Monday, October 03, 2005

Imagine my surprise...

at reading a piece in the LA Times discussing oil refineries, refining capacity and gas prices that wasn't anything but hostile. So noteworthy that I figured it deserved comment.

High gasoline prices, hurricane-triggered shortages and big refining profits are fueling a push to build the nation's first new oil refinery in 30 years.

Yes, I've been saying it for quite a while...refining capacity needs to increase over the long-term if oil and gas prices are ever going to be forced down to more reasonable levels. Glad to see the Times apparently getting on board. More from the piece's author, Elizabeth Douglass:

What's driving these efforts is that fuel production from U.S. refineries has not kept pace with the demand from a rebounding economy. The result has been painful price surges for consumers, truckers and airlines.

It's a problem that's been building for 25 years, starting in the early 1980s, when overproduction and heavy losses forced smaller operators out of business. The trend accelerated in the 1990s, as federal and state regulators began mandating cleaner fuels and costly environmental upgrades. Then a wave of mega-mergers among oil companies led to more closures, as those firms saw consolidation as the shortest path to profits.

When hurricanes Katrina and Rita hit the Gulf Coast, they laid bare just how fragile the U.S. refining system had become. The storms knocked out fuel production and vital pipelines along the coast from Alabama to Texas and sent pump prices to record highs.

Current circumstances are bringing people back to the energy market and prompting examinations of it's profitability for the first time in nearly 20 years. For the first time in nearly that long, you've got people thinking it's time again for re-entering the business.

In June, long before that and other measures were proposed in Congress, British tycoon Branson declared his interest in building a refinery to blunt the effects of soaring jet fuel prices on Virgin Atlantic Airways, his flagship airline. The entrepreneur, whose holdings also include mobile phones, soft drinks and insurance, said recently that he was considering Europe and Africa — and sounding out officials in parts of the United States — for the refinery project.

Last month Kuwaiti officials renewed an earlier offer to build a U.S. refinery. They sketched out a proposal for state-owed Kuwait Petroleum Corp. to form a joint venture for the project, and the country's oil minister hinted that a preliminary agreement could be reached as soon as this month.

It was unclear whether the discussions would be invigorated by new congressional action. "We're waiting to see where they go," said Bob Slaughter, president of the National Petrochemical and Refiners Assn., a trade group. "Whenever people say they want to build a refinery, we say, 'Please go ahead.' "

I commented some months ago on the effort of Arizona Clean Fuels, who is working to build the nation's first refinery in 29 years near Yuma. They are a case-study of what Douglass is talking about:

The Phoenix company has spent 12 years looking for funds and nurturing a vision of building this country's first refinery since 1976. This year the proposed plant, to be built near Yuma, Ariz., cleared what's considered the single biggest environmental hurdle for such projects: It got an air permit.

Glenn McGinnis, chief executive of Arizona Clean Fuels, says recent events have spurred serious talks with potential investors that could soon yield the $75 million he needs to fund engineering work. A tax break in the recently enacted energy bill speeds up returns for his possible investors, and the actions being considered by Congress would improve the outlook even more, McGinnis said.

Where is the US government on this issue? Does it think it important enough that incentivizing these and similar efforts will become reality?

Rep. Joe L. Barton (R-Texas), has a bill working it's way through the House that would effect these types of operations in the following ways: [bill] "would limit government review of plant modifications, put the federal government in charge of shepherding refinery projects on strict timelines, and establish a "standby refinery support account" allowing the government to compensate applicants for certain kinds of delays in refinery construction and refurbishment projects. "

To my mind, all things that ought to be encouraged over the short- and medium-term while we negotiate our way through the current difficulties of the world energy market. And before anybody wants to berate me for kow-towing to Big Evil, a.k.a. Big oil, I am not advocating the ostrich-approach to new technologies and/or sources of energy.

Such new developments are the ultimate long-term solutions. What I am advocating is how to get from here to there without more and more pain at the pump. As to why continuing high energy prices are a bad thing, check this analysis.

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