the remaining hydrocarbons displaced by the Act. However, the environmental concerns are mitigated by natural gas in power plant supply. With emissions from stacks now better controlled and even more so in the future designs, power plants can be adjusted to burn the long term supply of coal produced in the United States and for which the supply issue is not as critical as the crude oil and natural gas supply.

The use of natural gas by power plants can be shifted to the home heating oil market and with a better environmental effect. The delivery costs of natural gas to homes will be far more efficient than trucking to homes of residual home heating oils. These oils if converted to transportation fuels will have a beneficial effect on the availability and long term supply of that market.

Consideration of the replacement of the power plant supply of natural gas consumed therein will show the advantages of more natural gas availability to the home market and for far less consumption. The costs of coal as opposed to the shifting and higher prices of oils for home heating should be mitigated by the lessened demand on natural gas once the power plants are not consuming the gas. The economic benefit to the individual homeowner would be obvious. The lowered costs of coal or nuclear to the power plants would be an obvious cost improvement in the production and costs of electricity, notwithstanding the long term and secure aspects of such fuel source shifts.

Diogenes can do the necessary factual charting of these shifts of uses and the economic impacts of fuel replacements and supply.

The end result of such policy shifts and technology development results in a lowered demand for crude oil in a very short period of time, certainly within a decade. The savings of the long term are even more considerable. The shift in electrical power production and development of United States production of other fossil fuel groups of abundant supply also have major economic impacts and lower costs.

While it is true that higher crude oil prices offer other fuel types than fossil fuels to evolve, it is hard to imagine that that goal is more important than shifting to a better yield of existing and known hydrocarbons in abundant supply.  In addition, the United States can develop its shale oil and oil sands in North America to a better yield of transportation fuels if the policy decisions are made to use the newer refining technology and shift power plants away from natural gas.