Summary
The US refining industry could be decimated as the domestic steel industry has been if current climate legislation disadvantages domestic refiners, such as Valero , Tesoro , Frontier , Holly , Western , and Alon .
Analysis
In the 70s and 80s, the domestic steel industry was decimated by foreign competition. Granted, the industry was inefficient but foreign competition was unfairly advantaged by subsidies from governments who wanted to build their industries and were willing to pay for that privilege. The current climate laws being considered could similarly devastate the US refining industry, this time without subsidy from foreign governments. If the refining industry is saddled with the burden of buying credits from other domestic companies, prices for gasoline and diesel will go up. Since the US refining industry margins are squeezed to the breaking point already, the costs must be passed on. Independent refiners, such as Valero, Tesoro, Frontier, Holly, Western, Alon, and others will be the hardest hit since they stand alone on their product margins without help from upstream operations. The problem will be if imported product for offshore refineries is not subject to similar requirements, their product will be cheaper and more competitive. Current estimates are that the carbon credits could add $.45/gal to the cost of gasoline and diesel. That level will not be enough to discourage consumption to any great extent, but it will provide more than enough incentive for foreign refiners to ship product to the East Coast, Gulf Coast, and West Coast. Shipping costs from even distant Middle East refineries will be overcome by such a huge differential. Legislation is still being promulgated and we should sincerely hope that we exercise caution and do not impact the competitive position of our domestic refiners.
