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Conservation doesn't include Air Force One
September 27, 2005 2:02 PM   Subscribe

Petroleum Industry Christmas Wishlist Conservative pundits are quick to point out that no "new refineries have been built since 1976", and even quicker to blame "environmentalists". But the facts just don't support that. Refiners have chosen the environment that they do business in, and in some cases have willingly contributed to it. (Plenty of data here.) Here's why:

As one would expect, Bush's solutions nicely match up with the wishlists of OPEC and US refiners, who in the past few decades have largely undone the breakup of Standard Oil (via) via mergers and joint ventures. Representative Joe Barton, (R-TX), Chairperson of the Energy and Commerce Committee, incidentally up for reelection and well funded, by "the industry" through various Political Action Committees, has released a draft of the predictably named (to be found here when released) Gasoline for America's Security Act of 2005 (committee discusion and webcast are scheduled for 9/28 at 8 am.) Given that new refineries are years away, there is still no solution for current prices or the (90%?) increase in prices since January of 2001.
posted by rzklkng (22 comments total)

 
Lots of text for an fpp. Maybe tuck some inside the post next time.
posted by billysumday at 2:06 PM on September 27, 2005


I'm impressed by the post but yeah, the More Inside is your friend. But there's a lot of good information here, it'll take me a little while to read it all.
posted by fenriq at 2:17 PM on September 27, 2005


Given that new refineries are years away, there is still no solution for current prices or the (90%?) increase in prices since January of 2001.

Except for perhaps, conservation?
posted by caddis at 2:51 PM on September 27, 2005


Why should the gas companies refine more gas? They're quite happy the way things are -- revenues are up and expenses are relatively flat. The recent spikes in gas prices were not connected with rises in the price of crude oil, the raw material, and no new refineries means no additional properties or employees to provide for.

Economically it really makes no sense for oil companies to increase the capacity to produce gasoline for vehicles. Keep the supply tight and your revenues increase over time. Add capacity and your revenue per gallon will decrease.
posted by clevershark at 3:09 PM on September 27, 2005


Only slightly related rant: "NIMBY enviromentalists."

These aren't the same. Eviromentalists don't want refineries, period. "Conservatives" want refinieries, just not in thier back yards.

Finally: If refinery capacity was in fact the chokepoint for demand, US crude oil demand wouldn't increase, since the refineries wouldn't buy crude they couldn't process. (The US Government does, see the Strategic Petroleum Reserve, but in the context of total crude refining/year, this is noise.) Thus, crude prices wouldn't affect product price much, since the scarcity of refined product would be the pricing point, and US crude demand would have flattened as the refineries reached maximum production ability.

The fact that the US demand for crude continues to increase, shows clearly that refining ability is not the chokepoint for US demand.

Remember, kids: President Carter Bush said we should conserve gas.

Amusingly enough, the Crude Fairy has apparently waved her wand over Saudi Arabia, who are announcing that, amazingly enough, they found another 200Gbbs of reserves. For scale, the total former resevers were 240Gbbs.

Of course, it would be unsporting to point out that the Saudis have categorically refused to let anyone else look at the data justifying these reserves since the mid 1970s...
posted by eriko at 3:25 PM on September 27, 2005


eriko, see the problem is that they forgot to carry the one over and that's how they overlooked the 200Gbbs (is that 200 gillion billion barrels?).

Crude Fairy? That's a nice image to think about, a really nasty, fat, ugly and poorly kept fairy who leaves dirty handprints on your walls, a smear on your pillow and always leaves nasty old crusty quarters for your teeth. Nobody likes the Crude Fairy, except oil-mad Texans.
posted by fenriq at 3:54 PM on September 27, 2005


Yeah, where did this magical extra 200 billion barrels pop in from? There hasn't been a single field larger than about 50 million barrels discovered in the last 20 years!

Methinks they are lying, lying, lying, to try to stave off people's peak oil concerns.

