The hurricanes that plowed through oil facilities in the Gulf of Mexico are refocusing Arizona’s attention on a plan to build a 150,000-barrel-a-day refinery near Yuma.
Arizona Clean Fuels Yuma has plans for a $3 billion refinery east of the city near Wellton that would process oil into gasoline, diesel and jet fuel.
Tight oil supplies and the oil industry’s concentration in the Gulf leave the United States vulnerable to interruptions and price spikes, supporters of the project said.
"The problem existed before the hurricanes. But it appears that the hurricanes tipped it over the edge. The attention is giving us more momentum," said Ian Calkins, Arizona Clean Fuels Yuma spokesman.
That momentum is reflected in two pieces of legislation introduced this month in Congress by Arizona lawmakers Sen. Jon Kyl and Rep. John Shadegg, which would increase tax allowances and streamline the permit process for new oil refineries.
While the cost of the refinery is estimated at $3 billion, Clean Fuels executives are hoping to secure about $75 million to $100 million in immediate financing.
"Financing is really the most critical task that needs to be accomplished," Calkins said.
But investors — seeking quick returns on their capital — so far haven’t been keen on investing in a long-term capital project such as a refinery, Calkins said.
With "extremely positive project economics" and a business plan that shows profitability within the first year or two, executives are looking for a few big-time, yet laid-back, sponsors.
"It’s really (about) attracting the right investor who has the patience to get through the remaining permits and the construction," Calkins said.
The group has already raised about $20 million, which is "what’s kept the project moving forward for the last 10 years," Calkins said.
Clean Fuels has been trying since 1989 to build a refinery in Arizona. The state gets all of its fuel from two underground pipelines that run from California and Texas.
The company first tried to locate the refinery in Mobile, about 20 miles west of the Valley, but was forced out by environmental and neighborhood opposition.
MAJOR HURDLE CLEARED
Company executives secured an all-important air quality permit in April from the Arizona Department of Environmental Quality that was also approved by the federal Environmental Protection Agency.
ADEQ director Steve Owens said the permit process for the refinery had languished in the 1990s but became a priority when Gov. Janet Napolitano took office.
"We really rolled up our sleeves on this. . . . We’re the only state that’s given a permit to a refinery in the last 30 years or so," Owens said.
While the refinery still needs other federal permits and a wide-ranging environmental impact study, Calkins said those are less difficult to attain.
The air permit "is the single most difficult permit that an oil refinery needs to get. It was a huge milestone for the project and really put us on the map for both the (oil) industry and the financial community," Calkins said.
Kyl’s bill in the Senate would increase tax depreciation rates for investment in new and existing oil refineries anywhere in the country. His Republican counterpart in the House, Shadegg, has sponsored legislation that would streamline the process to get needed federal permits for new refineries.
And at least one state official believes Arizona lawmakers need to become more involved in helping the Yuma refinery get off the ground.
"As elected officials, we all need to be out there advocating for this. We need to do everything we can to help facilitate it going forward," said Kris Mayes, a member of the Arizona Corporation Commission.
Because the commission regulates only public utilities, it would not have oversight of the refinery, a private entity. But it would control the inspection and certification of the underground pipelines that would feed crude oil to the new plant.
Mayes believes Arizona officials need to work with Mexico to spur negotiations between Clean Fuels and Pemex, Mexico’s state-run energy producer, to supply crude oil to the proposed refinery through underground pipelines from Baja California.
"To the degree that we can encourage the Mexican government in playing a stronger role in moving that forward, I think we ought to do that," Mayes said.
DEPENDENT ON GULF
As Clean Fuels leaders work to secure permits, investors and a source of crude oil, the nation’s dependence on the Gulf Coast for oil is all too real.
Almost half — about 47 percent — of America’s refining capability is in the Gulf, said Sharon Dey, spokeswoman for the National Petrochemical and Refiners Association in Washington, D.C..
"There were 11 refineries knocked out with Katrina. Seven are back up, four are still down. Fifteen are now shut down in the Texas Gulf Coast because of Rita," Dey said. "This storm has an enormous potential to deal a second punch to the Gulf Coast area."