so if we had more oil refineries but everything else stayed consistant would our price go down

i heard something on tv and basically what i got out of it was : its not that we are not pumping a shitload out of the middle east as it is, its that when its coming into the us we have to refine it and we havent had an oil refinery built in like 25 years(anyone can confirm this?) so all that we are getting in is being shipped out as fast as possible.

is this true AND IF SO...ummmm why havent we built another refinery?

[Edited on October 1, 2005 at 10:45 AM. Reason : clarification]

10/1/2005 10:44:37 AM

Hmm, yes the price of gasoline is artificially high due to a shortage of gasoline, not a shortage of crude oil thanks to the SPR.

As such, when all the refineries come back online the price of gasoline will drop about 40 cents given the current price of crude oil.

The reason we have not built more refineries is simple, people do not want a refinery in their neighborhood/city/state.

Next logical question is "Why?" which is easy to answer. If another refinery was necessary and prudent then the energy industry would lobby their respective legislatures to build another refinery, until now they have not.

Ok, well, "Why not?" you should then ask.

Because they can often more cheaply expand production at an existing refinery than build an all new one because the government liscensing process is so expensive.

Your next question, I guess, is "Why havn't they thusly expanded production to keep up?"

Because the refining industry operates radically different from most other industries. Because gasoline and diesel consumption is often so predictable, they usually know five years in advance how much to produce, unlike christmas toys, as such the industry as a whole only builds excess capacity as necessary to match the market, producing rediculously high utilization rates of 90+%. This lack of excess production allows the refiners to pass on cost savings to their customers under normal circumstances. However, if an unscheduled failure takes place (see hurricane), there is often not enough surplus capacity to fill the gap.

"Wait, didn't the price go up before Katrina?"
That's right, but only because the price of oil was so high. Oil production is a different animal and will not be covered here. Suffice to say that China and India are gobbling up world-wide oil production, while America, thanks to two hurricanes, is gobbling up world-wide gasoline production.

The refinning situation before Katrina was tight, utilization of 98% at one point, but the spread between oil and gasoline prices had only increased a few cents a gallon. Nevertheless, it was sufficient to spawn numerous plans to expand production across the country and has even spawned plans to built two brand-new refineries. Most will no doubt will be blocked by political forces, but enough will go through to restore normalcy over the long-term.

[Edited on October 1, 2005 at 11:06 AM. Reason : .]

10/1/2005 11:00:00 AM

Government regulations make it really, really difficult to build oil refineries. Expanding current ones is a way to get around this, but as the hurricanes showed, its a risky proposition.


because of a variety of factors, primarily government regulations and environmental obstructionists getting in the way:

We haven't built a nuclear power plant in over 30 years.

We haven't done any significant exploratory oil drilling in over 30 years.

We haven't built a new oil refinery in over 25 years.


...and you wonder why we are so dependent on foreign oil.

10/1/2005 11:09:40 AM

Quote :

"and you wonder why we are so dependent on foreign oil."

because it makes a lot of people, on both sides of the aisle, very rich

10/1/2005 11:20:27 AM

ok i def. can understand someone not wanting a nuclear reactor, or refinery built in their neighborhood

but i mean there are places like wyoming(i'm not spending an extra minute searching up the spelling) that are very unpopulated

do refineries have to be on the coast or something

i'm sure there are places that hardly anyone lives where they could build one, or atleast thats what i would think, idk

10/1/2005 11:21:47 AM

aha lets build a giant pipeline of crude into Wyoming


Yes, considering that the oil is coming in on boats from the middle east and South America, it helps to have a refinery close to a port city.

Regulations on the oil industry were not meant to protect heavily populated areas. They were meant to stop the expansion of the industry as a whole. Unfortunately, those laws are somewhat outdated in this time of high gas prices and conflict in the middle east

[Edited on October 1, 2005 at 11:28 AM. Reason : !]

10/1/2005 11:25:48 AM

ohhh yeah dur, my bad

dang why cant we just use maine as a giant port city for oil

the only person that would get pissed is stephen king

10/1/2005 11:27:43 AM

"Sometimes you must go to war with the refineries you have."

