As shown in figure 7, monthly domestic crude oil production  has increased by over 55 percent through September 2013 compared  with average production in 2008. The rapid growth in U.S. and Canadian crude oil production has lowered  the cost of crude oil for some domestic refiners that have the access and  ability to process these crude oils. Two Key Regulations Have Likely Contributed to Declining Fuel Consumption and Compliance with One Has Increased Some Refiners’ Costs

According to stakeholders and the information we reviewed, two recently  strengthened key environmental regulations—the coordinated CAFE and  GHG vehicle emission standards, and the RFS—have likely affected the  refining industry by reducing the consumption of petroleum fuels, and  compliance with the RFS has recently increased costs for some refiners,  as well as other challenges. RFS Has Had Three Main Effects  Stakeholders we contacted and information we reviewed identified three  main ways the RFS has affected U.S. petroleum refiners: (1) compliance  has recently increased costs for some refiners, (2) required blending of  renewable fuels has contributed to declining domestic consumption of  petroleum-based transportation fuels, and (3) EPA’s delays in issuing  annual RFS standards may have contributed to investment uncertainty for  some refiners. Several stakeholders told us this increase in credit prices was primarily  due to RFS requirements exceeding the capability of the transportation  fuel infrastructure to distribute and the fleet of vehicles to use renewable  fuels, referred to as the “blend wall.” A refiner we spoke with also  attributed the decline in credit prices in the second half of 2013 to EPA’s  statements expressing its desire to address the blend wall. As a  result, refiners and other industry participants have blended increasing  amounts of renewable fuels. Third, the RFS has contributed to investment uncertainty for refiners  according to several stakeholders because EPA has not issued annual  RFS standards on time since 2009. Without such analyses and a plan to  address the underlying causes of the delays, EPA risks repeating them. Industry Outlook Depends on a Number of Factors

Stakeholders we contacted and information we reviewed generally  suggest that the outlook of the U.S. refining industry depends on a  number of factors, in particular: (1) future domestic consumption of  petroleum products; (2) the extent to which key environmental regulations  raise costs for domestic refiners; and (3) the extent to which domestic  refiners will be able to export and compete in international markets. As discussed  above, domestic petroleum product consumption declined by 11 percent  from 2005 through 2012, and forecasts we reviewed project consumption  of three major petroleum products—gasoline, diesel, and jet fuel—will be  stable to slightly increasing through 2020, but not returning to high levels  of the past. Key regulations. In general,  increasing costs for refiners may be absorbed by refiners themselves  (i.e., by reducing their profits), be passed on to consumers through higher  product prices, or both. Extent to Which Refiners Can Export and Compete in Foreign Markets

While the domestic refining industry has increasingly relied on export  markets, stakeholders and forecasts we reviewed indicate that the  industry’s future competitiveness is uncertain and that foreign markets  present both challenges and opportunities for U.S. refiners. Exports  of petroleum products represented 7 percent of refinery production in  2007 but increased to 17 percent in 2012. Stakeholders and information we reviewed suggest that various  factors may affect the U.S. refining industry’s future competitiveness,  including: (1) the balance between global refining capacity and global  demand for petroleum products, (2) costs associated with environmental  regulations, (3) exports to nations with stringent fuel standards, and (4)  increasing domestic and Canadian crude oil production. Recommendations for Executive Action

To improve EPA’s ability to meet the annual statutory deadline for issuing  annual RFS standards, we recommend that the Administrator of the EPA  take the following two actions:
Assess past experience to identify the underlying causes of delays in  issuing annual RFS standards. To provide information on major changes that have affected the domestic  petroleum refining industry and the future of the industry, we reviewed  information including the following:  studies by federal agencies and consultants, company financial regulatory filings, and proposed and final regulations and regulatory impact analyses. We also asked agency officials and other stakeholders we  contacted to recommend studies. Based on our research and information from stakeholders, we identified  five key regulations that were recently strengthened or proposed: (1) the  Environmental Protection Agency’s (EPA) Renewable Fuels Standard  regulations, (2) the Department of Transportation’s Corporate Average  Fuel Economy and EPA’s greenhouse gas vehicle emission standards;  (3) EPA’s Tier 3 Motor Vehicle Emission and Fuel Standards; (4) EPA’s  stationary source greenhouse gas requirements; and (5) the state of  California’s Low Carbon Fuel Standard. Stakeholders included representatives from refining  companies, environmental organizations, consultants, and officials from  federal and state agencies.
Why GAO Did This Study

