Bailout boosts refinery
Hyperion stands to get big tax break
Thom Gabrukiewicz • tgabrukiew@argusleader.com • October 10, 2008
Hyperion Resources could benefit in its quest to finance and build an oil refinery near Elk Point with a 50 percent tax write-off - an extension of an existing credit that was inserted into Congress' historic, $700 billion bailout of Wall Street.
The Hyperion Energy Center would refine 400,000 barrels a day of Canadian tar sands oil into gasoline and diesel. The tax break extension adds language that gives companies a break for building or expanding refineries that would process oil shale and tar sands crude.
President Bush signed the bailout legislation Saturday, a day after the House voted 263-171 to approve the Senate's version of the plan. The Senate added $100 billion in tax breaks and other "sweeteners" to the legislation, which the House first rejected Sept. 29.
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Democrats Sen. Tim Johnson and Rep. Stephanie Herseth Sandlin voted against the bailout, while Republican Sen. John Thune voted for it.
The tax break was part of the 2005 energy bill that sought to increase domestic oil production, and Thune had nothing to do with its inclusion in the bailout package, Thune spokesman Jon Lauck said. The clean energy incentives and various energy tax breaks first were proposed by Senate Finance Committee chairman Max Baucus, D-Mont., and ranking member Chuck Grassley, R-Iowa. Grassley's constituents in Sioux City and in Iowa towns just east of the planned refinery could benefit from the project and the thousands of jobs it would create.
The Senate passed the Baucus-Grassley measure Sept. 23.
"The Senate had been kicking this around for a long time," said Tyson Slocum of Public Citizen, a Washington-based public interest group.
The Internal Revenue Service released its regulations in September, and since the tax credits were about to expire - before anyone had a chance to use them - the tax break was added to the bailout bill.
The refinery credit, which now expires in 2014, could cost taxpayers $894 million over 10 years, according to the Congressional Budget Office.
"Building or expanding a refinery to handle tar sands won't be made or broken by U.S. tax law," Slocum said. "It will all depend on market conditions and the permitting process."
The extension calls for a 50 percent tax reduction for refineries built or expanded to increase by 5 percent or more their refining capacity of tar sands or oil shale crude.
"That's a pretty generous tax credit," Slocum said.
"It's an affirmation that we need more oil production, increased capacity," Hyperion spokesman Eric Williams said Wednesday.
The company, Williams said, had not calculated what kind of savings it might expect from refining tar sand crude and declined comment on whether the tax break would help attract investors to the $10 billion project.
Preston Phillips, Hyperion's Dallas-based project executive, said in July that getting an air permit from the state was critical to success in securing financing. The state Department of Environment and Natural Resources approved Hyperion's draft air permit Sept. 11 and extended the public comment period to Nov. 14.
Opponents bristled that the Wall Street bailout, which was supposed to shore up the U.S. financial markets and loosen the nation's credit markets, would include a tax break to boost "dirty fuels" production of oil shale and tar sands crude. Both are abundant in North America but take considerable water and energy to be extracted from the earth and then refined into fuel.
"It's amazing what you can slide into an emergency bill, completely unrelated to the bailout," said Denny Larson, director of the San Francisco-based Refinery Reform Campaign. "It's bad policy. It didn't get well thought-out or well debated."
"It just goes to show that special interests still have a lot of clout in Washington," said Jason Quam, an Elk Point native and head of Citizens Opposed to Oil Production.
Excluding expansions, the only new oil refinery projects planned in the U.S. - and the first since 1976 - are Hyperion and Arizona Clean Fuels, an independent refinery that has been in the works since 1999 about 45 miles east of Yuma, Ariz. Hyperion hopes to begin construction on its 3,800-acre site in 2011 and would begin refining in 2014.
Arizona Clean Fuels, a $3 billion project that plans to refine 150,000 barrels of tar sands crude a day, received its air permit in 2006. Barring final hurdles, construction could begin in 2009, said company spokesman Ian Calkins.
Officials from both companies said the refineries would use the newest technologies to minimize effects on the environment.
In the U.S., there are 146 operational oil refineries that have a capacity to turn 16.8 million barrels of crude a day into fuel, according to the Energy Information Administration.
"With oil trading at around $90 a barrel - which is still historically high - everything in the marketplace points to invest in petroleum," Slocum said. "I don't think the government needs to add to it. We question the need for this tax credit, since this, to me, is icing on the cake. Especially with the oil companies still posting pretty healthy profits."
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