Oklahoma town pushed for new refinery

Saturday, May 28th 2005, 11:27 am

By: News On 6

CUSHING, Okla. (AP) _ On the edge of town, white pipe bent to resemble the lines running beneath the ground carry this small town's name and promote its claim as the ``pipeline crossroads of the world.''

Those pipelines, carrying crude and finished fuels, along with 30 million barrels of petroleum storage capacity and rising refinery margins, have drawn a renewed interest in producing gasoline, diesel and plastics in Cushing. Twenty-three years after Hudson Refining Co. closed its small facility here, and almost 30 years after a new refinery opened in the United States, concerns about capacity and national security have suddenly made this northern Oklahoma town attractive again.

Tulsa oil executive Dewey Bartlett Jr. started pushing the idea after the state's energy secretary released a report last week on the health of Oklahoma's five refineries. Bartlett, chairman of the Oklahoma Independent Petroleum Association, said he planned to advocate refinery development when he meets next month with Sen. Jim Inhofe, R-Okla.

``We're right in the middle of the country,'' Bartlett said. ``We're at the crossroads. Why not do whatever we can to put a refinery there in Cushing?''

Why not, indeed, said Forrest Fuqua. Fuqua, who worked at the Hudson refinery for nearly 46 years and was its last manager, said improvements in technology, better profit margins and the insular safety of a small town hundreds of miles from a coast make a 100,000 barrel-a-day or larger plant reasonable in Cushing.

``I think from a logistics standpoint it's logical,'' Fuqua said. ``There's crude oil available here. Domestic or foreign, we could refine it.''

Turning that logic into a reality would cost billions, take years and swim against a quarter-century of declining domestic refinery numbers. However, considering that the refinery stands at the center of the nation's economy -- taking crude from the wellhead and turning it into usable products -- it makes sense to consider the possibilities, said Oklahoma Energy Secretary David Fleischaker.

``We are living in the middle of a hydrocarbon economy,'' he said. ``We need to deal with that.''

While the United States relies on hydrocarbons, from fueling cars to heating homes, it possesses less ability to produce the finished product.

Since 1981, the number of refineries in the United States has dropped from 301 to 149. Expansion and upgrades during that time held the loss in production to only about 10 percent from its peak of 18.6 million barrels a day. Simultaneously, gasoline consumption in the U.S. has jumped 45 percent.

Saudi Arabian leaders have cautioned that more crude could be pumped out of the OPEC nations in an attempt to bring down current oil prices, but the United States doesn't have the refining capacity to handle the influx. In response, President Bush recommended developing new refineries on closed military bases.

For years the industry has chosen to expand existing refineries, rather than face the economic and environmental challenges of building new ones, said Doug MacIntyre of the U.S. Energy Information Administration.

Refineries spent decades where gross profits barely met operational costs, he said. Although that changed several years ago, investors would need years in which profits held and some certainty on how long those profits would survive.

``That's a lot of uncertainty,'' MacIntyre said. ``There is only the one group in Arizona talking about building a new refinery. That's the only one I am aware of.''

Arizona Clean Fuels Yuma recently received the air permits for a planned 150,000 barrel a day refinery. The group proposes spending $2.5 billion to build the plant about 100 miles southwest of Phoenix. Scheduled to open in 2009, the refinery would be the first new one to open in the United States since 1976.

Tighter environmental regulations and liability concerns complicate the process of building a new refinery. Nationally, refiners spent more than $6 billion cleaning the air, water and land in 2003 alone. Currently, they wrestle with the equipment needed to meet ultra low sulfur diesel standards taking effect in 2007. Oklahoma's five refineries planned to spend at least $350 million and up to $760 million just to meet the new regulations, Fleischaker said.

Liability represents another financial hurdle for any developer, Bartlett said. Whenever a refinery closes, refiners face fines for activities that may have happened decades earlier, he said. Those fines also find there way back to companies that may not have owned the operation for decades, either, Bartlett said.

``We need significant changes to the EPA and how the federal government applies liability,'' Bartlett said. ``We need to create some sort of 'sunset' for liability on these plants.''

Those are all issues that would take federal action. Anyone considering a refinery would need federal help to make that a reality, Bartlett said.

``Can I do this alone? No,'' Bartlett said. ``I do know a few people and we'll talk to them about this idea.

``Hopefully they will jump to it.''

Ultimately, a Cushing refinery would benefit the state and nation, proponents said. It would help ensure inexpensive fuel in Oklahoma, generate tax revenues and provide jobs, Bartlett said. There's also a national security advantage to locating in the town of 8,400 about 50 miles west of Tulsa, Okla., Fuqua said.

``We're not in a big city,'' he said. ``When you boil it all down, it might work really nice from the standpoint of security and availability of crude.

``Overall, this is a big possibility for the nation itself.''