By Jarrett Renshaw
Sept 11 (Reuters) - The White House is weighing how to use the Defense Production Act to expand U.S. oil refining capacity as the conflict with Iran exposes the country's vulnerability to global crude supply disruptions and price spikes, according to two sources familiar with the administration's plans.
Considering such an extraordinary step highlights how the Trump administration is under growing pressure to show it can contain the impact of surging fuel prices on consumers and
businesses ahead of November's midterm elections.
The proposal to use the act came up during a recent meeting between President Donald Trump and nearly a dozen U.S. refiners, where White House officials sought to determine how federal support could best be used to add capacity, the sources said. No final decisions were made, and participants left the meeting with the expectation that the conversations would continue, according to the sources.
Refining executives told officials that federal money would be better directed toward making refineries more efficient or expanding existing plants rather than financing an entirely new refinery, which would be considerably more costly and take years to complete, the sources said.
The Defense Production Act, considered a tool of last resort that has never been used to add refining capacity, gives Trump broad powers to direct industrial resources and provide financial incentives for companies to expand production of materials deemed important to national defense. The latest discussions build on a presidential determination issued in April that authorized the use of the act to support and expand U.S. petroleum production, refining and logistics capacity.
The United States is one of the world's largest oil refining powers, with a vast network of plants capable of processing millions of barrels of crude a day, but the national average diesel price has climbed above $6 a gallon for the first time and gasoline prices remain elevated.
“America’s refining capacity is essential to ensuring the United States has continuous access to secure, affordable, and reliable energy. Expanding that capacity is a top priority for the President and his energy team, who are evaluating concrete options to increase our refining capacity through regulatory reform, faster permitting, and additional investment," Taylor Rogers, a White House spokeswoman, said when asked about the proposal.
REFINING CAPACITY NEAR MAXIMUM LEVELS
U.S. refiners are already running near full tilt, with utilization reaching 98%, according to the latest data. The high utilization underscores the challenge facing the administration: refiners are producing at near-capacity levels, but tight global supplies and strong demand are keeping fuel prices high.
U.S. refining capacity has also declined over the past decade as unprofitable plants have shut, concentrating more of the nation's refining capacity on the Gulf Coast.
In recent weeks, the White House has increasingly pointed to expanding domestic refining capacity when asked how it plans to respond to fuel-price spikes caused by the Iran conflict, making the push both a longer-term effort to buffer against global supply disruptions and part of its broader response to affordability concerns ahead of the elections.
The administration is also pushing to increase access to foreign oil supplies.
Trump recently secured a 35% U.S. government equity stake in North American Blue Energy Partners, a private Venezuelan oil company that received rights to develop 17 oil fields with about 65 billion barrels of proven reserves. The agreement gives the U.S. government rights to purchase Venezuelan crude, including 20% of the company's output at production cost.
The White House says millions of barrels of new Venezuelan production will eventually be processed through U.S. refineries.
TEST CASE
A proposed new refinery in Brownsville, Texas, has emerged as a test case for Trump's call to expand U.S. refining capacity. It was unclear whether the project would receive any Defense Production Act funding.
America First Refining plans to build a 168,000-barrel-per-day facility at the Port of Brownsville, which Trump announced in March as the first new U.S. refinery in nearly 50 years. The project is backed by India's Reliance Industries, which has agreed to a 20-year deal to buy the refinery's output.
The project also has ties to Trump's family and administration. Donald Trump Jr. is a passive minority investor in America First Refining, according to company and investor disclosures reported by ProPublica, while Cantor Fitzgerald, whose founder Howard Lutnick is Trump's commerce secretary, is serving as financial adviser to the company, according to company announcements.
America First Refining did not respond to requests for comment.
(Reporting By Jarrett Renshaw; Editing by Liz Hampton and Nia Williams)
