ENERGY/U.S. REFINING
  U.S. refiners said they are worried
  that growing supplies of imports, proposed federal
  environmental regulations, and the marketing of a third grade
  of unleaded gasoline would cost them dearly and at a time when
  the industry is recovering from a recent slump.
       "We have to look at national security and cut the amount
  of products and crude coming into the country if it hurts the
  industry," said Archie Dunham, vice president of petroleum
  products at Conoco, subsidiary of DuPont Corp (DD).
      U.S. oil imports account for about 38 pct of U.S.
  consumption but are expected to rise to 50 pct by the mid
  1990s, according to the Department of Energy.
      "Can we afford to import 60 or 70 pct of our oil
  requirements 15 or so years from now?" asked John Swearingen,
  chairman of the board of Continental Illinois Corp <CIL> and
  former chief executive of Amoco Corp <AN>. "If your answer to
  that question raises doubt, then it behooves us to do all that
  we can now to cope with this situation and improve our
  position."
      But Swearingen said he opposed the idea of an import fee, a
  view echoed by others attending this week's National Petroleum
  Refiners Association meeting in San Antonio, Texas.
      "Talk of an import surcharge or controls is not encouraging
  because those things won't solve our problems and could well
  compound them," said Swearingen. "Once the government affects
  values, once an import quota or license has value, it's going
  to be subverted by government," he added.
       William Martin, deputy Energy Secretary, said the costs of
  an import fee outweigh its benefits and suggested, as Energy
  Secretary John Herrington has, depletion tax credits to
  encourage domestic production and limit oil imports. He also
  said altnerative energy sources should be encouraged.
       Restoration of the depletion allowance for a 27 pct
  deduction from the taxable income of oil companies is 
  controversal but might work, said Dunham.
      Dunham and other officials opposed the idea of a fee on oil
  imports but said if one is enacted it must tax crude and
  product imports.
      "Why would companies import crude when they could import
  products for a smaller cost if there were only a fee on crude?"
  asked Henry Rosenberg, chairman of Crown Central Petroleum
  <CNP>.
       An import fee would raise the costs of U.S. petrochemical
  products and make them noncompetive on the world market, Dunham
  said.
       "The energy security issue should be considered when
  environmental issues are considered," Martin said.
      "The level of investment for the proposed lowering of
  sulfur level of diesel to 0.05 pct by weight, for example, is
  unacceptable," Dunham said. "Most companies cannot afford it."
      George Unzelman, president of HyOx, Inc., said these
  proposals "will place pressure on small refining operations and
  promote further industry consolidation."
       An NPRA survey of of 139 refineries, which was released at
  the conference, said reducing sulphur content to 0.05 pct
  weight and aromatics to 20 volume pct aromatics in highway
  diesel fuel would cost refiners 6.65 billion dlrs.
       The national average diesel fuel sulfur content in 1986
  for the survey respondents was 0.27 weight pct while the
  average aromatics content was 32 pct.
       Another possible cost to refiners is the upgrading of
  facilities to produce a third grade of unleaded gasoline which
  is beginning to be marketed by some companies.
      "What will be the standard octane level in various grades
  of unleaded gasoline?" asked Dunham. "A midlevel grade of
  unleaded gasoline with an octane level of 89 means an
  investment has to be made," Dunham said.
       This grade is not warranted, said Crown's Rosenberg.
       Despite these concerns, refiners are expecting margins to
  move higher in the next few months.
       "We are beginning to see a return in wholesale margins,"
  said Roger Hemminghaus, chairman of the refining and marketing
  company that is to spin off from Diamond Shamrock Corp <DIA>.
       Margins are higher because the OPEC pact is holding, U.S.
  stocks of gasoline and heating oil are declining, and gasoline
  demand is rising as the driving season approaches, he said.
       "This summer could be a good season for selling gasoline,"
  Hemminghaus said, adding that the new company will be primarily
  a gasoline producer.