Two people familiar with the US administration's plans said the White House is considering using the Defense Production Act to expand oil-refining capacity in the United States. The proposal was raised at a recent meeting President Donald Trump held with about 12 refining-company executives, but no final decision has been made.
The discussions come as the administration faces pressure to contain the impact of higher fuel prices on consumers and businesses, with global crude-oil supplies disrupted by the conflict with Iran and congressional midterm elections scheduled for November.
Upgrading existing refineries
Refining-company executives told the administration that directing federal funds toward improving refinery efficiency or expanding existing facilities would be preferable to financing an entirely new refinery, given the high cost of construction and the years required to complete one, the sources said.
The Defense Production Act gives the president broad authority to direct industrial resources and provide financial incentives to companies to expand production of materials important to national defense. The law has never before been used to increase refining capacity. The discussions are based on an executive order issued in April that authorized its use to support and expand US oil production, refining capacity and logistical services.
US refining capacity is essential to ensuring that the country has a continuous supply of secure, reliable and affordable energy. Expanding that capacity is a top priority for the president and his energy team, which are examining concrete options to increase refining capacity across the country through regulatory reform, faster permitting and additional investment.
Operating rate reaches 98%
US refineries are operating near full capacity, with operating rates reaching 98%, according to the latest data cited. Meanwhile, the national average diesel price rose above 6 dollars per gallon for the first time, while gasoline prices remained elevated amid tight global supplies and strong demand.
US refining capacity declined over the past decade as unprofitable plants shut down, concentrating most of the country's refining capacity along the Gulf Coast. The United States has a network of refineries capable of processing millions of barrels of crude oil a day.
Efforts to bolster foreign supplies
The administration is also working to improve access to foreign oil supplies. The US government recently acquired a 35% ownership stake in North American Blue Energy Partners, a privately owned Venezuelan oil company that secured rights to develop 17 oil fields holding proven reserves of about 65 billion barrels.
The agreement gives the US government the right to purchase Venezuelan crude oil, including 20% of the company's production at the cost of production. The White House said millions of barrels of new Venezuelan output will eventually be processed by US refineries.
