Refineries produce $1.2 billion for state

Monday, May 23rd 2005, 5:10 pm

By: News On 6

TULSA, Okla. (AP) -- Oklahoma's five oil refineries have a $1.21 billion economic impact on the state and provide more than 2,900 jobs, but they also face a number of environmental and production challenges, according to a first-time study scheduled for release Tuesday.

Refineries provide a crucial step between wells producing crude oil and the gasoline pump, said Oklahoma Secretary of Energy David Fleischaker.

"Our economic well-being is fundamentally tied to the refining of hydrocarbons," Fleischaker said. "It is important to understand our refining sector, the role the refinery plays in our economy and the challenges refiners face."

Oklahoma refineries employ an estimated 2,921 full-time workers and indirectly lead to another 2,202 jobs, according to the three-volume report funded by the Energy Secretary, the Oklahoma Marginal Well Commission, and the Interstate Oil and Gas Compact Commission.

The five refineries -- ConocoPhillips in Ponca City, Valero Energy in Ardmore, Gary Williams' in Wynnewood, plus Sunoco and Sinclair in Tulsa -- are profitable today after 20 years of low margins, unreliable revenues and high costs, according to the study.

Bobby Wegener, spokesman for Fleischaker, said the report, which will be released Tuesday afternoon at the State Capitol, does not make specific recommendations on how to preserve or add to the state's refining ability.

"It is an educational piece," Wegener said. "Industry leaders and policymakers are going to need this information in making decisions about our refineries."

In trying to determine refineries' futures, there are three major challenges, according to the report.

First, refineries will spend $350 million to $760 million to meet specifications for producing diesel with a substantially reduced sulfur content.

Second, Oklahoma refineries must make technological changes to process crude oil that is becoming heavier and more "sour." A heavier crude costs more to process. A "sour" crude contains more sulphur that must be removed.

Third, the state's refineries face the ongoing and expensive undertaking of meeting regulations for air quality, ground contamination and water quality, the study noted.

"Oklahoma refiners face additional challenges as the price of gasoline rises," Fleischaker said. "Many believe refinery costs contribute significantly to high costs at the pump when, actually, the high price of oil is the primary cause of today's gasoline prices."

Fifty-four percent of the cost of a gallon of gasoline comes from the price of oil, 21 percent from taxes, 6 percent from distribution and 19 percent from refining, according to March data from the U.S. Energy Information Administration.

Although refineries are profiting, declining local crude oil supply, a likely low rate of return and environmental risks make development of another refinery unlikely, according to the report.

The study comes at a time when inadequate refinery capacity has been blamed for higher gasoline prices. Saudi Arabian officials have said a lack of U.S. refining capacity and speculation by investment funds have helped drive oil prices to record levels.

Analysts also blame an inadequate supply of U.S. oil refineries to quench the country's ever-intensifying thirst for gasoline and heating oil, a problem that's exacerbated whenever a plant curtails production for routine maintenance or other unforeseen circumstances.

Although U.S. refineries have been expanded in the past three decades, no new refineries have been built. Recently, President Bush directed federal agencies to work with communities on the possibility of building new ones on closed military bases.