Refinery Outages and Gas

[Red Harvest]

This is going to get worse in a hurry. The analysts are way behind the curve. I've been watching the prices move in Houston: from 2.45 (it had declined) to 2.65, to 2.78, and now 3.30. As each store refills the prices go up.

I don't think we've seen anything yet. There are 14 refineries effected as far as I've heard. 5 or 6 are only at reduced rates and should come back up fully (if they haven't already) but the other 8 or 9 have bigger issues...even if they had electricity, water, and other resources, they would most likely be quite short handed. I can't imagine that most of their employees are really available. Even then, cleaning up and recommissioning is going to take time (and it is labor intensive.) I haven't had direct contact with any of them so I'm just guestimating, but I expect some long outages.

[Don Corleone]

Here in North Carolina, Governor Easley has asked everyone not to drive unless it's essential. We haven't received refined gasoline since Sunday (when the storm hit) and they estimate that we'll be out of gas by Sunday afternoon (some places already are). Gas is currently $3.75/gallon and climbing steadily.

[Aenlic]

The problem isn't supply. The problem is refining can't keep up with demand. And since a large percentage of this country's refining takes place in and around the Louisiana and Mississippi Gulf coast, we're in a world of hurt. Opening up the SPR is a meaningless gesture. Saudi's saying they'll increase production is a meaningless gesture. The oil doesn't do any good until it is refined. Even refining it in other countries first and shipping it here as gasoline won't help. Guess where the United States receives such shipments of pre-refined petroleum products? Louisiana, just south of New Orleans.

A quick way to solve this country's insatiable appetite for gasoline is to issue shoot to kill orders for anyone seen driving their gas-guzzling SUVs. Anyone in a non-military Hummer, shoot to kill. Anyone in a Ford Excursion or a Lincoln Navigator. Shoot to kill. If they're seen driving to a store only a block from their house in such a vehicle shoot to kill and hunt down any remaining family members and sterilize them so the moron genes aren't passed along. Garage all limousines and make the self-important idiots carpool on pain of death. For good measure, any oil company execs seen being chauffeured around in a gas-guzzling armored limo will be shot on sight, their relatives and pets shot, their houses razed and the land sown with salt and their neighbors sterilized.

And last, but not least, bring our troops home from Iraq, where they waste gas driving about imposing democracy on people who should decide for themselves whether or not they want it (or whatever the raison d'jour for the War is today). Use those troops to restore order on the Gulf Coast. Any idea how much of this country's refining capacity goes to support military operations in Iraq? Look it up. Consider it an object lesson.

[Don Corleone]

Glad to see you're being fair, calm and reasonable about all of this, Aenlic. Shoot anyone that engages in policies you don't agree with. Hmm...

[drone]

President Bush has actually used the word "Conserve".

http://money.cnn.com/2005/09/01/news...reut/index.htm

Now we know it's serious.

[Gawain of Orkeny]

This goes right nack to the hypocisy thread. For ever thirty years the left has oppossed increased drilling and new refineries or atomic powerplants. For these same amount of years those of us on the right have been saying this could happen . Well now it has . Talk about not being prepared. All these years weve been operating at the limit of what was being produced yet made no real attempt to address the issue. In fact we did all we could to facilitate the problem. Releasing the strategic oil supply wont help as the refineries cant refine it. I swear I didnt no this was going to happen when I started that thread.

How is it every gas station has jumped up 50 cents a gallon overnight? This is a supply and demand problem and always has been. The problem for the most part has been an artificial short supply. If we had built the refineries that we asked for and started drilling in the artic and off the coast we wouldnt have the problems we have today. But of course its all Bush's and the conservatives fault.

This is not directed at you Red I know you didnt bring politics into this.

[Red Harvest]

Yes, it does go back to hypocrisy, but not like you think. Where would you put a refinery? The oil is offshore. You are going to build anything new along the coast if you build it. And in fact, that is where capacity is being added. The refineries inland where the oil is depleted have mostly shut down or are not expanded.

So your are looking at a few regions along coasts doing the bulk of the refining and will still be if new ones are built. If any one of these regions takes a major hit, supply will be cut. That's how "market efficiencies" tend to work, gigantism and infrastructure is favored over dispersed production.

I will also point out Gawain, that refineries have not been the limit (until the storm) because crude prices and gas are *now* moving idependently. They were not before, which is economic proof of what I was saying. I'm not sure of the percentage of refining that is out (on a bbl/day basis) but is looks like over 10% to me.

[Big King Sanctaphrax]

At least you can take solace in the fact that you still only pay about half as much as us Europeans.

[Aenlic]

Glad to see you're being fair, calm and reasonable about all of this, Aenlic. Shoot anyone that engages in policies you don't agree with. Hmm...

Thus the smilies, sport. Maybe you missed them. If you specify which threads you intend to misread, I'll gladly flash sarcasm warnings all over any posts I might make in such threads - just for you. I'm helpful that way.

[Aenlic]

For ever thirty years the left has oppossed increased drilling and new refineries or atomic powerplants. For these same amount of years those of us on the right have been saying this could happen .

