So Why Is Gas So Expensive?

[Lemur]

Excellent article on the subject to be found here. Lots of chewy bits of goodness in the article, but here's a fascinating passage:

Oil-friendly members of Congress like to blame environmental regulation for the lack of refinery capacity. But the oil companies themselves choked supply by closing more than half of their 300 U.S. refineries in the past 25 years. (Business Journalism 201: You can reinvest in manufacturing capacity or ride the demand curve to higher profits.) Studies by Cambridge Energy Research Associates, a respected, oil-friendly consulting firm, indicate that even if all environmental regulations were removed from refinery construction, few would probably be built right away because of a 75 percent rise in construction costs since 2000, largely driven by the increased fuel cost of transporting building materials.

This interests me. I was given to understand that refineries were the crucial bottleneck in our gas/oil system, and that they weren't being built because of NIMBY communities and crazy red tape Federal madness. Why were so many refineries closed? Does anybody have the scoop on this? And please, no left-wing or right-wing crackpot conspiracy sources, if you please. I'd like some facts, if such are to be had.

[ICantSpellDawg]

Excellent article on the subject to be found here. Lots of chewy bits of goodness in the article, but here's a fascinating passage:

Oil-friendly members of Congress like to blame environmental regulation for the lack of refinery capacity. But the oil companies themselves choked supply by closing more than half of their 300 U.S. refineries in the past 25 years. (Business Journalism 201: You can reinvest in manufacturing capacity or ride the demand curve to higher profits.) Studies by Cambridge Energy Research Associates, a respected, oil-friendly consulting firm, indicate that even if all environmental regulations were removed from refinery construction, few would probably be built right away because of a 75 percent rise in construction costs since 2000, largely driven by the increased fuel cost of transporting building materials.

This interests me. I was given to understand that refineries were the crucial bottleneck in our gas/oil system, and that they weren't being built because of NIMBY communities and crazy red tape Federal madness. Why were so many refineries closed? Does anybody have the scoop on this? And please, no left-wing or right-wing crackpot conspiracy sources, if you please. I'd like some facts, if such are to be had.

I don't know. It seems to be rather complicated no matter how you approach it. I hope shale helps. I hope new drilling helps. I hope alternative fuel helps. I hope any downturn in China helps. I hope pressuring oil producing countries helps. I hope making oil corporations more transparent helps. I hope reviewing trade policy helps. I hope reviewing our regulations helps. I hope transparency and restraint in speculation helps.

Who knows.

[Philippus Flavius Homovallumus]

The funny thing is you think the stuff is actually expensive in your neck of the woods, over here it goes up by about 2$ a litre a day!

[Xiahou]

Oil-friendly members of Congress like to blame environmental regulation for the lack of refinery capacity. But the oil companies themselves choked supply by closing more than half of their 300 U.S. refineries in the past 25 years.

This interests me. I was given to understand that refineries were the crucial bottleneck in our gas/oil system, and that they weren't being built because of NIMBY communities and crazy red tape Federal madness. Why were so many refineries closed? Does anybody have the scoop on this?

I think the 25yrs of closures you highlighted would probably line up nicely with increased regulation.

Sure, its from an industry group, but still worth looking at:link. (I tried a cut/paste... but it didnt work in any readable fashion. )

Now, when you take that article and tie it in with the claim that evil refinery owners deliberately closed refineries to ramp up profits, I think you can see a kernel of truth. That is- they're not going to refine gasoline if there isn't a profit margin to make it worthwhile to do so. Interestingly, sky high oil prices have only made things worse- the refinery's raw material, oil, is much more expensive than ever before, and demand is also slackening due to higher prices leaving them with higher costs and a lack of sales growth. Interesting conundrum....

Edit: It's really interesting as one Googles around on this subject, to see some of the stories written years ago on the subject. Some are quite prophetic, others are totally clueless in hindsight.

[Crazed Rabbit]

Excellent article on the subject to be found here. Lots of chewy bits of goodness in the article, but here's a fascinating passage:

Oil-friendly members of Congress like to blame environmental regulation for the lack of refinery capacity. But the oil companies themselves choked supply by closing more than half of their 300 U.S. refineries in the past 25 years. (Business Journalism 201: You can reinvest in manufacturing capacity or ride the demand curve to higher profits.) Studies by Cambridge Energy Research Associates, a respected, oil-friendly consulting firm, indicate that even if all environmental regulations were removed from refinery construction, few would probably be built right away because of a 75 percent rise in construction costs since 2000, largely driven by the increased fuel cost of transporting building materials.

This interests me. I was given to understand that refineries were the crucial bottleneck in our gas/oil system, and that they weren't being built because of NIMBY communities and crazy red tape Federal madness. Why were so many refineries closed? Does anybody have the scoop on this? And please, no left-wing or right-wing crackpot conspiracy sources, if you please. I'd like some facts, if such are to be had.

I think the last refinery built in the US was in the 70s. Think about that, in relation to the increasing demand in the US.

There's one in the works in South Dakota scheduled to start building in 2010 and I guarantee it won't finish on time, 2014, because of envirowhacko groups suing them.

Some examples of EPA fun:

In order to comply with new low sulfur regulations, one WA refinery had to spend ~80 million for a new diesel unit, and ~120 million on a new unit to comply with Cali gas laws. The sulfur limit in diesel was cut from 500 ppm to 15 ppm in 2007. That's a very drastic cut.

