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Getting Better Transparency From Oil Refineries
Hugh Pickens writes "Gregg Laskoski reports in U.S. News and World Report that virtually all of the retail gasoline price volatility that Americans experienced this past year was connected to significant problems at refineries. It was those refineries' vulnerability that subjected U.S. consumers to the year's highest average price ever, $3.63 per gallon. February delivered the BP refinery fire in Cherry Point, Washington that led to gasoline price spikes all along the Pacific coast, refinery problems in the Great Lakes region pushed Chicago gas prices to an all-time high of $4.56 per gallon, and over the summer, west coast refineries incurred outages, and California saw record highs in most markets, with Los Angeles gasoline's average price peaking at $4.72/gallon in October. Finally after Reuters reported that some 7,700 gallons of fuel spilled from Phillips 66's Bayway refinery in Linden, NJ, after Hurricane Sandy, New Jersey environmental protection officials said they were not made aware of a major spill at the Bayway plant, and the refinery failed to respond to inquiries from Reuters reporters. 'Too many times, history has shown us, the Phillips 66 response or lack thereof characterizes the standard practice of the oil industry. Refineries often fail or are slow to communicate problems that create significant disruptions to fuel supplies and spikes in retail gasoline prices. More often than not, scant information is provided reluctantly, if at all,' writes Laskoski. 'When such things occur is silence from refineries acceptable? Or does our government and the electorate who put them there have a right to know what's really going on?'"
Speculators demand more transparency so they can jack the price of futures every time a breaker trips at a refinery.
Why don't fuel pumps mention the $0.18/gallon federal gasoline tax? Or the $0.38/gallon (California) state gasoline tax? Both are greater profit margin than the "greedy" store, the "greedy" refiner, or the "greedy" oil company.
Regulators (state & federal) have forced refineries to shut down or prevented them from being built in the first place.
NIMBY'ism is also a factor.
Then there is the problem of too many different fuel blends. Dozens across the US, with a small number of refineries servicing each area.
The result of all this, combined, is that a single refinery going down causes huge issues.
Reduce the number of fuel blends across the country. Dont make it take 10+ years just for the possibility to build a new refinery because of all the hoops. More supply == less volatility.
They suffer from "political myopia." They can't really be bothered to notice occurrences in the physical world. Only politics is real to them. So, like the Roman emperors who couldn't be bothered to attend to their water systems or roads, our government can't be bothered to look at refineries, or how net energy from hydrocarbons is declining even as supplies increase, or what happens when the potash is all mined out, or what happens when a few more major aquifers are completely drained. They won't be in office by then, they figure. It'll be someone else's problem.
Please do not read this sig. Thank you.
Contrary to what some might expect, not everycompany in the oil industry is making a lot of money these days. With the spike in the Brent crude price, the refineries have, in fact, seen their margins getting thinner every day. As some refineries are in the brink of losing money, dont expext much investment on security or enviroment from them. The only possible solution? The regulator could tighten security requirements, forcing the bad refineries out of business and making the others have a better security performance. The downside? Gasoline prices will go out, as the gasoline from the old refineries will no longer go to the market. I don't know if the american government is willing to pay this price.
Speculators demand more transparency so they can jack the price of futures every time a breaker trips at a refinery.
One of the reasons that gas prices fluctuate overnight is due to speculation - this is just another way of attempting to democratize the "open" market.
As I understand it, the price of crude changes quicker due to speculation than to any other factors - can you think of another item where demand and/or supply will affect the prices on the same level (not due to speculation)?
- Nec Impar Pluribus, or so I'm told.
Let's summarize:
Lack of diversity increases the risk of supply disruption.
Decreased supply increases the price.
In other words, more refineries would increase the supply and reduce the disruption risk.
I spend 10 years working in the oil and gas refining industry, and I can say first hand that most of these problems and prolonged reductions in output are tied directly and wholly to excessive, brutal, inflexible, and sluggish government red tape.
At one refinery we were doing a new control system for, the refiner discovered a bad gas overpressure valve that was leaking slightly. The process for handling such an event is to immediately scram the refinery, and file 12 different applications with EPA, OSHA, and other government agencies to beg for permission to fix it. In that particular case that whole section of the refinery was down for 9 weeks.
Most people have no idea just how difficult it is to deal with the administration, and this one especially, when it comes to oil and gas production. This administration is not at all interested in a steady and cheap supply of oil and gas products - and I say that with firsthand experience.
$3.63/gallon? $3.63/GALLON?!? If your northern neighbours saw those prices there would be a line up 3 blocks down the fucking road!!! We haven't seen prices that low since at least 2002. Americans need to stop bitching about having some of the lowest gas prices in the world.
7,700 gallons is a MAJOR spill? Isn't that about what one semi hauls?
Cut
Kill
Dig
Drill
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Faster! Faster! Faster would be better!
There is nothing inherently hostile about demanding transparency.
Leah McGrath Goodman, a financial reporter, wrote a book about Nymex and the transition to electronic trading in the early 2000s. It's called "The Asylum" and verifies a lot of what you guys are saying.
Except that the regulators in the government are kind of... on the 'same team' . . . the head of the CFTC left and to work for the New York Mercantile Exchange. She documented the whole thing. Hell of a story.
Wrong. There is excess capacity.
What really happens is that excess refinery capacity is either mothballed or used to manufacture products for export.
http://www.reuters.com/article/2011/03/21/valero-klesse-idUSWEN981620110321
With the crappy worldwide economy and high prices of crude demand for gasoline is decreasing.