We'll see the proof soon enough; they've been saying for a couple of months that they can add 2 million bpd to production at any time, but this has yet to materialize.

If we don't see at least that increase coming out of SA by next year or the year after, and continuing at the same pace thereafter, these 200 Gbb are a fairy tale. A find that big would mean fields that were new and fresh, which would spew oil in the old-fashioned "gusher" style for years to come.

Then again, SA seems to have peaked as far as "light sweet crude" is concerned - so this might be 200 Gbb of the heavy sour stuff that's a bitch to refine - and which there aren't many refineries that can handle at the moment. Even if there were, the refining of this stuff to light fractions like gasoline is a lot more expensive and yields substantially less of it per barrel, so it wouldn't help prices any.

I don't believe a word of it, but it would be good to be proven wrong.
posted by zoogleplex at 3:55 PM on September 27, 2005


Excellent post. I always thought the "more refineries" argument was complete bunk for the environmental reasons listed, and now my suspicions have been confirmed with hard data. Thanks.
posted by Rothko at 3:58 PM on September 27, 2005


From an environmental point of view, restricting the construction of new refineries is the most sensible move the oil companies could make. Increased prices => more conservation => reduced consumption => slower global warming. They also increase their profit margins, so it's good for business too.

Personally, I'd support the idea of closing oil refineries (particularly the older, more polluting ones) to further increase the prices and force people to reduce consumption more.

But I don't think the oil companies are doing this deliberately. Like all capitalist organisations, they are structurally incapable of long term planning - because anyone who does long term planning gets bought out in the short-to-medium-term by their short-term-focused competitors.

The oil companies just didn't plan on India and China developing economically as fast as they have, so demand is increasing quicker than anticipated, hence the current shortage. But perhaps it'll work out for the best.
posted by cleardawn at 3:58 PM on September 27, 2005


Then again, the real truth may be that the oil companies actually know that the oil peak is imminent, so there's no point in building new refineries, because soon there won't be enough crude oil to run through them all.

All those other benefits might be just happy coincidence, cleardawn.
posted by zoogleplex at 4:05 PM on September 27, 2005


Methinks they are lying, lying, lying, to try to stave off people's peak oil concerns.

How would that be in their interests? Seems to me it would be in their interests to understate their reserves, so that perceptions of supply would stay low and help keep prices up.
posted by ROU_Xenophobe at 4:07 PM on September 27, 2005


Some discussion of this at The Oil Drum.

One poster mentioned: "If it were true they would be investing big time in new refineries and tankers. They are not. Judge what they are doing not what they are saying."

And so back to my point - let's see them jump production "at any time" by a few million bpd. Actions to back up your claims, please. And how about allowing some independent auditors to evaluate your reserve numbers?

According to the article on Bloomberg:
"Saudi Arabia is the only OPEC member able to compensate for supply cuts and is targeting to raise production capacity by 14 percent to 12.5 million barrels a day in five years. Saudi Arabia has a plan to raise capacity to 15 million barrels a day whenever that much is needed, al-Naimi said."
Well, let's see you do it, Ali. Then maybe we'll believe you.

Of course, there's also the possiblity that the extra 200 Gbb may only become "soon possible to extract" because the price of crude going over $100/bbl would make it financially viable to do so.

ROU, yeah it doesn't quite make sense, this problem is very murky. Then again, OPEC decided to tie production quotas to each country's "proven reserves" number a while back, and every country suddenly "magically" had a lot more reserves appear on the books - so they could pump more oil and make more money.

It's all fishy. Very fishy. So we'll have to wait to see what actually happens. We'll know soon.
posted by zoogleplex at 4:19 PM on September 27, 2005


And meanwhile....
posted by zoogleplex at 4:21 PM on September 27, 2005


Xenophobe, they may get better credit terms if banks think they have more assets than they actually do. Other than that, I can't think why they would lie about it.

I was going to say that maybe they were doing it to benefit US, but I don't see how it would help that much. It might blunt the price over a very short period of time, but the loss of credibility surely couldn't be worth it.