Recently, the EPA pulled the permit for a ConocoPhillips refinery project in Wood River, Illinois. The project is costing three and one-half billion dollars, and the EPA shut it down in the middle, thanks to a lawsuit from the "national resource defense council".

The thing is, the current envirowhacko agenda is to prevent use of Canadian oil shale product in the US, being the energy haters they are.

Those same enviro-whackos are now suing the BP refinery in Whiting, Indiana over another huge project.

A chevron refinery in richmond, cali is trying to get a permit to expand, and the city is demanding insane things to allow the permit (like 10% of the refinery power generated by wind and solar, huge cuts in CO2 emissions, dictating the amount of oil that can be run through the refinery, demanding 10 million in bribes for various city projects, etc.)

That's just off the top of my head.

Envirowhackos use EPA regulations to sue anything and everything that refineries try to build, even if the permit has been issued. Heck, in one town nearby a group of liberals has delayed for years the building of a new Wal-Mart by suing the city, and Wal-Mart has to deal with diddly-squat in terms of enviro regulations, relatively.

The EPA, of course, makes newer and more onerous regulations each year, and permits can increase those further. The high cost of compliance and the battle against envirowhackos to get anything approved has been a prime driving force for the shutdown of refineries. It's not really NIMBY's but out of town envirowhacko groups that come in and sue any plan to expand or modernize.

Right now, there are literally a million regulations on a medium sized refinery in the US.

And in the west, almost every state has different - not varying levels of strictness, but different - regulations on what gas sold there must be like. So gas is not a fungible good out here.

CR

[Xiahou]

CR, you look at the article I linked? Your factoids reinforce what they're saying pretty nicely. Refineries are in it for a profit- as they should be. With margins already tight, and billions of dollars in taxes and regulation- plus a hostile congress threatening to nationalize them or, at least, cut their margins even thinner, it just doesn't make much sense for them to invest in US refining.

Here's an article from the Toronto Star that almost makes you feel bad for companies like Exxon(almost). Yeah, they're still fabulously wealthy, but as it stands, the writing is on the wall for Exxon and other publicly traded oil companies. Soon they'll all be replaced by even more corrupt and greedy state-run enterprises.

[Ice]

Excellent article on the subject to be found here. Lots of chewy bits of goodness in the article, but here's a fascinating passage:

Oil-friendly members of Congress like to blame environmental regulation for the lack of refinery capacity. But the oil companies themselves choked supply by closing more than half of their 300 U.S. refineries in the past 25 years. (Business Journalism 201: You can reinvest in manufacturing capacity or ride the demand curve to higher profits.) Studies by Cambridge Energy Research Associates, a respected, oil-friendly consulting firm, indicate that even if all environmental regulations were removed from refinery construction, few would probably be built right away because of a 75 percent rise in construction costs since 2000, largely driven by the increased fuel cost of transporting building materials.

This interests me. I was given to understand that refineries were the crucial bottleneck in our gas/oil system, and that they weren't being built because of NIMBY communities and crazy red tape Federal madness. Why were so many refineries closed? Does anybody have the scoop on this? And please, no left-wing or right-wing crackpot conspiracy sources, if you please. I'd like some facts, if such are to be had.

Investing in a refinery is an expensive and time consuming venture, which most likely takes years to see any profit. That's my guess.

[Marshal Murat]

I just assumed the high prices were caused by increased futures market.



Silly MM, thinking it was simple.

[Gregoshi]

So it is a Battle Royal for who's at fault: Big Bad Oil Companies vs Big Bad Government. How unrefined.

[Lemur]

Well, the laws of supply and demand have a little something to say about price as well. But the general impression I'm getting is that, yeah, the market is broken, and everyone would like to blame someone.

[Sigurd]

This interests me. I was given to understand that refineries were the crucial bottleneck in our gas/oil system

You don't need refineries for petroleum gas. It comes out of the wells in its true form and can be piped directly to the end consumer.

I suspect you are talking about something else. But in the oil world, gas means natural gas as a product.
If you are talking about refined petroleum or petroleum spirit, I don't think the actual refining has too much impact on the price. According to this, the refining only adds a 9% to the final price. The major price indicator is still the crude oil price, which today is around $130 USD a barrel.

If we make a simple calculation:
A barrel of oil is 159 liter. One gallon is around 4 liter (US 3.7l, UK 4.5l ).
That means one liter costs 130/159 = 0.82.
A gallon costs 4*0.82 = $3.3 USD And that is just the crude oil price.

[LittleGrizzly]

One gallon is around 4 liter (US 3.7l, UK 4.5l ).

We have different measurements for a gallon ?... thats odd...

[Sigurd]

One gallon is around 4 liter (US 3.7l, UK 4.5l ).

We have different measurements for a gallon ?... thats odd...

That is not the only units of measurement that you have different...
It makes the world for a programmer a living hell.

[LittleGrizzly]

Well us brits like to be different :)

Seems like a bad idea though, wasn't there a recent mistake on one of the space missions because of difference in measurements ?

[Don Corleone]

It's the Octosquids. They're taking out all the Offshore rigs and refineries, so we'll be fighting amongst ourselves and won't be prepared when they begin Operation Calamari. That, and our stuff, uh won't work, cause our tanks won't have no gas.

[yesdachi]

Here is an interesting site with some neat info to put oil spending in perspective.