As Coastal Bend refinery managers survey the terrain for 1997 and beyond, they see an industry turning to technology, internal changes and consolidation to get more value out of each barrel of oil in a safer way than ever before.
Faced with increasing foreign competition and stricter environmental regulations, refineries are charting a path that will allow them to maintain their margins as well as an edge in the world marketplace.
A big part of this effort is the recognition of a need to become better neighbors in their communities.
Of the five refineries in the Corpus Christi area, four are along the Corpus Christi ship channel -- Koch Refining Co., CITGO, Valero Refining Co. and Coastal Refining and Marketing. One is in Three Rivers -- Ultramar Diamond Shamrock.
Together, they employ about 3,400 workers. But city and business officials say that their economic impact on the community is much larger.
Equipment, maintenance and upgrades of the capital-intensive industry often cost millions of dollars. Contractors and suppliers to the petrochemical complex in Corpus Christi contribute to an economic impact that reaches deep into different parts of the communities, officials say.
Competition from overseas
For about the past 10 years, the refinery industry has been characterized by overcapacity, said Dave Lamp, vice president of Texas operations for Koch Refining Co.
Instead of building new plants, U.S. refiners have sought to improve production by operating more efficiently.
The last new refinery built in the United States, in fact, was the Valero Refining Co. plant on the Corpus Christi ship channel in 1983.
While no new refineries are being built in the United States, new refineries are coming on line overseas, in Indonesia and Southeast Asia, where infrastructure is often cheaper because of fewer environmental regulations, Lamp said.
"What we've been seeing over the last couple of years is an increase in imports of gasoline from outside of the country that can meet our specifications, whether it be for reformulated gasoline or conventional gasoline," said John Honholt, Valero's refinery manager.
"That further puts economic pressure on the existing refinery industry in the United States," Honholt said.
Improving efficiency
While that trend of imports is expected to continue, U.S. refiners, such as the ones in the Coastal Bend, are building their operations to improve efficiency --both to compete on a world scale and to deal with increasing U.S. environmental regulations.
Technology has played a key role in both, refinery managers said.
"The industry is really trying to get more and more gasoline and light products out of the same barrel of crude," said CITGO refinery manager Al Prebula. "We're continuing to search for better catalysts that provide higher levels of gasoline and distillate with lower-cost feedstocks."
Prebula said a lot of emphasis is being put on catalyst technology, and less on technology for entire new refineries. "You're trying to enhance the equipment that you have," he said.
Lamp said, "There are lots of way to do it. It can be better controls, a new widget that squeaks more out of the barrel, to just paying more attention to our operations.
"Our biggest issues here are high-cost feedstock," Lamp said. "We're trying to find ways to use lower-cost feedstock."
Michael Laux with Ultramar Diamond Shamrock said the gains in refinery capacity in the United States in recent years have generally occurred incrementally. He called it "capacity creep."
"That's what we've done at Three Rivers," Laux said. "It implies that you do a small expansion on a refinery and gain 3 percent to 5 percent on capacity. The U.S. oil industry is very good at expanding itself in small increments like that."
Laux said that one way the refining industry has achieved better yields is by turning to automated control systems that can adjust quickly for top performance under various conditions.
"You actually get to a point where the computer is doing an on-line optimization of the refinery," Laux said.
Honholt with Valero said additional technology improvements require a better-trained workforce.
"We will have to work on training and development of employees and raise the qualifications of our new hires," Honholt said of 1997 and beyond. "This is becoming increasingly important as we use computers and more technology in managing our operations."
Environmental effects
In addition to operational efficiencies, the refiners in the Coastal Bend say they are extremely sensitive to operating plants that are safe for workers as well as for the environment.
"One of the key aspects for us is to remain very environmentally pro-active," Honholt said. "A term that has been used by one government agency is that refineries need to become environmentally benign."
"We have to be beyond reproach," said Koch's manager Lamp. "We operate in communities that are very sensitive to our operations and we have to earn that trust."
Many of the refineries that ship oil or gasoline through the Port of Corpus Christi have installed units in the past few years that recover vapors during loading or offloading vessels, much like the gasoline vapors escape when filling a car's gas tank. This helps to reduce the level of pollution-causing ozone in the air.
While these have helped reduce ozone levels, the Environmental Protection Agency is proposing even tighter restrictions, changing the limit of the amounts of ozone, dust and soot particles in the air from 120 parts per billion to 80 parts per billion.
Prebula, whose company spent $8 million on a marine emission control system to help control ozone levels, said residents need to consider the costs vs. the benefits of this proposal.
More stringent ozone standards could halt any industry expansion or upgrades and create extra costs for residents, Prebula said.
"We'd like to see some real understanding of what the real benefits are to reducing the ozone to an even lower amount in our area," said Laux with Ultramar Diamond Shamrock. "There is a definite cost."
Laux added that not all environmental regulations are detrimental to the refining industry. "Many environmental regulations have made good business sense -- reducing waste, for example, in flares," he said. "Anything that goes up in flare can be used as a fuel in process heaters."
New gasolines
Another environmental trend that has been working its way through the refining industry is the demand for gasolines that emit fewer pollution-causing vapors.
Honholt, whose refinery produces a cleaner-burning reformulated gasoline, said he thinks the United States is headed to a "49-state rule" that would require a uniform gasoline standard throughout the country. (The 50th state is considered to be California, which has always had more-stringent gasoline standards than the rest of the country.)
"I think there is going to be a pressing need by automobile manufacturers and the EPA to put together a uniform gasoline specification," he said. "My projection is that it will be somewhere around the next three years. It will happen in this administration."
Currently, some cities are under EPA mandate to use reformulated gasoline, which costs a few cents more per gallon. Others have voluntarily used reformulated, or a type of low-vapor gasoline. Still others continue to use conventional gasoline. (Corpus Christi refiners produce a special low-vapor gasoline for the local market.)
At least three of the local refineries have the capacity to produce reformulated gasoline.
"Many refineries don't want to spend more capital to make cleaner-burning gasoline, and for good reason," Honholt said. "Margins have been low and they are concerned about the long-term outlook for refineries."
Consolidation in industry
As 1997 shifts into high gear, most refinery managers said to expect more consolidation within the industry through acquisitions and mergers.
Officials with Valero, for example, say they expect to spin off the refinery this year, and then begin an aggressive growth campaign through acquisitions of other refineries throughout the country.
In 1995, Koch purchased Southwestern Refinery on the ship channel from Kerr-McGee Corp. And last year, Diamond Shamrock merged with Connecticut-based Ultramar Corp. to become the third-largest independent gasoline refiner and marketer in the nation.
"I think you'll see more cooperation between refineries in the United States, such as sharing resources. It could be a joint venture such as between Shell and Texaco in Europe," he said. "Those are the kinds of things that I think will hit the U.S. industry and probably will spill down to Corpus Christi in some form or fashion."
Refiners also said to expect continued diversification at the refinery level, where managers are looking to produce a wider variety of petrochemical products from the same barrel of crude.