Source: American Petroleum Institute, Basic Petroleum Data Book, Vo. V, No. 1 (Jan. 1985) (compiled from various sources). Senator NICKLES. Thank you very much for your comments. STATEMENT OF JOHN R. HALL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, ASHLAND OIL, INC., ON BEHALF OF THE INDEPENDENT REFINERS COALITION Mr. HALL. My name is John Hall. I'm the chairman and chief executive officer of Ashland Oil. Today I'm representing my own company and the other members of the Independent Refiners Coalition. A list of the names of the members of our coalition is attached to my testimony. Mr. Chairman, as we have already discussed, since 1981, 140 refineries have been closed, resulting in a loss of 20,000 jobs, representing about 4 million barrels a day of capacity, or about 25 percent of the total. Now we'll acknowledge that some of these refineries were inefficient refineries that were children of the entitlements program and should have been closed. However, 39 refineries with capacities in excess of 50,000 barrels a day have been closed and as a result the current operating capacity in the United States, according to our figures, is 14 million barrels a day. We think it's important in analyzing capacity figures to differentiate between operating and operable capacity. Mr. Boggs has testified this morning that close to 16 million barrels a day is the operable capacity. But that includes plants that have been mothballed. It is our position that the 14 million barrel number is much more important because a mothballed refinery can take 3 to 6 months to restart, and after it's been shutdown for 2 years it may not be possible to start it again at all. Mothballed refineries can probably not be of any help to us in the event of supply disruption. As we have discussed, the industry was forced to rationalize in the early 1980's by declining demand. However, the industry now faces a new threat which is forcing further shutdown. That new threat is imports of gasoline and gasoline blend stock, which has tripled from 168,000 barrels a day in 1981 to 480,000 barrels a day in 1984. The majority of these imports are subsidized, coming primarily from foreign government-owned refineries. In most cases, these refineries are subsidized with benefits including below-market-price crude oil, low-cost natural gas for fuel, low interest loans and tax holidays. Over 60 percent of all the refineries outside the United States are owned by foreign governments. In the free market, these foreign refineries cannot compete against U.S. refineries. We have spent $12 billion since 1981 to modernize our refining system as a nation in order to make unleaded gasoline and meet environmental requirements. Therefore, our industry is quite different from steel and other heavy industry, which in part is suffering from foreign competition because they have not kept themselves modern. Rising imports of gasoline have placed severe economic pressure on the U.S. petroleum refining industry. Trade publications have reported that seven out of the last 9 quarters our Nation's refineries have lost money. Subsidized gasoline imports have set the price at the margin, which translates across the whole pricing system in the country. This problem is getting worse as OPEC refineries, OPEC nations being on new refineries which have been under construction. A recent Pace study, which is attached to my testimony, shows that refining capacity in the Middle East will be in excess of 5 million barrels a day by 1990, with product demand of slightly over 2 million barrels a day. We are particularly concerned because the Japanese and European markets may be closed to those products. Currently Japan prohibits the import of any gasoline, and EEC documents indicate that they are considering a 6 to 7 percent quota limitation on imported petroleum products. Our current gasoline tariff of 1.25 cents a gallon was set in 1958 when gasoline was at 10 cents a gallon. If Japan allowed any imports, it would be 6 cents a gallon import fee, and the European fee is in the range of 4 cents a gallon. Mr. Chairman, we believe there is a serious national security issue involved in the demise of the U.S. refining industry. The Nation has invested $15 billion in the strategic petroleum reserve and anticipates an ultimate drawdown rate of 4,500,000 barrels a day from that reserve. In a disruption, in order to process our current production of crude oil and natural gas, which is 9,300,000 barrels a day, plus the 4.5 million barrels from the strategic storage, would require refining capacity in the range of the 14 million barrels which we're already down to, and we would still be short and importing some product. Therefore, we can ill afford to lose more refineries from subsidized gasoline imports if the taxpayers' investment in the strategic petroleum reserve is to be protected. In summary, Mr. Chairman, the U.S. refining industry is being severely damaged by subsidized gasoline imports. The damage has just begun as more Middle East refineries come on stream in a soft market. Although these subsidized refineries could not compete with U.S. refineries in a free market, they have available to them many subsidies from their own country. There are serious national security implications related to the continued demise of the U.S. refining industry. We believe that urgent action is needed now. Gasoline and jet fuel, which are so vital to national security, cannot be stored in the strategic petroleum reserve. The Nation's refineries represent its only strategic storage of gasoline and jet fuel. Thank you, Mr. Chairman. [The prepared statement of Mr. Hall follows:] Statement of John R. Hall on behalf of The Independent Refiners Coalition before the Senate Energy Committee United States Senate June 4, 1985 Inc. I am John R. Hall, Chairman and Chief Executive Officer of Ashland Oil, Ashland Oil is an independent refiner which once operated seven refineries but, today, operates only three. I am testifying today on behalf of the Independent Refiners Coalition (IRC). The IRC is composed of 18 companies and a trade association, the American Independent Refiners Association (AIRA). The IRC represents the interest of 30 independent refiners, which operate approximately one-half of the independent refining capacity of the United States. The independent refining sector represents 26 percent of U.S. operating refining capacity. The Coalition's members and production capacities are listed in Appendix A of this statement. The IRC appreciates this opportunity to testify on the impact of increasing refined petroleum product imports on the U.S. refining industry. The most significant impact is created by rapidly increasing imports of gasoline and gasoline blendstocks. The result of the increasing importation of these products has been U.S. refining capacity. - and continues to be - the shutdown of efficient Imports of gasoline and gasoline blendstocks increased more than 300 percent from 1980 to 1984, from 128,000 barrels per day to 391,000 barrels per day ("barrels per day" is abbreviated in this text as "b/d"). Gasoline imports equaled about 6 percent of total U.S. gasoline demand in 1984. At the peak level last year, imports of gasoline and gasoline blendstocks averaged about 660,000 b/d or 10 percent of U.S. demand. Yet netback analysis shows |