Record High Oil | The Real Cause?
The Financial Times today posted a gloriously titled article, “World will face oil crunch ‘in five years’” yesterday afternoon that predicts ever rising oil prices and economic gloom. But who is to blame?
Fingers are also being pointed at the lack of credible oil refinery capacity inside the United States! The proof? The futures markets - the seers of future oil and gasoline prices - are increasingly pricing a spread between the price of unrefined crude versus the refined gasoline prices. This means the premium on gasoline over crude is increasing that suggests either demand for gasoline will strip supply or supply will decrease - or both!
Refineries have not been built inside the United States for almost thirty years! New legislation was passed over two years ago to ease and improve regulatory acceptance of new refinery construction and yet the oil giants have refused to jump on board and plough their hundreds of billions of dollars worth of profits into this critically important new investment.
An article in the San Diego Times in June of this year, “U.S. law to spur new oil refineries a bust so far“, suggests the oil giants are simply not interested, despite terrific tax credits and tax relief legislation.
Exxon Mobil’s perspective? A decent comment as posted as far back as September of ‘05 by the Houston Chronicle’s Blog:
Yesterday, as part of a daylong seminar on the energy industry for reporters at the Chronicle’s offices, Exxon Mobil Vice President Kenneth Cohen offered some insights on why the company doesn’t build more new refineries in the U.S. Basically, Cohen said, building even a small refinery would require an investment of $2 billion to $3 billion.
“Once you’ve made that investment, what you’re looking at is `what’s the growth?’ It’s just like any other business,” he said.
Exxon predicts U.S. oil demand may begin to fall by 2030, which means the company faces a limited window for return. More importantly, though, while the number of refineries has fallen since 1986, U.S. refining capacity has increased by 25 percent. That’s what Cohen refers to as “creep.” That is, refining technology has improved, allowing refiners to operate more efficiently.
“We’re able to produce much more with the same stuff.”
The creep has kept pace with rising oil demand, at least until the past year or two. Even so, from Exxon’s standpoint it’s hard to justify the cost of investing in building a new U.S. refinery. I doubt even tax incentives would sway Exxon’s opinion.
Cohen noted that Exxon does have ventures underway to build refineries in Asia.
“We’re going where the demand is,” he said.
I’m sorry - but $164 billion in profits for 2006 - based on the suffering of Mr. and Mrs. Tax-payer and Exxon still don’t get it? Sure, building oil refineries where the demand is … means moving resources as fast as you can to China - with their rocketing appetite for oil and their exploding (whoops, downside?) economy but guys, you are bending the average citizen of the U.S. over a chair and giving it to them in the ass and you don’t are asking, “What’s the growth?”
When the U.S. economy collapses BECAUSE of your insistence that $80, $90 or $100 is completely acceptable whilst you play nice with an EPA-ignoring China market, … who will be blamed? You guys?
Frankly, the blame will (and almost certainly should) be placed on the shoulders of those demonic morons in Washington (both sides of the political fence) for their acceptance of Oil Lobbyists, their short time and insanely blinkered self-serving legislative incompetence.
Alternative energy? This is a matter of national security if ever I saw it and what is happening? Billions and billions every day is spent in Iraq. The oil industry advertises on T.V. in all major markets telling us the oil industry feels our pain (BP, “Beyond Petroleum”, my ass) and yet they’ve done nothing to avoid refinery capacity decline.
What if a visionary president had stood up in 2000 and challenged the nation, this fine country that delivers world-leading innovation and self-improvement - to find an alternative to the combustion engine within ten years!? Some JKF’esque Moon-Shot speech that was supported by fantastically massive federal investment!? Jobs creation, spin offs in products and services, a safer environment, a bullish economy and a light at the end of the tunnel on saying ‘sa.yo.na.ra‘ to those fellas at OPEC?
[Written in a hurry because I'm pissed off.]
Posted on July 10th, 2007 under Alternative Energy, Bush, Exxon Mobil, JFK, OPEC, Refineries, oil • 
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