The Old Oil Refinery Dodge
Rocketing fuel: Diesel fuel has been in tight supply for the past several months following a cold winter in the Northern Hemisphere, and as the popularity of diesel cars grows in Europe and the developing world.
With diesel prices outpacing gasoline, refiners in the United States have been ramping up production of diesel and sending it abroad. That has displaced some domestic gasoline production, helping push gas prices higher.
The price of diesel fuel hit a new record high Friday of $4.482 a gallon, according to a daily survey from AAA. Regular unleaded gasoline also reached a new record of $3.787 a gallon.
The old refinery dodge
By: JOHN VAN DOORN – staff writer
Last modified Saturday, May 26, 2007 6:45 PM PDT
Once again, the old undependable-refineries ploy.
When gas prices soar in San Diego County, and beyond the California boundary lines, the oil industry usually explains it by pointing to aging refineries, fires at refineries, or refineries closed down for maintenance.
Well, it’s happened again. Gas prices are out of sight already. They’re creeping up on the $4-a-gallon mark, although —- and this is a usual part of the drama, too —- in the last few days there has been a little up-and-downism.
Who or what is to blame? That’s always the question, and the oil companies traditionally answer: the refineries.
Refineries are simply not equipped to handle current demands because they are old and undependable.
Big Oil seldom has any opponents that pose a serious threat, and that’s how it is this time. It has friends. The state Energy Commission is helping (as is the Automobile Club of Southern California) with the story line: “California refineries have had significant problems all year long,” said Susanne Garfield, a spokeswoman for the commission.
“One right after another,” she said. “There’s not a lot of excess. Our refineries are pretty much maxed out.”
That might be true. She said she hadn’t permission a couple of weeks ago to specify to our writer Ann Perry just what the latest troubles might be, refinery by refinery, but said that as a group they’re in pretty bad shape.
The industry couldn’t have said it better itself, although it usually tries.
It is true that refineries are old. Might even be decrepit. Might need lots of maintenance. Surely there have been fires over the last few years. Sure they strain to operate at full capacity.
So what? The old bad-refinery ploy, which to skeptical minds just won’t wash, won’t wash this time, either.
If the refineries are so awful, why doesn’t the industry repair them? Why doesn’t it build new ones? No new refinery has been built in the United States since 1976.
The new-refinery question has been raised before. When it is, the industry and its defenders tend to declare that securing permits to build can take up to 11 years, and that environmentalists block the efforts anyway.
Critics say most of this is baloney, simply not true. And sometimes the industry itself, in presumably less guarded moments, paints quite an opposite picture.
On the Web site, TomPaine.Com (as in dot Common Sense), a commentary noted in 2005:
“Indeed, at a Senate hearing last year, BP’s chief executive officer explained that ‘[refinery] margins over the last 10 to 15 years have not been high enough on average to justify building a new refinery.” And in a recent closed-door briefing with congressional aides, an Exxon Mobil official said that company foresees no need to build new refineries at least through the year 2030.
“If that weren’t fast enough, last year’s Energy Policy Act included provisions to coordinate state and federal permitting for new refineries. Energy Secretary Samuel Bodman hailed the refinery provisions as ‘easing the constraints on new refinery construction.’”
In the same article it was observed that “CEOs for BP, Shell and Conoco all testified to Congress last year that environmental requirements have not blocked a single planned refinery expansion.”
What is more, “then-EPA administrator Carol Browner testified to Congress in 2000 that about half the permit modifications for refineries were issued within five months and that most of the others were issued within a year.”
All of the discussion has a certain delusionary feel. The industry is gagging on money, the flow of which it has no plans to interrupt. It cannot find storerooms enough to stuff the money into.
Take Exxon Mobil. It has reported profits of $36.1 billion for the year 2006. The profits for the fourth quarter were $10.3 billion. What about the refinery segment of the company? In the same quarter, the refinery segment profited by $1.9 billion.
Valero announced on April 26 that its first-quarter profits were $1.1 billion, a 30 percent gain over the first quarter last year. Chevron’s first quarter showed profits of $4.7 billion.
And so forth.
Clearly Big Oil could afford not only to slap up a new refinery or two but probably an army of them and not even make a memorable entry in the checkbook.
It comes down to this: Oil companies keep prices up artificially. The weak refineries —- and they probably are weak and old —- are part of the mechanism of the acquisitive gene. All the reasons given for high prices are, when examined for sense, nonsense.
The real reason is greed. Nothing more than that. The companies can trot out every marketing person, every academic, every politician —- sycophants of every stripe —- to intone the gravity of supply and demand, the role of OPEC, seasonal adjustments, refineries at capacity, and they add up to nothing. Just smoke. Greed is the constant.
Come on, gas companies. Cough up. If your refineries are to “blame,” build new ones. The regulators swear they’ll help with your permits, as if you needed any help. And by your own declaration, environmentalists haven’t the juice to stop you.
For starters, build half a dozen new refineries. Do it for the motorists. We’ll bet you can get gasoline into their cars for $2 a gallon with no sweat. Not long after that, maybe a buck.
And here is an absolute guarantee for you, Big Oil: Your profits will remain monstrously high. Ugly high. Embarrassingly high.
How can that be? Because you’ll think of something; you always do.
Contact columnist John Van Doorn at (760) 739-6647 or firstname.lastname@example.org.