10/1/2005 1:28:09 PM

The bottom line is the oil companies know that building more refineries will not increase their profits. Therefore they haven't built any. I discount blaming the regulatory environment, b/c money walks and they would have no problems with this administration taking care of that.

Question: Why not import gas instead of crude? Then we can put the refinery somewhere else where people don't give shit.

[Edited on October 1, 2005 at 2:01 PM. Reason : ?]

10/1/2005 1:53:40 PM

I already answered these questions. Refiners are desperately expanding the capacity of existing refineries, it just takes time and a shortage of hurricanes.

And if you know anything, you'll notice the stream of tankers traversing the planet to deliver gasoline to North America.

10/1/2005 2:35:17 PM

There's way too much money to be made for people not to want a new refinery. Haven't you taken any economics courses at all? When there's a potential for profits, people move into an industry until it reaches some sort of equilibrium. Why do you think there are a million general contractors in areas with lots of construction? The difference is, it's pretty easy to become an independent contractor. The barriers to entry are few compared to all the time and capital necessary to build an oil refinery. Many of them will go out of business when competition gets too stiff.

The government regulations are what keeps startup companies from forming and building a bunch of new refineries. There are a shitload of people out there who would invest in a new oil refinery/company if it were easier to do. Think of the potential profits here. The nature of the oil industry also makes it tricky, because you needs lots of infrastructure.

The government is making it difficult for the market to do its job. It's understandable though considering the environmental consequences of these things. One thing you learn in economics that you pay some kind of price for everything, and you just need to figure out whether you can afford it or not. This is the price we pay for regulation that is this extensive.

[Edited on October 2, 2005 at 10:07 AM. Reason : .]

10/2/2005 10:04:28 AM

Quote :

"There's way too much money to be made for people not to want a new refinery. Haven't you taken any economics courses at all? When there's a potential for profits, people move into an industry until it reaches some sort of equilibrium. Why do you think there are a million general contractors in areas with lots of construction? The difference is, it's pretty easy to become an independent contractor. The barriers to entry are few compared to all the time and capital necessary to build an oil refinery. Many of them will go out of business when competition gets too stiff."

So, like I said, the big oil companies have no incentive to build more refineries and nobody else can afford to build them.

Why don't we just build the refineries in another country and import gas instead of crude?

[Edited on October 2, 2005 at 11:02 AM. Reason : ?]

10/2/2005 11:00:57 AM

people are used to paying $3 per gallon. If supply increases, I see a huge gas tax coming...

10/2/2005 11:27:49 AM

So, like we said, Everyone has an incentive to expand capacity, including the people that are already in the business.

Pretty much every company that is capable of expanding an existing refinery is engaged, they simply cannot keep up with the demand.

Refinery owners have run out of contractors to throw money at, the contractors have run out of parts suppliers to throw money at, the parts suppliers have run out of fabrication machines to further increase production.

And then the hurricanes hit. Now, we not only need enough stuff to increase capacity but also to fix damaged capacity.

10/2/2005 12:43:55 PM

The oil companies are making record profits. I doubt they are in any hurry to make changes.

10/2/2005 1:12:43 PM

stop driving so much retards

10/2/2005 1:39:53 PM

^^ They can always become richer.

Or, even better, become famous by driving your competition to ruin and guaranteeing yourself not just high profits today but high profits until you die!

10/2/2005 2:11:16 PM

It's that very desire for more profits that make people expand capacity. The way the demand trends are going in the near future, the more gas you refine the more money you will make. Therefore there's no reason to artificially restrict supply. It's a bad business decision.

10/2/2005 6:30:13 PM

except with a decreased supply and no free entry into the market they actually can artifically increase prices. thereby netting the same or similar profits without having to increase their capability

10/2/2005 6:43:28 PM

But if they DO increase refining capacity, then they get more profit at the expense of their competition.

10/2/2005 7:35:21 PM

Except why start a price war when everybody is making so much money. Their is risk involved.

