NFCH July 16, 2013

Today, PMAA president Dan Gilligan joined other industry members in a panel before the U.S. Senate Committee on Energy and Natural Resources. The full committee hearing was on how gasoline and distillates are being impacted by the renaissance in domestic oil production and the restructuring of the U.S. refining industry and distribution system. Most Senators on the Committee were present for the informational hearing.

The other witnesses were: EIA Administrator Adam Sieminski; Jeff Hume, vice chairman for Strategic Growth

Initiatives at Continental Resources Inc.; Faisel Khan, managing director, Integrated Oil & Gas Research at Citigroup Inc; Bill Kleese, chairman and CEO of Valero Energy Corp.; and Chris Plaushin, director of federal relations at the American Automobile Association.

In addition to outlining the current structure of the refining and distribution system, in particular the movement of the major integrated oil companies away from direct ownership of the retail market, Gilligan discussed factors that contribute to the cost of gasoline and heating oil at the rack. The price of crude and the need for better regulation in the futures market, particularly the delay in finalizing position limits on crude oil futures contracts, and the need to approve the Keystone XL pipeline are included in his testimony. Further, he addressed some of the issues surrounding E-15 and the federal ethanol mandate, the role of interchange fees and taxes as well as pipeline disruptions and national disasters which also impact motor fuels and heating oil prices. Finally, Gilligan addressed planned and unplanned refinery outages and the need for dedicated funding for the Coordination of Planned Refinery Outages Program at EIA.

Valero’s Bill Klesse noted that, “The important point is that any policies making it more difficult to refine in the U.S. are contrary to the public interest. There are things that the industry and regulators cannot control, such as the prices of crude oil, feedstocks and utilities. However, there are things, such as regulations and taxes, which regulators can control. Reducing those controllable costs will help bring consumer prices down and improve further the competitiveness of the U.S. refining industry to be able to export excess refined products.”

Committee Chairman Wyden focused on understanding why, with the vast increase in U.S. production, retail prices have not gone down. Specifically, Wyden stated, “ For years, a number of people in the oil industry has told the American people that U.S. gasoline prices are at the mercy of world oil prices. And

that was basically the case because of our dependence on imported oil. New oil supplies from America have turned that dynamic on its head. Some regions of the country, like the Midwest, that have access to the lowest priced crude oil have some of the highest refining margins in the nation. This Committee is going to explore why so many consumers have not benefitted from these new lower cost sources of crude oil.” The Chairman told EIA Administrator Sieminski that he plans to work with him to help provide data that will ultimately help consumers by lowering prices of motor fuels.

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