Lansing — Fed up with refinery shutdowns and spiking gasoline prices, a Republican senator is pushing tax incentives to prompt construction of a new oil processing facility in the state.
Rick Jones of Grand Ledge is not talking about a plant the size of the sprawling Marathon refinery in southwest Detroit, the only one in Michigan. Jones wants one of those small, so-called “portable” refineries being pioneered in oil-rich North Dakota.
“It would be a smaller, leaner, cleaner operation that would make gasoline for the Michigan market,” said Jones, who filed his legislation Wednesday. “I’d use the Michigan Strategic Fund
to give them a 10-year property tax and business tax abatement. We’d also help them find a suitable place to build.”
The last significant new refinery in the United States was built by Marathon in Louisiana and opened in 1977. No facility of that size has been built in the Midwest for more than 45 years, according to the U.S. Energy Information Administration.
A refinery of the type Jones covets for Michigan is planned in North Dakota, whose Bakken shale formation is expected to yield 850,000 barrels of crude oil a day by next year, topping even Texas.
The first of what ultimately could be three portable North Dakota refineries should be ready to make 8,000 barrels of diesel fuel (about 335,000 gallons) per day early in 2015 — less than a quarter of the volume produced at Detroit’s Marathon refinery. Portable refineries are smaller in size and have a modular design that’s easier to build and less costly, according to Reuters reports.
But some industry officials aren’t embracing Jones’ idea.
“We have enough capacity,” said Charles Drevna, president of American Fuel & Petrochemical Manufacturers, a trade association for virtually the entire U.S. fuel supply. “We don’t need another refinery anywhere in the country.”
Marathon spokesman Brandon Daniels said the notion another refinery would guarantee lower pump prices in Michigan is too simplistic. Other factors, such as transportation, crude oil prices and competition, weigh into the equation, he said.
“When you look at what drives gas prices, there are so many factors it’s hard to break it all down,” Daniels said.
Bipartisan support for bill
Jones’ proposal gets a thumbs-up from Phil Flynn, chief energy analyst with the Price Future Group in Chicago.
“If you could find someone willing to invest, with the tax breaks, I don’t see too many downsides,” he said. “From a big-picture standpoint, with increasing U.S. production and closeness to Canada and its tar sands, it would make a lot of sense.”
Flynn said motor fuel and natural gas production are major growth segments for the U.S. economy as a result of huge new deposits and new extraction techniques in North America. Another refinery might not lower pump prices but still could be a good strategic move creating new jobs for Michigan, he said.
Jones’ effort also could get a boost from a key opposition party leader.
House Democratic Leader Tim Greimel of Auburn Hills, who hadn’t yet seen details in Jones’ bill, said the idea “merits consideration” while adding that “there are a number of factors that affect gasoline prices.”
Gov. Rick Snyder and the CEO of the Michigan Economic Development Corporation, which has used tax breaks to attract businesses, said it’s too early to take a public position on Jones’ proposal.
“We are always working to attract new investment and create jobs in Michigan and welcome discussion of new tools that support our mission,” said the MEDC’s Steve Hilfinger.
Press secretary Sara Wurfel did note Snyder is moving away from tax write-offs in favor of “transparent, appropriated incentives and creating an economic climate where all businesses can thrive.”
The ‘same, old excuse’
Jones said his legislation is inspired by a growing impatience in the Capitol with state fuel prices that periodically skyrocket. Prices spiked about 30 cents this past week, according to AAA Michigan. High prices not only put a crimp in the key Michigan industries of agriculture and tourism, but they anger drivers.
The senator was upset when prices shot up as high as $4.30 a gallon at some service stations in late May and early June. It was at least the second time in past years Michigan was among the national leaders in gas prices.
“I called gas company representatives,” Jones said. “It was the same, old excuse: Two refineries were down for routine maintenance and other refineries had problems. Every time gasoline goes over $4, it doesn’t help our tourist industry or agriculture.”
Industry officials said key factors in the price spike here included a jump in wholesale fuel prices and reduced output when Midwest refineries temporarily shut down for maintenance, modernization, expansion and repairs.
At the time, Price Future Group’s Flynn told news outlets the rest of the country had ample supply but it was at 22-year lows in the Midwest.
The Marathon plant in Detroit can produce nearly 1.5 million gallons of fuel a day following 2012 updates to handle heavy Canadian crude oil. Opened in 1930, it has 500 employees and 160 contract workers.
Michigan’s last refinery outside of Detroit was built in 1936 at Alma as Leonard Refinery, later absorbed by Total Petroleum and closed in 1999.
Industry officials said the refinery business has long been contracting and consolidating. The nation has 145 refineries, down from 350 in the 1970s, although production capacity has remained about the same, said the Fuel & Petrochemical Manufacturers’ Drevna.
The number of Midwest refineries has declined to 27 from 63 in the past three decades, while capacity has risen since 1983 to almost 3.8 million barrels a day, compared with 3.5 million.
Drevna said the numbers work against new plants: It takes up to 15 years to obtain all necessary environmental permits, and the cost approaches $2 billion.
“I applaud (Jones) for trying to come up with some answers,” he said. “But you can’t just build another refinery for spare capacity.”
Michiganians need to be a little bit patient while the industry improves its links between the Midwest’s large refineries and crude oil sources elsewhere in the U.S. and in Canada, said Tom Kloza, chief oil analyst for the GasBuddy.com website that tracks fuel prices and issues.
“If there’s one part of the planet that’s going to have plenty of refining capacity — as opposed to tight refining in other parts of the country — it’s the upper Midwest,” Kloza said.
An undaunted Jones is pressing ahead.
“I would speculate if they’re making a fortune off gasoline,” he said, “they wouldn’t particularly care if we built more refineries.”