Some of you guys forget about all the fine print in this economic theory. Economic theory makes a lot of assumptions that you aren't accounting for. You assume competition to exist, but you can't assume that. The oil companies could be colluding to keep supply down. They could all be deciding independently to maintain the status quo. The regulatory environment certainly protects them from outside competition. I reject the assertion that the regulatory environment prevents them from increasing refinery capacity. They've had Congress in their pocket for a long time now and the President for almost 6 years. They have the cash and connections to work it out. Plus, they could put refineries in other countries with little resistance. Why not right over the border in Mexico?

Oil companies are making record profits. They haven't made any innovations to create this. They are simply getting more money for the same product they've always sold. Why would they want to change that? Until somebody makes the first move to try to be winners by increasing sales, nothing will change. But why take that risk?

[Edited on October 2, 2005 at 7:48 PM. Reason : ?]

10/2/2005 7:39:33 PM

no one gas company is afraid to have lower prices. theres too many of them

10/2/2005 7:45:38 PM

except it takes time to make a refinery, the additional cost just isn't worth it.

10/2/2005 7:49:50 PM

easier to buy up the other gas companies

10/2/2005 7:50:39 PM

I wonder how long it will take them to get all the refineries back online? Especially since:
1) The price of gas skyrockets with each refinery that is down
2) The price of gas does not affect the amount of gas they can sell

I'd guess they drag their feet in getting them back online. The longer they are offline the richer they get.

10/2/2005 10:14:24 PM

^ As for your #1, higher prices does not equate to higher profits. If my refinery is the one that shuts down, I damn sure am not earning more money, no matter what the price goes up too.

As for your #2, the price that I charge damn sure does affect the amount of gas I can sell. As you obviously didn't notice, we are now importing a radically larger percentage of the gasoline consumed in this country. That means foreign companies are raking in the dough selling us gasoline while our companies sit their with busted shit, kicking themselves for not building their refinery somewhere safer.

10/2/2005 10:24:42 PM

Makes sense.

10/2/2005 10:28:49 PM

yep, i'm sure that the short term losses in the past few weeks have completely offset all of the immense profits they've raked in by not putting the refineries somewhere "safe" thus increasing transportation costs. come on lonesnark

10/2/2005 10:32:55 PM

Come on Halo, cut me some slack. Don't attack me for a statement made in jest. I fully recognize that the refineries are right where they logically should be. But you know people, they're often not even happy with good decisions.

That said, a little more money in weather proofing might have been a good idea, although probably not.

10/2/2005 10:39:26 PM

Sure hasn't hurt Exxon, Chevron, or Conoco/Phillip's stock. They've shot up 10-15% in September.

[Edited on October 2, 2005 at 11:44 PM. Reason : ?]

10/2/2005 11:42:48 PM

when you buy the gas thats 1 cent cheaper than the other gas station, you stick it to the man

10/2/2005 11:46:52 PM

I never thought I'd be happy about paying $2.69/gallon.

10/3/2005 12:01:48 AM

^It's official. They won.

10/3/2005 8:36:28 AM

Yea, I was reading this morning that a study showed if the price remained at $4/gallon for a year, demand would only go down 5%.

10/3/2005 12:39:32 PM

are you kidding me... thats it.. only 5% thats just plain astonishing... where did you read such a prediction.

10/3/2005 1:29:25 PM

if gas companies learn that lowering their price by 1 cent per gallon can get them a few more $20 sales instead of letting their cheaper competition get the profit from $20, they will lower price 2 cents, and a price war starts... If you buy gas just anywhere, it goes up quickly. The gas industry is extremely volatile. Small changes in customer behavior can change prices significantly.

10/3/2005 1:36:21 PM

Yeah that's probably what the calculations of demand elasticity say. BUT you need to remember that $4 a gallon could easily put the country into a recession, in which case demand will fall more than that.

If you look back 25 years ago you will note that the oil crisis of the early 80's was followed by an eventual glut of oil and depressed prices over the long run (except around the time of the first Gulf War). Remember back in '99 or so when gas was less than a dollar a gallon? This actually fucked up the market pretty bad. Oil bottomed out at $9 a barrel (or was it $12?), which hurt our capacity. Lots of small suppliers shut down.

