Refining chiefs expect more regulations under Obama

Leaders of two of the nation’s largest independent refining corporations said they expect President Barack Obama’s second term to bring a wave of regulations on their industry.

A number of federal rules that seek to cut emissions and expand biofuel use were passed or discussed during Obama’s first term. Chief executive officers of Phillips 66 and Marathon Petroleum say that portends another four years of policies that will reduce demand for their refineries’ petroleum-based fuels.

“With the election now decided, I see a very active regulatory environment for the next four years,” said Phillips 66 CEO Greg Garland.

Garland and Marathon Petroleum CEO Gary Heminger spoke at Deloitte’s annual Oil & Gas Conference Tuesday. They said new and expanded federal regulations, including the Renewable Fuel Standard and the Corporate Average Fuel Economy (CAFE) standards, have cost their companies billions over the years while cutting use of their products.

“There’s no question, between renewables and CAFE standards, over the next 10 to 20 years, you’re looking at a 10 to 20 percent reduction in gasoline demand,” Garland said. “That’s something that concerns us.”

While gasoline demand in the United States has been gradually falling, Heminger said he believes diesel consumption will grow, helping to keep the industry afloat. He projected US drivers will switch to diesel engines before alternative fuels like natural gas and electricity.

“Diesel is the transportation fuel of the future,” he said. “Yes, they cost a little bit more, but we expect to see more advancements in diesel engines for family use and small truck fleets.”

Heminger noted that U.S. refiners are altering their facilities to increase diesel output in anticipation of the growing demand.

Meanwhile, the refining industry has enjoyed higher profit margins in recent months as the cost of U.S. crude has fallen blow the global oil price. Both Marathon Petroleum and Phillips 66, which recently became independent refining businesses after separating from larger integrated oil production corporations, have benefited from the U.S. oil boom.

When asked if the trend of spinning of independent refiners from integrated oil corporations will continue, Garland noted that the U.S. refining is producing better financial results than it was a year ago.

“You gotta look at the results in the downstream business today and you have to believe they are happy with the results,” he said of the integrated oil companies. “They are turning some good numbers.”