O C AIChE Presentation 05 23 06

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Western States Petroleum Association Petroleum Refining in California American Institute of Chemical Engineers Orange County Section Joe Sparano May 23, 2006

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Oil Production in California California’s Petroleum Industry Produces 237 million barrels of crude oil per year – the 4th largest producing state Refines over 400 million barrels of clean gasoline per year Refines over 76 million barrels of clean diesel fuels 2 California Energy Commission

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Refinery Operations 21 crude oil refineries located in California; 14 produce CARB gasoline and diesel fuel Sources of crude for California refineries: California 42% Foreign Sources 36% Alaska 22% California imports 3.5 million gallons of gasoline and components per day California Energy Commission 3

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Refinery Operations California Energy Commission June, 2005 4

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Refinery Operations California Energy Commission Fuels Office Staff 5 California Oil Refinery Locations and Capacities Yes Yes 73,200 ConocoPhillips, Rodeo San Francisco Refinery Yes Yes 80,887 Valero (Ultramar) Wilmington Refinery Yes Yes 98,500 Shell Oil Products US, Wilmington Refinery Yes Yes 133,100 ConocoPhillips, Wilmington Refinery Yes Yes 144,000 Valero Benicia Refinery Yes Yes 149,000 ExxonMobil Refining & Supply Company, Torrance Refinery Yes Yes 154,900 Shell Oil Products US, Martinez Refinery Yes Yes 166,000 Tesoro Refining & Marketing Company, Golden Eagle (Avon/Rodeo) Refinery Yes Yes 242,901 Chevron U.S.A. Inc., Richmond Refinery Yes Yes 260,000 Chevron U.S.A. Inc., El Segundo Refinery Yes Yes 260,000 BP West Coast Products, Carson Refinery CARB Gasoline CARB Diesel Barrels Per Day Refinery Name Continued…

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Refinery Operations California Energy Commission Fuels Office Staff 6 California Oil Refinery Locations and Capacities Note: Data on this table represents total crude oil capacity not gasoline, distillate production, diesel fuel production or production of other products. Production potential varies depending on time of year and status of the refinery. A rule of thumb is that roughly  55 percent of total capacity is gasoline production (about 1.1 - 1.2 million barrels of gasoline - 46 to 50 million gallons - is produced per day). No No 2,800 Tenby Inc., Oxnard Refinery No No 5,900 Valero Wilmington Asphalt Refinery No No 8,500 Lunday Thagard, South Gate Refinery No No 9,500 Greka Energy, Santa Maria Refinery No Yes 24,300 San Joaquin Refining Company Inc., Bakersfield Refinery Yes Yes 25,000 Kern Oil & Refining Company, Bakersfield Refinery No No 26,000 Edgington Oil Company, Long Beach Refinery No No 41,800 ConocoPhillips, Santa Maria Refinery Yes Yes 50,000 Paramount Petroleum Corporation, Paramount Refinery Yes Yes 66,000 Big West of California LLC, Bakersfield Refinery CARB Gasoline CARB Diesel Barrels Per Day Refinery Name

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Louisiana Mid-Continent Oil and Gas Association Refinery Operations 7

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Supply and Demand Across the U.S., the number of refineries has declined but overall capacity has expanded American Petroleum Institute 8

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California is an energy Island Supply and Demand 9

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Allegro Energy Group California is an energy Island Supply and Demand 10

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Supply and Demand 11 California is an energy Island California Energy Commission

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Increasing demand in California CA consumes 43-45 million gallons of gasoline and 8 million gallons of diesel fuel per day Demand for transportation fuels increased 48 percent over the last 20 years Demand for gasoline expected to reach 48.6 to 52.1 million gallons per day by 2025 Demand for diesel expected to reach 13.6 to 13.8 million gallons per day by 2025 CA’s transportation fuel demand growing 2 to 4 times faster than in-state refining capacity California Energy Commission 12 Supply and Demand

