Oil refineries... (1 Viewer)

[todd s]

I was just reading an article that said the biggest problem with gas/oil prices is not the raw oil, its the refining process. Their are not enough refineries available. They said the US hasn't built a refinery since 1976. I don't want this to be a political debate. Just curious as to why no new refineries have been built??

 

[AjayM]

IIRC there was an article somewhere that went over some of the reasons, the biggest being the various regulations that are now in place over building a new refinery are so strict that it is not financially viable to build (perhaps even realistically impossible).

 

[Mort Corey]

It's why I love my stock in Valero They have even made some of their facilities able to refine heavy crude at a profit.

Mort

 

[Joe Szott]

Why would they want to build more refineries at extreme costs to sell the same product cheaper? Maybe you noticed, but the oil companies aren't exactly losing their shirts with the higher gas prices.

It's almost like they have have friends in high places ... [mod slap!]

 

[BrettB]

This should be fun.

 

[Malcolm R]

As Joe said, as long as people keep buying $2.25/gallon gas, why would they want to make a huge $$$ investment that would flood the market with more product and lower the price?

Between the desire to continue reaping high profits, strict environmental constraints, and rampant NIMBY-ism, I seriously doubt we'll see any new facilities anytime soon.

 

[Alf S]

..and they are one of our top customers where I work..we love them too!

 

[Mark Philp]

While lack of refineries is an issue, I recently read that something like 80-90% of the oil produced in the U.S. is for export. Why isn't our countries oil needs taken care of first? If there is a surplus the leftover can then be exported. I suspect the oil companies want a tight market over here so that they can keep the prices up.

Of course, things can always be worse. My wife and I were recently in Ireland and when you converted liters to gallons and Euros to dollars it came out to over $5.00 a gallon and in Northern Ireland it was over $6.00.

 

[Cees Alons]

Mark, you may want to read this report.

A few quotes:


I don't think the US is exporting half of its oil needs...


Cees

 

[Paul_Medenwaldt]

The same could be said for electricity plants. Where I live in MN, there are vast expansions of land. The land is being used for large home developments and huge outdoor mall complexes, but there has been no increase of building facilities that generate electricity in the state. Anything new, the state has to import from other states.

I agree with the orignal post that you can drill all you want, but if you are limited on the amount of oil you can process, thats where your bottleneck will be. If one plant is down, depending on how much that plant processes, it could take 5 - 10 percent of the oil processed out of the market, which then decreases the amount of gas available to the public.

There are also bizzare issues, this is an example i've read before where some gas sold in California has to be refined in Illinois and which adds to the cost of gas.

Paul

 

[Mike Voigt]

Ajay has it correct - the limitations on construction of a new facility are such that it is less expensive to build it elsewhere and ship it here.

Yes, the regs are that onerous. It is why you don't see huge investments made into new US refineries, chemical plants, nuclear plants, power plants, etc.

Debottlenecking or improving capabilities of existing plants still can be done. Even there, though, the "overseas option" has to be taken into account.

Of course, that means jobs going overseas... and that is a wholly separate issue.

Mike

 

[Philip Hamm]

I think the whole refinery thing a smoke screen. Crude is impossible to sell without refining. These companies can not bring their product to market without refineries. There isn't as much of a problem siting other environmentally challenging projects like paper mills and chemical factories. Oil refineries are expensive, but they bring lots of jobs that some communities could use very badly. I think the oil companies aren't building refineries because they know that there are limits to the amount of oil that can be produced. These are smart businessmen, they aren't going to spend all the money to site and build a refinery when in 10 years there won't be enough oil to utilize it.

It's going to be a big problem.

 

[Dennis Nicholls]

IIRC the reason that they aren't building new refineries is that it's been cheaper to tack-on new capacity to existing refineries. I think this is one of those statistics that hides the truth.

 

[Nathan Eddy]

Again, another silly comment. If oil is really going to run out in 10 years, why not increase your capacity and try to sell as much of it as you can before the party is over? Outselling your competition is the best way to make the most of a dwindling supply.

However, there is no evidence that oil will "run out" in 10 years. We will be using oil for the next quarter century or more.

 

[Glenn Overholt]

Oh boy, so now we're going to run out in 2030? (no gas or social security, can't wait)

To add to this mess, I have heard that a lot of the legal paperwork has been eliminated, but - and this is a big one

If they get a permit local activists will start a demonstration, and it probably won't stop.

I am curious though, we hear about the price of oil per barrel, and isn't that set by OPEC? So it wouldn't matter how many refineries there are, right?

Oh, and if we really didn't have enough gas, don't you think that some gas stations would have run out of it, even if it is only for a day?

Wasn't it last year when some huge Texas refinery caught fire and they said that they provided a huge chunk of our gas? Anybody see any - Out Of Gas - signs?

This is beginning to smell, really bad.

Glenn

 

[Cees Alons]

No, it isn't. The OPEC sets the production quota. But they cannot even be sure if the members - or non-members, like Rusland - obey those quota.

What is commonly referred to in newspapers as the price per barrel of crude oil, is NOT the prices payed at the moment, but the price of crude oil futures. Futures are options (to buy a right to be able to buy a certain amount of crude oil at a given date at no more than a given price).