Some folks have been saying for awhile that Saudi Arabia simply doesn't have any more capacity to pump oil, so it'll be interesting to see if they actually can.

If we hadn't invaded Iraq, of course we'd have had the option of loosening sanctions and letting them pump more. But we've made darn sure there won't be solid, steady supplies coming out of that nation for quite some time.
posted by Malor at 4:23 PM on September 27, 2005


True, zoogleplex. I do think peak oil is probably here, though it is, as you say, murky.

The price from now on will continue to rise, that's becoming increasingly clear.

The extent to which it is a "happy" coincidence remains to be seen, as the impact of higher fuel prices filters through to higher food prices.

One predictable short-term result will be that economies of scale, represented by folks like WalMart, shipping "cheap" food across Amerika, will be out-competed by economies of locale, such as local farmer's markets.

Organic farming also becomes more economical, as the cost grows of shipping artificial fertilizers and pesticides cross-country from the factories.

If you're an African farmer who needs fuel for his truck to bring in seed, higher fuel prices may well be a life-threatening problem. There again, many third-world farmers already use practically organic techniques, including seed-saving (though Monsanto, for example, has tried to prevent it) simply because chemical fertilizers and pesticides, and bought-in seed, are too expensive.

Those quasi-organic techniques are also going to become more popular as shipping costs grow. And for us geeks, the whole "home office" thing also becomes increasingly cost effective with every hike in the price of fuel. And higher fuel costs also mean fewer road traffic deaths and injuries.

So it might not be all bad.
posted by cleardawn at 4:25 PM on September 27, 2005


Heh, I meant "happy coincidence" in the sense of higher profits for the oil companies.

However, the rest of what you talk about are pretty straightforward consequences of high fuel prices.

I read this earlier today (via).

Imagine that it becomes economically impossible for farmers to grow wheat! Yikes. (Good news for my many wheat-allergic friends tho.)
posted by zoogleplex at 4:34 PM on September 27, 2005


zoogleplex writes "Then again, SA seems to have peaked as far as 'light sweet crude' is concerned - so this might be 200 Gbb of the heavy sour stuff that's a bitch to refine"

Isn't all crude sour before it's "sweetened" (by taking the sulphur out of it)?
posted by clevershark at 7:00 PM on September 27, 2005


ROU_Xenophobe writes "Seems to me it would be in their interests to understate their reserves, so that perceptions of supply would stay low and help keep prices up."

Actually no -- the impression of too tight a supply of oil (altogether) would be an impetus to get serious about developing alternate fuels and modes of transportation, eventually resulting in a lesser reliance on the products of oil companies. Like drug dealers, oil companies walk a tight line.
posted by clevershark at 7:10 PM on September 27, 2005


Representative Joe Barton, (R-TX), Chairperson of the Energy and Commerce Committee, incidentally up for reelection

Quibble: all members of the House of Representatives have two year terms; they're more-or-less always up for reelection. So the (excellent) post would have been (even) better without those four words.
posted by WestCoaster at 7:56 PM on September 27, 2005


The fact that the US demand for crude continues to increase, shows clearly that refining ability is not the chokepoint for US demand.

Well, it wasn't *last* week. This week, it probably is. But anyway, unless something seriously reduces our thirst for gasoline, refining capacity will fail to keep up with demand sometime within the next few years -- which is less time than it takes to build new refining capacity.


Isn't all crude sour before it's "sweetened"? -- No, it isn't.
posted by sfenders at 8:07 PM on September 27, 2005


Oh, maybe not. Gasoline demand appears to be down a bit here...


posted by sfenders at 1:52 PM on September 28, 2005


Every time gas prices go up, I chuckle. Sure, I'm paying more, like everyone else. But the knuckleheads who bought Hummers and mongo SUVs are paying for it now.

BWAH-HA-HA-HAAAA!
posted by Doohickie at 5:57 PM on September 28, 2005


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