Economics and availability of crude make oil refining a tough industry to sell in Winston County

By Joseph McCain The Winston County Journal

An invitation only event was held to discuss an oil refinery project in Winston County and in spite of the promises made at the meeting and in the other media coverage, the chances of anything happening in Winston County is remote at best because of the economics and environmental issues.

The six companies promoting the oil refinery idea are Safeguard Consulting of Los Gatos, CA represented by Jean Meadows; CiviTech Global of McLean, Virginia; Capital Investments and Solutions in Fort Lauderdale Florida represented by Dr. Augstin Shqalsi, CM Processing of Los Angeles California represented by Milton Hughes and SNC Energy of Philadelphia, MS represented by Mayor James Young.

Jean Meadows of Safeguard consulting was not forthcoming with answers to some questions but did say they were seeking 300 acres for an oil refinery and possibly in Winston County but their main goal was to provide jobs and do good things in Winston County.

“We are very excited about all the great opportunities that are available in Winston County and the Great State of Mississippi,” said Meadows. “We will be getting a press package together about the Empowerment and Job Generation Programs that are being created.”

The SNC Energy website touts “Construction of the initial complex in Winston County, Mississippi is scheduled to begin in 2013, and put into operation in 2014. SNC Energy is embarking upon constructing the nation’s newest, most modern, and Green oil refinery. The SNC Energy project is located just south of Louisville, MS. It is on over 300 acres of land. When the refinery opens, we project providing 5200 jobs and a production capacity of 100,000 to 120,000 barrels of crude per day. To this end, SNC Energy is committed to meeting and exceeding Federal and State regulatory guidance and specifications.”

Yet, the Energy Information Administration of the Department of Energy and Environmental Protection Agency and Mississippi Department of Environmental Quality have numbers that would appear to dispute the feasibility of such a project for anywhere in Mississippi and in much of the United States.

A new refinery has not been built in the United States since 1976, and the process is complicated by a huge price tag, slim profit margins on finished fuel products, a changing regulatory environment and stricter air quality regulations recently introduced by the EPA. Added to that is a trend toward lower gasoline demand, higher automobile efficiency and a growing distance between national refining capacity and actual production according to the EIA.

“The refining industry is the most highly regulated industry in the country and has been struggling for years to maintain minimal profit margins. In the face of even more regulations from the Environmental Protection Agency (EPA), who are, imposing carbon-emission regulations as well as proposing strict ozone regulations more (refinery) closures are likely” according to the Institute for Energy Research.

North Dakota, now the second largest oil-producing state, certainly has the oil to support a refinery. Drilling companies are taking an average 277,000 barrels of oil out of the ground every day and they were the first place in 41 years to receive EPA approval to build a refinery yet it took almost a decade to receive its first permits and still has many more to receive before beginning construction. The project has been under review since 2004 and hopes to break ground in the spring of 2013. Winston County has no crude oil pipelines and has no oil production to match the projected crude oil amounts for the refining processes according to the Mississippi Gas and Oil Board.

The federal Energy Information Administration says the production of petroleum products has been falling since 2004. The demand of gasoline has declined 2.9 percent this year alone.

Total production in 2012 was below 20 million barrels a day for the first time since 2002. U.S. refineries are not producing as much as they could. The EIA says there are 144 operating refineries in the United States in 2012, down from 163 in 1998. At present, 10 refineries are idle in the US with one idle in Louisiana. Three of those 10 are set to restart in 2013 if needed but according to EIA figures need maybe lacking since the Louisiana Gulf Coast refineries were only operating at 84.2 percent capacity and the North Louisiana and Arkansas refineries which include Mississippi figures were only operating at 77 percent in September of 2012.

The margin between crude oil prices and gasoline prices is slim, and a spike in crude can narrow that spread. In 2008, refiners made 33 cents per gallon of gasoline refined, the lowest figure since 2003, according to the EIA. Other fuel products, such as home heating oil, are produced at a loss. None of those factors encourages the construction of a new refinery, an expensive project that takes a long time to recoup the investment.

In addition to the economics, refinery projects face shifting environmental regulations. Rather than face those obstacles, companies have chosen to invest in refineries that have already been built and already received permits which may take decades to gain for new construction according to the EPA.

While Meadows with the help of this group of six companies says they can overcome these obstacles the price tag alone for the average refinery is $1.7 billion according to a refining feasibility study completed by EN Global for the Department of Energy in North Dakota.

While Philadelphia Mayor James Young was quoted in the Neshoba Democrat about 5,000 jobs and the refinery opening in 2014 which is also on the SNC Energy website. In comparison, the largest refinery in the world, Jamnagar Refinery in India, only employs 3500 persons. The Pascagoula Refinery on the Mississippi Gulf Coast which is Chevron’s largest refinery and one of the top ten in the US only employs 1490.

Mayor Young did not return calls made by the newspaper and SafeGuard Consulting’s Jean Meadows stated she could only speak off the record since all information had to go through their legal department.

Louisville Mayor Will Hill in a statement noted, “The proposed project and suggested investors are being researched. We are always interested in economic development and in regional development, however the number one rule in economic development is it must be financially strong and must make money otherwise it is a waste for all involved. Last but certainly not least, we (Louisville and Winston County) are working diligently on projects to create jobs and help our economy. Please stay tuned for the days ahead.” See editorial on the project on page 4. Pipe Dream.