The OPEC doesn't control that price.


Cees

 

[mark alan]

It is not that oil will "run out" in 10 years. The problem is that we either have hit, or will hit soon, the peak global oil production capacity. At that point, we are going to see a steady decline in oil production, along with a steady increase in oil prices. Many people predict we will see $100/barrel oil in the next year or two.

Of course demand will drop (because the oil isn't there for the demand). The question is whether demand drops because we develop alternate fuel sources or because civilization as we know it collapses. Unless America begins (immediately) to prepare, I am expecting the collapse option.

 

[Jeff Ulmer]

And others think it will drop significantly, since these prices are all speculative and are factoring a huge demand from China, who are apparently ramping up their own production, and won't need to import at the levels being guessed at.

We are no where near peak production, which is why there are all these events taking place to free up access to new sources. The oil industry has plenty of room to manipulate pricing to their advantage, and while they can't formally be charged with price fixing, their practices suggest that aside from collusion, that is exactly what they have been up to for decades.

 

[Mike Voigt]

Any business will manipulate prices to some degree - it is called meeting market demand, and checking for best pricing available. As someone put it above, if you can sell gas for $3.00 per gallon w/o a comparable loss in quantity bought, why supply it at $2.00?

To put is another way, if

3x > 2y because x > (2/3)y

then by all means selling 3x makes sense.

The whole analysis is far more complex than that - you have to take into account hundreds of variables. If you wonder what kind of math can handle that, look up linear programming.

The truth of the matter is that construction in the US would be delayed almost infinitely because of one permit or lawsuit after another. If you have a permit, which takes years to get, then you end up in lawsuit territory - all of which have to be cleared up before you can start digging. In the meantime, your concept becomes out of date, meaning you get to invest additional dollars into reengineering. Any results from the permits, etc. also needs to be taken into account. Moreover, the restrictions, measurements, tracking, etc. of all the details of plant operations required by law, plus all the reporting that goes along with it (figure several salaries to handle it - say 10 @ 80K average, so now you have an annual cost of 800K, add in any special tests, spare parts, repairs, etc., you're at a cool $1M! - annual costs!!! - and that's just the environmental side, same for safety), and you can see why companies prefer to go overseas.

It is not a happy calculus - the companies are mostly American, and would generally prefer to work out of here, and by and large the workforce here is highly trained - but that has been overcome by fairly cheap, but highly trained labor from places like China and India.

And if you build it in Saudi Arabia, or some place that has lots of room, an explosion or fire will *only* cost you the rebuild, plus some, as opposed to going through the same hassle as above plus tremendous additional expenses, due to damage to the communities. We don't go in for 30-60 miles one-way work commutes, by and large. there, they build a compound at a good distance, and off you go. No blown out windows, heart attacks, noxious clouds, etc.

So you do what you have to do - because if your next door neighbor can outdistance you in production and/or return on capital, you lose.

Same rationale applies to any potential major hazard - chemical plants, nuclear facilities, and the like.

It's the corner we've painted ourselves into. Same in Europe - ask the Europeans about their chemical plants - and how many are being built anew there. Not happening - almost all of it is overseas.

Mike

 

[Nathan Eddy]

I keep hearing about this "peak oil" concept, and the ensuing disaster it is supposed to cause. This seems like the latest doom-and-gloom, sky-is-falling story of the week. It's disturbing how easily it is for otherwise intelligent people to succomb to belief in doomsday scenarios. Y2K comes to mind. Global warming is another (a couple decades ago it was the coming Ice Age).

Will oil eventually run out? I suppose. Will this be the end of the civilization as we know it? Most definitely not. This type of thinking represents a lack of perspective, a failure of imagination to conceive the possible. A tendency to limit the future with false pessimism.

In the 18th century, a guy named Thomas Malthus said that eventually our population would outstrip our ability to produce food, and mankind's population would be "checked" with war, famine, disease, etc.

However, the opposite has been the case. In the 20th century, world population skyrocketed, but our ability to produce food increased at a much greater rate. Through modern farming techniques, we grow more on less land. Heck, we don't even need land to grow food. We can grow stuff hydroponically.

Doom-and-gloom scenarios universally suffer from the same lack of perspective and optimism that Thomas Malthus lacked: the failure to take into account human intelligence and ingenuity into their predictions of catastrophe, a general pessimism about mankind's progress.

The history of civilization has been one of ever increasing life-spans, increasing quality of health, increasing opportunity and freedom, increasing modes of transportation and mobility, increasing access to resources and goods, increasing access to knowledge and education, increasing access to entertainment and cultural enrichment. This has been our general historical development for thousands of years. Yet, some living during the pinnacle of this development still manage to look at the future with dread.

I mean, we're here in a forum for people who have THEATERS IN THEIR HOMES. Just think about that for a second, and then try to imagine someone from 500 years ago being transported into your home, and you're given the task of explaining to them this great fear you have about the future. I'm not sure if they'd laugh at the sheer, blind audacity--or cry over the tragic poverty of spirit such a fear requires. Either response would be appropriate, I guess.