By Kristen M. Daum
A state senator from Grand Ledge says he has a legislative solution to help lower Michigan’s gas prices.
But don’t get too excited.
Oil and gas experts caution that Republican Rick Jones’ proposal could be more of a pipe dream than an attainable reality.
Jones wants to entice oil companies to build new refineries in Michigan by offering them a 10-year abatement on state property and equipment taxes. With more refineries in the state — to primarily serve Michigan — residents would see gas prices go down, Jones argues.
With pump prices averaging $3.90 per gallon Thursday in Lansing, after soaring as high as $4.39 per gallon five weeks ago, Jones’ plan is attracting attention.
After all, who wouldn’t want lower gas prices?
“I’m responding to my constituents; I’m trying to do something,” Jones said.
But oil and gas experts, both in Michigan and nationally, told the State Journal that Jones’ proposal is rife with obstacles and oversimplifies a very complex industry that’s influenced by several economic factors.
For one, gas prices are heavily dependent upon a global crude oil market, as well as transportation costs and local demand.
“Since prices are driven by the market, you can’t predict what impact anewrefinery will have,” said Stefanie Griffith, a spokeswoman for Marathon Petroleum Corp., which operates Michigan’s only refinery, located in Detroit.
That’s assuming oil companies even want to build a new refinery at all. There hasn’t been one built in the United States in four decades, although efforts are underway to construct more in North Dakota to meet the demands of the recent oil boom there.
Instead, more than half of the country’s refineries have closed their doors since the early 1980s, with companies opting for the cheaper option of expanding and retrofitting their more efficient facilities.
“We have ample refining capacity in the country; we really need more in production infrastructure,” such as wells and pipelines, said John Griffin, executive director for Associated Petroleum Industries of Michigan.
Then there’s the hurdles of environmental and regulatory permitting that a new refinery would face, which Michigan Department of Environmental Quality spokesman Brad Wurfel said would be “tough to even quantify.”
“I’m not saying it can’t be done, but it’s not like popping up a new 7-Eleven,” Wurfel said. “The prospect of a new refinery, here or anywhere, is a serious undertaking.”
If a new refinery were ever to be built, it would take at least six years to construct and cost billions — an investment that gas companies likely won’t find profitable because of changing demands for fuel sources, Griffin said.
“You have to look 50-60 years down the road, and all of the growth (in demand) will be taken away by efficiency and renewableenergy,” Griffin said, noting that government and industry forecasts show “we’re pretty much maxed out on gas demand in this country.”
Jones said his bill — introduced Wednesday as Senate Bill 458 — was prompted by the surge in gas prices that Michiganders saw in early June, after three refineries in Illinois shut down because of maintenance or unforeseen problems.
Michigan’s gas prices skyrocketed to the highest in the country outside of Hawaii, and Jones said Michiganders clamored for lawmakers, like him, to take action.
Talked to experts
As introduced, Jones’ bill wouldn’t mandate that a new refinery’s fuel stay in Michigan — experts question whether that would even be legal, given Congress’ power to regulate interstate commerce — but he said it’s “highly unlikely” gas companies would ship the fuel elsewhere.
“If you can sell it here, why would you pay for the transportation costs to take it somewhere else?” Jones said, although he did not address the transit costs and new infrastructure that would be required to bring the crude oil to the refinery in the first place.
Jones said he talked to oil and gas experts before introducing his bill. He acknowledged they responded with skepticism but told him they’d consider his plan.
“We can sit on our hands and cry about the gas prices being too high, or we can do something,” Jones said. “This is an attempt to make something happen.”
Jones pointed to North Dakota as an example Michigan should look to — citing the ongoing construction there of the first oil refinery built in the United States since 1976.
“That’s exactly what we need in Michigan,” Jones said.
However, Michigan’s and North Dakota’s energy industries are worlds apart.
An oil boom in the Bakken shale of eastern Montana and western North Dakota has spurred unprecedented economic growth there.
Bismarck-based MDU Resources Group Inc. is building the Dakota Prairie refinery solely to meet the region’s demands for diesel fuel, not to address national domestic needs for gas. The fuel will be marketed and resold locally to power oil rigs and transport vehicles in the Bakken region, MDU spokesman Tim Rasmussen said.
The same energy demands simply don’t exist in Michigan.
“They have a localized need that’s gone up quite a bit,” Griffin said. “We don’t see demand going up.”
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BY THE NUMBERS
» 143: number of operating gas refineries in the United States, down from 301 in 1982
» 1: number of operating gas refineries in Michigan, down from five in 1982
» 120,000: number of barrels of oil per day that are refined at the recently expanded Marathon Petroleum Corp. refinery in Detroit
» 1976: the year when the last commercial oil refinery was built in the United States
» 2014: the year when the newest American oil refinery could open. It’s being built in western North Dakota to meet the demands of the oil boom there