The U.S. petroleum refining industry—the largest refining industry in the world—experienced a period of high product prices and industry profits from the early 2000s through about 2007. Since the recession of 2007 to 2009, the industry has been in transition.
Federal and state agencies regulate petroleum refining and the use of petroleum products to protect human health and the environment, as well as for other purposes. EPA, DOT, and California recently proposed or strengthened five key regulations, including EPA and DOT's coordinated fuel economy and GHG vehicle emission standards, and EPA's RFS, which has required that refiners and others ensure transportation fuels include increasing amounts of renewable fuels such as ethanol produced from corn.
GAO was asked to provide information on the domestic petroleum refining industry. This report examines: (1) major changes that have recently affected the industry and (2) the future of the industry. GAO reviewed information including studies by agencies and consultants and company financial filings; interviewed stakeholders, including agency officials and representatives of refiners and environmental organizations; and reviewed forecasts by the Energy Information Administration and others.

What GAO Found

Stakeholders GAO contacted and information reviewed by GAO identified the following three major changes that have recently affected the domestic petroleum refining industry:
Increased production. U.S. and Canadian crude oil production have increased, leading to lower costs of crude oil for some refiners. After generally declining for decades, monthly U.S. crude oil production increased over 55 percent compared with average production in 2008.
Declining consumption. Domestic consumption of petroleum products declined by 11 percent from 2005 through 2012, resulting in a smaller domestic market for refiners.
Key regulations. Two key regulations—the Environmental Protection Agency's (EPA) and Department of Transportation's (DOT) coordinated fuel economy and greenhouse gas (GHG) vehicle emission standards, as well as EPA's Renewable Fuel Standard (RFS)—have contributed to declining petroleum-based fuel consumption. For some refiners, compliance with the RFS increased costs in the first half of 2013, though costs have since declined to some degree from their peak. According to some stakeholders GAO contacted, this was primarily due to RFS requirements exceeding the capability of the transportation fuel infrastructure to distribute and the fleet of vehicles to use renewable fuels. Moreover, EPA has missed the statutory deadline to issue regulations establishing annual RFS blending standards since 2009. EPA has not systematically identified the underlying causes of these delays or changed its approach in order to avoid them. A late RFS contributes to industry uncertainty, which can increase costs because industry cannot plan and budget effectively, according to some stakeholders.
Stakeholders GAO contacted and information reviewed generally suggested that the U.S. refining industry's outlook depends on the following factors:
Domestic consumption. Future consumption of petroleum products is uncertain, with projections ranging from stable to slightly increasing through 2020 but not returning to consumption levels of the past. Forecasts GAO reviewed suggest higher future refinery production in scenarios with higher domestic consumption.
Costs of key regulations . The extent to which requirements in the key regulations increase costs for refiners will affect the industry's outlook. For example, future costs to comply with RFS may depend on the annual renewable fuel volumes EPA sets and whether EPA issues annual RFS standards on time. In general, increasing costs may be absorbed by refiners (i.e., by reducing their profits), be passed on to consumers through higher prices, or both.
Foreign markets. The U.S. refining industry has increasingly relied on foreign markets. Exports grew from 7 percent of production in 2007 to 17 percent in 2012. The extent to which domestic refiners export their products will depend on the competitiveness of U.S. refiners. Factors that may affect competitiveness include domestic environmental regulations, levels of U.S. and Canadian crude oil production, and the balance between global refining capacity and demand for petroleum products.

What GAO Recommends

GAO recommends that EPA identify the underlying causes of delays in issuing RFS standards and implement a plan to issue RFS standards on time. EPA generally agreed with GAO's findings and recommendations.