10/3/2005 3:10:37 PM

economics acts like a wave, and often like a feedback loop microphone to amplifier to microphone... but that doesnt mean we shouldnt fight high gas prices. they piss me off and will lose business because of it

10/3/2005 3:17:51 PM

I have a hard time believing we haven't built any refineries lately. At work we have sold an assload of materials to Conoco Phillips in the last year for their refineries in the Gulf. I'm sure some of it was for retrofitting old refineries with new technology but I can't believe that none of it is going to new refineries.


Ok well after some quick searching I found that Conoco Phillips is building a new LNG regasification facility in the Gulf http://www.conocophillips.com/newsroom/news_releases/010605_LNG.htm

But apparently no new oil refineries by any major petro company

10/3/2005 3:45:22 PM

I saw it at the bottom of this article.

http://www.wral.com/news/5049580/detail.html

10/3/2005 9:09:15 PM

Quote :

"WASHINGTON (Reuters) - President George W. Bush on Monday urged Congress to clear away regulatory obstacles that prevent building new U.S. oil refineries, a move certain to trigger a new fight with environmental groups and Democrats. Hurricane Rita's 120 mile per hour winds last weekend knocked out two Texas refineries for up to a month. That came on top of 5 percent of U.S. Gulf Coast refining capacity that remains offline from Hurricane Katrina in August. "The storms have shown how fragile the balance is between supply and demand in America," Bush said. "We need more refining capacity." No new U.S. refinery has been built since 1976. U.S. gasoline demand has grown to over 9 million barrels per day (bpd) but a maze of permitting requirements and landowner objections has blocked new projects. Bush specifically cited as a roadblock the "new source review" rule administered by the Environmental Protection Agency as part of the Clean Air Act. It aims to protect public health and ensure that refinery expansions do not increase air pollution from substances linked to acid rain and smog. "

http://www.washingtonpost.com/wp-dyn/content/article/2005/09/26/AR2005092600768_pf.html

Bush isn't the one dragging his feet on this...

10/4/2005 1:00:10 AM

...from the wall street journal:

Quote :

"One explanation for this performance is the historically low gas prices over much of the past 20 years; there has often been little incentive to build new capacity. But just as big a problem are onerous and costly regulatory burdens that have sucked profits from the industry. This includes a permitting process that is subject to endless bureaucratic delay and court challenges. The one company that is even considering building a new refinery -- Arizona Clean Fuels Yuma -- has been trying to obtain its necessary air permits for nearly seven years. Refiners have also had to spend some $47 billion in the past 12 years to meet the demands of, among other laws, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Oil Pollution Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act. And from 2006 to 2012, refiners will be forced to comply with 14 new major environmental programs. One of those is a rule to reduce sulfur in gasoline, which will go into its final stage next year. The U.S. refining industry will spend $8 billion to comply, and should be able to meet federal deadlines.... The recent energy bill only makes things worse. Its new ethanol mandate, a payoff to Midwest farming interests, will involve complicated refinery changes.... Congressional Republicans are mulling several ideas, including bills that would speed up refinery permitting or convert old military bases into refinery sites.... "

[Edited on October 4, 2005 at 1:14 AM. Reason : !]

10/4/2005 1:12:58 AM

British Petroleum just anounced that this months profits are going to be down $700 million because of production lost to the hurricanes.

10/4/2005 10:07:20 AM

AWW they'll only make 5 billion WAAAAAH

10/4/2005 12:19:27 PM

That's why I'm hoping we find a key alternate fuel that can take the place of gasoline. Once that happens you will see a huge HUGE shift in economic power coming back to the US.

Especially if Hydrogen fuel works out (Pellet technology). Oil companies will have the infrastructure already to deliver the product to the stations and the federal goverment will be able to regulate the costs since it's all manufactured in the US and considered Energy like the regulate electricity costs.

Honestly though i think the US needs a Recession like a mofo. Too many people have too much money so greedy companies will keep raising prices until the Equilibrium hits.

[Edited on October 4, 2005 at 1:30 PM. Reason : !]

10/4/2005 1:29:45 PM

why do you people assume the oil industry doesn't follow the laws of the free market? It isn't special.

[Edited on October 4, 2005 at 1:31 PM. Reason : .]

10/4/2005 1:30:48 PM