What, exactly, does nuclear power have to do with a current gasoline shortage? Or drilling for that matter? Nothing. The only part of your statement that has any relevance to the issue was the part about refining capacity. And I agree with you on that part. You also failed to mention that the left has been screaming about the need for conservation and sensible consumption and reducing demand all that time as well. And the right has been sticking their collective head in the sand and ignoring the whole issue of consumption. Typical of supply-sider insanity, I suppose.

Do you suppose, thinking about it just a little, that the fact that this country consumes more than twice what it produces has anything at all to do with the problem? That we consume more than three times more than the next highest oil consumer? That if we lowered our demand to just the same as the next highest consumer, then we'd actually produce a 25% surplus and be able to export oil and have a positive trade surplus?

Nah. It's much easier to blame it all on supply of oil. After all, the oil companies make their profits from our consumption, not our conservation.

[Red Harvest]

President Bush has actually used the word "Conserve".

http://money.cnn.com/2005/09/01/news...reut/index.htm

Now we know it's serious.

Yep, so much for "conservation is not the answer."

In fairness, refineries are going to try to run at 90% of capacity most of the time for competitiveness reason, and this is peak season which means it should be 95% plus. So any outage is going to effect the gas price. A big one will effect it more, especially after 9 weeks of inventory decline because it is peak season.

It is the disconnect between oil and gasoline price that illustrates *this* event as being a disaster induced refining limitation.

[Don Corleone]

Thus the smilies, sport. Maybe you missed them. If you specify which threads you intend to misread, I'll gladly flash sarcasm warnings all over any posts I might make in such threads - just for you. I'm helpful that way.

Oh, okay. You can make any over-the-top, offensive statements you like, so long as you put a smiley at the end of it. Gotcha. I missed that rule in the Forum Rules. Thanks for the update, sport.

[drone]

http://money.cnn.com/2005/09/01/news...ex.htm?cnn=yes

Looks like Colonial Pipeline and Plantation Pipeline are slowly getting services back up, as the power gets restored. Don't know what good this is going to do once they have drained their existing stock, if the refineries can't resupply them.

[Red Harvest]

http://money.cnn.com/2005/09/01/news...ex.htm?cnn=yes

Looks like Colonial Pipeline and Plantation Pipeline are slowly getting services back up, as the power gets restored. Don't know what good this is going to do once they have drained their existing stock, if the refineries can't resupply them.

It will relieve some of those areas that have lost all gas supply in the short term. So regionally it will help.

[ichi]

Clearly, this has demonstrated the need to drill in the Arctic National Wildlife Refuge.

oh, wait, hmm.

OK, this has demonstrated the need to increase our refinery capacity in the ANWR

[Papewaio]

Well you could fight obesity and save gas and walk or bicycle...

As gas prices have risen in Australia the amount of motorcycles has increased dramatically.

And while in Taiwan where gas is relatively expensive to wages the amount of motorcycles and in particular scooters is massive... I have seen mums and four kids on a single scooter.

[Red Harvest]

Well you could fight obesity and save gas and walk or bicycle...

That's even a problem in many places. Texas seems to be re-doing some intersections and stuff to allow pedestrian traffic, but there are few sidewalks in many towns, and I've heard many a coworker violently opposed to them. It is distinctly pedestrian unfriendly down here.

When school is out, driving to work is so much easier. In the places I've lived in Texas, folks all tried to drive their kids to school even when it was only a block or two. Of course with the lack of sidewalks, the kids had to walk in the street. Makes me want to start into my "walked 5 miles uphill in the snow, each way" speech.

No sidewalks = no long range planning (or they would rather their kids played/walked in the street.)

[Redleg]

Makes me want to start into my "walked 5 miles uphill in the snow, each way" speech.

Well my walk to the bus stop was only 500 yards - and we normally rode the horses bareback to the gate to limit the amount of walking we did.

My mom of course road her horse 2 miles to her bus stop when she was a kid growing up outside of Roswell, New Mexico. Often riding both ways being chased by UFO's.

[PanzerJaeger]

Did anyone catch that FX made for TV movie a few months ago about a hurricane knocking out New Orleans and terrorists destablizing Saudi Arabia. The results were widespread chaos in all of america do to the lack of fuel.

The movie was pretty crappy, but its wierd that it is basically playing out in real life, besides the terrorist part.

[Xiahou]

I'm with Gawain again. This shows how tight our refining capacity was in the US. With this many refineries offline we're in some serious trouble, considering that most were running near or at capacity before hand.

[Red Harvest]

I'm with Gawain again.

This shows how tight our refining capacity was in the US. With this many refineries offline we're in some serious trouble, considering that most were running near or at capacity before hand.

We already knew how tight it was in the U.S., it's been that way for awhile.

This event shows that refineries weren't the oil production restriction before, so it proved the exact opposite of the refinery limit hypothesis you both were touting. The refinery outages are now effecting gasoline, but not oil price. The oil price change is far smaller and due to a shorter term oil production disruption. Contrast this with Ivan that effected oil, but not refining.