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Lagging supplies in California CA produces only 42 percent of the crude oil needed to supply the state’s demand 32 refineries in mid 1980s; today there are 14 that produce CARB gasoline and diesel fuel To meet current California demand an additional 3.5 million gallons of gasoline per day must be imported Once a net exporter of fuel, California now imports about 10 percent of its fuel products No new refineries built in California in 37 years (most recent, Benicia in 1969) California Energy Commission Supply and Demand 13

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California Energy Commission: Integrated Energy Policy Report 2005 Projected transportation fuel demand versus supply Supply and Demand 14 Demand Supply

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California refinery system runs near its capacity limits, leaving little excess capability to respond to unexpected shortfalls California is isolated from other supply sources (e.g., 10 to 15 days travel by tanker from the Gulf Coast; 40 days from the Far East), preventing quick resolution to supply/demand imbalances The region uses a unique gasoline that is difficult and expensive to make; other suppliers are limited Major factors that have contributed to higher prices and volatility in California U.S. Energy Information Administration, 2003 California Gasoline Price Study Supply and Demand 15

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California gasoline prices have been volatile Supply and Demand 16 U.S. Average Price CA price higher than average U.S. price CA price lower than average U.S. price

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Petroleum Industry Profits 17 Fourth Quarter 2005 Earnings (cents per dollar of sales)

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Petroleum Industry Profits Over the past five years, the oil and gas industry’s earnings averaged 5.9 cents compared to an average for all U.S. industry of 5.6 cents for every dollar of sales. 18 Source: Based on company fillings with the federal government reported by the Oil Daily for the oil and natural gas industry and by PricewaterhouseCoopers LLP from data compiled by Standard & Poor’s Compustat for all other industries. *Earnings = net income divided by revenue

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Future of Refining 19 It is unlikely that new refineries will be built in California. In fact, from 1985 to 1995, 10 California refineries closed, resulting in a 20 percent reduction in refining capacity. Further refinery closures are expected for small refineries with capacities of less than 50,000 barrels per day. The cost of complying with environmental regulations and low product prices will make it difficult to continue operating older, less efficient refineries. According to the California Energy Commission California Energy Commission, Energy Aware Planning Guide II: Energy Facilities, December 1996, Updated March 3, 2006

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Future of Refining 20 Other barriers to infrastructure expansions Permitting delays and uncertainties Community opposition, environmental justice issues CEQA requirements NIMBY attitude Air/water quality requirements Excessive information or data requirements Global competition for investment dollars

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Future of Refining 21 2005 Integrated Energy Policy Report (IEPR) recommendations for sharp cuts in petroleum use Legislative proposals for excess taxes on petroleum earnings, control of refineries as public utilities Ballot initiative for severance taxes to fund alternative fuels development/use mandates Petroleum demand reduction proposals No net emissions increase policies for port activities Public goods charges, additional gasoline taxes Public policy initiatives

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Future of Refining 22 Streamline permit/CEQA, community review processes Eliminate barriers to in-state oil and natural gas production Develop LNG terminals Encourage expansion of petroleum infrastructure, particularly for maritime imports Implement market-based air quality compliance programs for ports Public policies needed to increase supplies

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Alternative energy Clean burning petroleum-based fuels will continue to play a central role in California’s energy future Alternative and renewable fuels will play a major role in California’s energy future Competitive markets will make best decisions on technology and fuels Economic expansion must continue 23 Future of Refining

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U.S. Energy Information Administration 24 Petroleum, alternative and renewable fuels Future of Refining

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Public policy challenges Fuel mandates and subsidies impose hidden taxes Alternative fuels can have negative environmental consequences Consumers may not be prepared to utilize alternative fuels in sufficient quantities Infrastructure for manufacturing, delivering, retailing of alternative fuels not currently in place 25 Future of Refining

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Public policy opportunities Ultra Low Sulfur Diesel provides a clean-air benefit Petroleum companies are investing billions of dollars in research, development and deployment of alternative and renewable fuels Current fuels are already the cleanest in the world New engine technologies based on petroleum fuels are cleaner, more efficient – still improving The state’s energy future can be secure; policy balance with economic growth is the key 26 Future of Refining

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27 Future of Refining – Petroleum Plus