The U.S. Senate Energy and Natural Resources Committee prodded a witness panel including Valero chief executive Bill Klesse and U.S. Energy Information Administration (EIA) Administrator Adam Sieminski to take new steps to implement an industry-wide, instant-reporting system for refinery shutdowns.

Such instant reporting could bring more transparency to oil markets and thus probably help ameliorate some fuel price spikes, according to Energy Committee Chairman Ron Wyden (D-Oregon).

At the hearing, Wyden pointed out that planned and unplanned refinery shutdowns have been blamed for several U.S. regional gasoline price spikes in recent months. But in some cases, the reporting on unplanned refinery shutdowns amounted to “misinformation,” Wyden complained.

Wyden further urged Sieminski to find some relatively low-cost way to expand and restore public reporting of refinery shutdowns – both planned and unplanned.

Immediate, accurate reporting might help oil markets avoid some of the large price spikes in several major U.S. gasoline markets in recent months, he said.

However, Sieminski responded that the EIA recently has stopped reporting planned refinery shutdowns because of recent U.S. federal budget cuts. Restoring and expanding such EIA reporting would require “millions of dollars” of new federal funding, Siemenski estimated.

Wyden argued that the EIA probably could come up with some relatively low-cost reporting system, and he promised further discussions with the EIA about how that might be accomplished.

Meanwhile, in his testimony, Valero’s Klesse pointed out that Valero already makes public its planned refinery shutdowns for routine maintenance – although that’s a practice not universally copied by other U.S. refiners.

As for other factors affecting fuel prices, Klesse pointed out that crude oil markets are the main factor, followed by refining costs, taxes and marketing costs.

U.S. federal regulations also affect fuel-production costs and consumer prices, he added.

“Valero has estimated that its costs alone for compliance with the [U.S. Environmental Protection Agency] proposed Tier 3 [ultra-low sulfur gasoline] standards will be between $300 million and $400 million and will raise the cost of manufacturing gasoline a couple of cents per gallon,” Klesse said.

The EPA Tier-3 gasoline regulation “will also increase our greenhouse-gas emissions because of the additional processing. That said, we support clean burning fuels,” Klesse added.

Middle-distillate market changes coming

In separate testimony to the Energy Committee, Citi Research oil market analyst Faisel Khan pointed to numerous factors causing both short- and long-term changes to oil and product prices, including massive growth of U.S. and Canadian unconventional oil production.

A current glut of U.S. natural gas production is also likely to have a big impact on U.S. middle-distillate markets, Khan explained.

“We are seeing a substantial amount of heating oil (distillate) demand destruction in the [U.S.] Northeast and Mid-Atlantic where homeowners are switching from heating oil to natural gas,” Khan said.

“This momentum has the potential to substantially reduce the almost 500,000-b/d [barrels per day] heating oil market that exists in the U.S. today.

“The other clear threat to the refining industry is the substitution of natural gas and electricity in the transportation sector.

“We are starting to see heavy-duty vehicles move to natural gas. Citi estimates 50% of all refuse trucks sales are now CNG [compressed natural gas] vehicles.

“And while the long-haul trucking fleet has seen very little penetration by natural gas vehicles, Citi estimates up to 50% of heavy-duty vehicle sales could be LNG [liquefied natural gas] and/or CNG by 2025. This assumes the current [U.S.] price difference between natural gas and oil carries forward into the next decade. Under this scenario, up to 1.8 million bbl. per day of [U.S.] distillate [diesel] demand could be displaced.

“We view the market penetration of natural gas into the light-duty vehicle fleet to be somewhat limited.

“However, we do see an opportunity for electric vehicles to make up 3% of global vehicle sales by the end of this decade. Plug-in vehicles could make up another 3% to 4% of vehicles sales by 2020. Next-generation electric vehicles could raise this market share,” mainly at the expense of gasoline vehicles, he explained.

EIA: U.S. gasoline, diesel demand declining

In his testimony, Sieminski pointed out that “short-term fluctuations in regional product supply chains can cause prices in a particular region of the country to become temporarily disconnected from world and national market forces.

“This spring, two unplanned refinery outages in the Midwest along with delayed restarts at several others caused average retail gasoline prices to increase by 26¢ per gallon between the end of April and the middle of June.

“The price increase was more dramatic in parts of North Dakota and Minnesota but by the end of June, prices had returned to a more normal level.

“Similar price increases occurred in 2012 on the West Coast after a series of unplanned outages. While we recognize the burden these price increases place on the [U.S. fuel-consuming] public, these occurrences are relatively short-lived and are the result of largely unforeseeable circumstances.”

Meanwhile, U.S. gasoline demand has been declining since 2007, while U.S. diesel demand also dipped in 2012, following years of growth, Sieminski pointed out..

“Imports of gasoline blending components [to the U.S.] have declined by almost 500,000 barrels (bbl.) per day, or 43%, and exports primarily from the Gulf Coast, have increased by almost 400,000 bbl. per day,” Sieminski added.

“In 2012, 84% of the [U.S.] gasoline exports went to countries in Latin America. In addition, diesel demand in the U.S. declined by 450,000 bbl. per day in the same time period, or by 11%, leading to a drop in diesel imports of 200,000 bbl. per day and increased exports of over 700,000 bbl. per day.

“Again, in 2012, 61% of the diesel exports went to Latin America and 35% to Europe,” Sieminski said.

AAA: Price spikes understandable

Chris Plaushin, the American Automobile Association’s federal relations director, testified that U.S. gasoline price spikes are relatively understandable in contrast to industry-critical statements from Energy Committee members, including Maria Cantwell (D-Wash.) and Al Franken (D-Minn.).

“Obscured by the relatively orderly rise and fall of the national [U.S. gasoline] average during the first half of 2013 was the high degree of state and regional price volatility due to refinery disruptions, most notably on the West Coast and in the Midcontinent,” Plaushin said.

“In both of these cases, even as the national average price of gasoline was falling, refineries that were offline for planned or unplanned maintenance meant a tightening of regional supplies and subsequently sharply higher prices for drivers.

“While [retail fuel] pump prices in these markets did drop sharply as production came back online, motorists were understandably frustrated and squeezed by soaring prices and these dramatic price swings underscored the volatility that has become all too familiar in recent years.

“Unfortunately, there is no ‘silver bullet’ solution to high prices or to market volatility. Rather it will take a portfolio of polices to best mitigate the periodic uncertainty of gas prices and their impact on consumers.

“The federal government should adopt a national energy policy, which combines increased production, the efficient use of traditional and alternative fuels, and the elimination of lengthy roadblocks to the development of new sources of energy – so long as we are not precluding the appropriate level of environmental review.

“Going forward, from AAA’s perspective, such a plan should strive to seek an effective balance between our need for mobility and independence and our need for increased energy efficiency,” he concluded.