WASHINGTON – Witnesses ranging from American Petroleum Institute to the Consumer Federation of America today agreed that the United States needs to expand its domestic refining capacity.

Witnesses at an Energy and Commerce subcommittee hearing covered the effect of mergers; the results of price-gouging investigations; the reasons behind increased gasoline prices, lack of domestic refinery capacity and lack of investment capital; and the impact of boutique fuels on gasoline prices.

“The Energy Information Administration, in its weekly petroleum report, says that it expects demand to grow 1.5 to 2 percent per year on average. Will existing domestic refinery expansions keep pace with demand? Most analysts say, ‘No’,” said U.S. Rep. Ralph Hall, R-Texas, chairman of the House Energy and Commerce Subcommittee on Energy and Air Quality.

“How do we make up the difference if we do not expand capacity domestically? We increase imports,” Hall said. “Again, Oil Daily reports, ‘To satisfy demand, imports of finished motor gasoline have increased by nearly 100,000 barrels per day to 555,000 barrels per day in May.’ These are staggering numbers. This is sobering news.”

“The lack of refinery capacity needs to be addressed. Today, demand for refined products outpaces supply by 10 percent, the difference coming from foreign suppliers,” said U.S. Rep. Joe Barton, R-Texas, chairman of the Energy and Commerce Committee. “Domestic refiners are producing flat out, operating at more than 95 percent of capacity. Forecasts show no appreciable increase in refining capacity, all the while demand is ever-increasing.”

Barton said that after the passage last month of H.R. 4517, members from both sides of the aisle approached him, saying they wanted to work on ways to increase refining capacity and were willing to help on a refinery bill that would do so. “So, we are starting the process with this hearing today, not to have a legislative hearing on any particular bill, but to gather the facts and build the record. The panels are as balanced as they could possibly be for a hearing on this subject,” he said.

Several witnesses, including Guy Caruso, administrator of the Energy Information Administration, noted that companies and investors alike need regulatory certainty in order to proceed.

Caruso said companies need more incentive to expand and greater certainty about the rules and regulations. “The higher these hurdles are, the higher the margins required to justify expansion,” he said.

A. Blakeman Early, environmental consultant for the American Lung Association applauded some efforts of the companies with regard to current environmental regulation.

“It is important to note that with respect to the RFG (reformulated gas) program and the Tier 2 sulfur program the refining industry is getting the job done and at a cost below what it and others predicted,” Early said. “Moreover, refiners are reducing toxic emissions from RFG by a significantly larger percentage than the minimum required by the Clean Air Act.”

Arjun Narayana Murti, managing director of Goldman Sachs, said that if the government and oil companies don’t do something, the country should be prepared for an even more volatile market than it saw in the 1980s and 1990s.

“In an environment where (1) spare crude oil is minimal; (2) the United States is dependent on oil imports; and (3) key oil-exporting countries are facing a high amount of geopolitical turmoil, U.S. consumers and businesses should be prepared for energy prices that are higher in absolute terms and more volatile than the levels seen during the 1980s and 1990s,” Murti said. “In our view, it would be logical for the U.S. government to proactively implement policies that encourage a reduction in the growth rate of oil demand. We note that the cost of waiting will likely result in much greater economic damage over the long term than the short-term inconvenience of no longer being able to buy an inexpensive SUV as an example.”

Also testifying at today’s hearing were: Jim Wells, director of Natural Resources and Environment at the Government Accountability Office; William E. Kovacic, general counsel at the Federal Trade Commission; Mark Cooper, director of research at the Consumer Federation of America; Bob Slaughter, president of the National Petrochemical and Refiners Association; Gene Edwards, senior vice president of supply, trading and wholesale marketing at Valero Energy Corp.; Red Cavaney, president of American Petroleum Institute; Eric Schaeffer, Director of Environmental Integrity Project; and Bill Douglass, CEO of Douglass Distributing in Sherman, Texas.