1. CMI 9 th Annual Meeting: US Refining Outlook & Climate Policy Implications Jim Keating – BP America, R&LT February 9 th, 2010

2. 2 US Refining Outlook & Climate Policy Implications Refining sector market outlook in the US Refining sector as “Energy Intensive Trade Exposed” in the Waxman-Markey bill Implications of Clean Air Act regulation of GHGs (i.e. PSD permitting requirements)

3. 3 Much of recent refining margin improvement attributable to unusual events. Global competition and supply length in OECD expected to move margins back toward late-1990s. Historically refining in a highly capital intensive low return business (ca. 6% ROI) Source: USGC Platts US Refining Margins

4. 4 US Net Imports vs. Refinery Utilization

5. 5 North American refinery shutdowns Jan 09 – Jan 10 Total capacity mothballed/closed ~800 kbd Aruba Mothballed Jul 09 230 kbd Delaware City Closed Nov09 210kbd Corpus Christi Coker shut 20 kbd Bakersfield Mothballed Jan 09 70 kbd Bloomfield Closed Nov09 17kbd Eagle Point Mothballed Oct 09 150kbd Montreal East Closure announced Jan 10 130kbd

6. 6 Regional Gasoline and Distillate S&D Balance 2007 (k bbl / day)

7. 7 Regional Gasoline and Distillate S&D Balance 2020 (k bbl / day)

8. 8 Refining & Trade Exposure An Increased Allowance Allocation is Needed The US Refining Sector competes internationally −16% of the 7.1 billion barrels of oil products consumption in the US (2008) were imported The Waxman-Markey bill 2.25% allowance allocation to the Refining Sector covers only ~30% of the direct operational GHG emissions Additional costs associated with allowance purchase will: −Will not apply to foreign refiner operational emissions −Increase competitive pressures, reduce US refining production, and increase imports −Reduce US energy security and employment Solution: −Increase the allocation to Refining via an increase of the 2.25% allocation and/or via designation as an Energy Intensive Trade Exposed (EITE) sector (consistent with Refining treatment in Australia and EU ETS)

9. 9 Clean Air Act (CAA) Regulation of GHG Endangerment Finding (Dec 2009) −Affirmative finding that vehicle GHGs “cause & contribute” to “endangerment” of human health and welfare −EPA must regulate Vehicle GHG emissions Proposed Sec 202 Vehicle Rule (expected final Mar 2010) −Sets new CAFÉ standard at 35 mpg by 2016 −Sets new vehicle GHG std at 250 g CO 2 e/mi GHGs defined as a “Regulated Air Pollutant” under the CAA Instantaneous trigger other CAA programs to address GHG emissions −Prevention of Significant Deterioration (PSD) pre-construction permitting −PSD threshold is 100/250 tons −Case-by-case control technology evaluation

10. 10 Implications of PSD Permit Regulation of GHG Immediate Applicability to new or modified sources Lack of Regulatory Clarity for Planning −GHG permitting program requirements yet to be developed by EPA −EPA attempts to tailor PSD program for GHGs will meet legal challenges Permitting Complexity −States may not be clear on authority and requirements (i.e. changes to state law) −State agency overload as new sources are brought in to permitting programs Project Delays −Agency permitting delays due to lack of resources, guidance, and experience −Litigation and challenges to any permit issued Increased Costs −New control requirements; potential process redesign for new projects, off-sets

11. 11 EPA Should Defer PSD Permitting of GHGs EPA deferral of PSD permit regulation of GHG will: Avoid the detrimental impacts to the economy and counteract the goals to simulate the economy Allow Congress and the Administration time to craft an appropriate market-based legislative approach Allow EPA time to craft a path forward for the GHG Vehicle Rule without trigger CAA stationary controls Allow EPA time to craft a more appropriate program under the CAA that will complement eventual market-based systems (i.e. performance standards)

12. 12 Questions?