More U.S. refining capacity will help reduce U.S. gasoline price spikes due to refining outages, but not reduce oil cost because U.S. oil refining capacity is not setting oil prices.

[Papewaio]

If the US refinieries cannot process as much... does that mean the demand for crude will be down and cheaper prices for the rest of the world?

Don't think so as the companies will gouge as much as possible...

[Xiahou]

If the US refinieries cannot process as much... does that mean the demand for crude will be down and cheaper prices for the rest of the world?

Don't think so as the companies will gouge as much as possible...

Well, then as now, oil futures speculation is a significant portion of both oil and gasoline prices. The debate is how much of a premium that speculation is causing. Many economists predict that the oil market is in a bubble- I heard one predict today on the radio that oil prices will drop back down to the $30-40/barrel range sometime in the near future. I find that a little optimistic myself. However, before Katrina, with growing inventories, I was expecting to see some significant drops in gas/oil prices after the holiday weekend- but with so many refineries out... the situation has obviously changed.

[Red Harvest]

If the US refinieries cannot process as much... does that mean the demand for crude will be down and cheaper prices for the rest of the world?

Don't think so as the companies will gouge as much as possible...

It could. There is a chance that this will start a recession in the U.S. with a ripple effect in China and elsewhere. It is hard to say. I'm not sure if we were really poised for a recession. If we were, then I would expect Katrina to drive it or ignite it. Recessions usually reduce the growth in oil demand, thereby stabilizing or reducing prices.

On the other hand Katrina just made the housing market much tighter in some of the weaker areas. And rebuilding will have some stimulatory aspects so that could offset some of the major negatives from disruptions. This might also impact confidence of outside borrowers of U.S. debt or equities, which would not be pleasant for us.

There are quite a few concerns about the U.S. economy, growing debt, both govt. and personal, home values far exceeding replacement cost in many areas (potential paper wealth that could blow off), energy prices, and massive trade deficits. So far the economy is shaking these off.

[Gawain of Orkeny]

This event shows that refineries weren't the oil production restriction before, so it proved the exact opposite of the refinery limit hypothesis you both were touting. The refinery outages are now effecting gasoline, but not oil price. The oil price change is far smaller and due to a shorter term oil production disruption. Contrast this with Ivan that effected oil, but not refining.

Wow for a while there I thought yu knew what you were talking about. The price of oil and gas are tied to eachother. Again do you think there was a sudden drop in gas supplies overnight to cause a 50 cent jump in the price. No . Its because their looking at the future and a coming shortage due to the inability to refine crude. If we had buit more refineries and oil wells once more we wouldnt be in this situtation. You can run on such a small margin of error. You earlier claimed that refeineries were ONLY running at 95 to 98 percent capacity. This doesnt leave much room for disruption.

[Strike For The South]

3.30 in houston jeez its still only 2.69 here sad 10 years ago it was 99 cents

[Sjakihata]

here in denmark, gas prices are insanely steep: $1.85162 for 1 litre of gas. That's DKR 11.

[Red Harvest]

Wow for a while there I thought yu knew what you were talking about. The price of oil and gas are tied to eachother. Again do you think there was a sudden drop in gas supplies overnight to cause a 50 cent jump in the price. No . Its because their looking at the future and a coming shortage due to the inability to refine crude. If we had buit more refineries and oil wells once more we wouldnt be in this situtation. You can run on such a small margin of error. You earlier claimed that refeineries were ONLY running at 95 to 98 percent capacity. This doesnt leave much room for disruption.

Gawain, Read what you just wrote and think about it for awhile. As I said before the price of OIL was not being limited by refining. You bought the Saudi line. If we shut off refining in the U.S. enough, oil prices worldwide will fall, because we are an net importer, and this would reduce our need for imports. Myth Busted.

There is not a huge supply of gasoline just lying around in each region. If you want to weather spikes you will need to do something about that.

You can go on with the line about building refineries in the U.S., but it doesn't make economic sense to those running them. As they see the need for capacity they add it. If you can make a business case for big new refineries, be my guest... That isn't the way business works in this country, we've been increasing productivity to the nth degree or don't you remember? Just in time deliveries, decreasing inventory, maximizing capacity utilization. These are the market efficiencies business strives for. You want them to reverse course. GOOD LUCK!!!

[Don Corleone]

Red, I hear what you're saying, and you're making some good points. BUT (there's always one ) you're not taking into account artificial market constraints. The people who run the refineries have been trying to build new refinery capacity for 15 years, and every time they do, the Audobon Society and the rest of the usual suspects gangs up to strongarm some judge into issuing a legal ruling to block the construction. Or the EPA yanks permits for no good reason. Or a bunch of other hamstring efforts. I agree with your reasoning, but you're overlooking some critical external factors that are preventing market forces from operating properly.

[Red Harvest]

3.30 in houston jeez its still only 2.69 here sad 10 years ago it was 99 cents

That 3.30 seems limited to a few stations now. The others are running about 2.79 to 3.00 at the moment. Houston tends to be a little higher than some areas, I think it is the required blends, but I'm not sure. The gasoline market is not my thing.