The problem is that for the most part people did not respond appropriately to those price signals. Rather they went to the government to complain, went to their churches to hear conspiracy theories about how the liberals wanted to destroy the christian way of life, blaming regulation, speculators, evil oil people gouging the common people. All these are partly true, and gouging people who are too stupid to make adjustments so they don't get gouged is fun and profitable, but it does come down to choices.
If a single shut down can raise prices, then we are at capacity and there are only two choices. The first is to raise the price of the commodity, i.e. refined petroleum, so the refiners will have an incentive to build more capacity. Regulation will raise this costs, but so will the need of refiners to pay the expected huge salaries(sometimes well over 100K to a college grad).
The other is to use less so that current capacity is sufficient, reserves can be built, or older plants can be shut down and maybe updated.
The problem is that neither of these are acceptable to the whiners who expect the government to give them everything for nothing. Who expect to live in suburbs and have the city people subsidies their lifestyle. For those that will not drive their cars so they can approach 30 mph instead os 20 mph
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
Employees should not audit their bosses
Failure to quickly report any insult to the environment by corporations is a conspiracy and should carry severe penalties. Both the oil and coal industries have horrid safety records and are essentially a form of organized crime.
And yes, our government is slow to respond and may seem excessive. I believe that it was Ben Franklin that remarked that a good population requires little government. The size and intrusion of government is directly related to the honesty and decency of the people and the businesses in the nation. Every time industry values profit above right then they in effect beg for more intrusion, more laws, and stiffer penalties. Also the more we support oil and coal the slower alternate sources can make their way in the market.
For example the BP spill in the Gulf of Mexico was criminal enough that not only should BP be bankrupted but many executives should be in prison. Adequate punishments are not applied. The phrase safety first is more than a slogan. It means safety before even economic survival for a company. When safety really comes first accidents simply would not be so common. Yet this is the same industry that wants to pipe shale oil across America.
The oil industry was effectively nationalized decades ago. The industry operates under absolutely strangling regulation and government essentially dictates everything that happens at a refinery right down to when the workers take a leak.
I agree oil industry and govt seem one and the same, but it doesn't quite look like the govt taking over the oil industry. On the contrary, it looks it is the oil industry privatized the government... the result is quite the same for consumers, though.
Questions raise, answers kill. Raise questions to stay alive.
No, a refinery disruption at one west coast refinery ONLY caused west coast gas prices to rise. Refinery capacity in other areas of the US couldn't help gas prices on the west coast. If the US had more refineries, a disruption to one refinery wouldn't have such an impact. The US has half the refineries it had 30 years ago due to NIMBY. If there's a shortage on the west coast, excess capacity in other areas of the US don't help much.
Build more refineries, bigger refineries, and we won't have this nonsense
Er, by nonsense you mean higher profit margins every time a refinery goes down? Guess who goes "envirowacko" and lobbies against competitors building new refineries based on environmental grounds? Guess who reports their refineries are down and enjoys the spike in prices while their refineries are actually still producing and they are stockpiling gasoline?
We executed Gulf War I to prevent Saddam from controlling Kuwait's oil fields and stop threatening the Saudi fields.
Greenspan said that we were in Iraq for oil. Controlling global energy sources was likely a significant sweetener for going into Iraq.
It's directly linked to our quality of life. So you better believe the society, via the government, should be getting a clear picture of WHAT EXACTLY is going on with the oil supply chain.
And how much of that is tax?
Why do people compare gas prices in different countries without looking at the tax rate. That tax doesn't have to be there, the money supposedly brings some benefits for you guys. If you aren't getting good benefits for your taxes then you should consider complaining to your elected officials.
"In America, first you get the sugar, then you get the power, then you get the women..." -H. Simpson
The oil industry was effectively nationalized decades ago. The industry operates under absolutely strangling regulation and government essentially dictates everything that happens at a refinery right down to when the workers take a leak.
Um, So The Fuck What?
If you want to see tight regulation, try working in a pharmaceutical facility. Or maybe a nuclear plant. Guess what: if your workplace is likely to affect the health of LOTS and LOTS of people, I WANT it tightly regulated.
Can you drill from helicopters?
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...is called Vaseline.
If states like California would allow more refining capacity to be built, then the supply end of the market would have more of a 'buffer' to supply problems (if you have a refinery they build these large things called tanks to store petrol in, this boots your supply and you can crank up capacity if you need more). If you don't believe me you can read this: http://www.slate.com/articles/business/moneybox/2004/06/the_great_refinery_shortage.html
There hasn't been one built in California for at least 30+ years because of environmental restrictions. I was talking to a VP of an oil distributing company, he said that 10 years ago they were trying to get additional capacity for their oil refinery, each time they were rejected because of these regulations and today it would be prohibitively expensive to add capacity. This is not just a problem for California either... just look at what has been built in the last 40 years and where http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6 . We are all to ready to fill up our vehicles, but when you bite the hand that feeds you, it may have a hard time delivering.
Ask the pipeline folks - Alberta can't get the crude down south (or anywhere) to be processed.
Errr except all over the world refineries are being shutdown or divested as a major glut in capacity (not helped by Reliance Petroleum bringing online a 1million bbl/day refinery). The glut in capacity has driven the refinery margins so low that refineries are spending a small fortune increasing upgrading capacity so they can run an ever shitter and more corrosive mix of cheap and nasty sludge to try and turn a profit.
No refinery right now can afford a nice sweet crude oil unless they are nationalised or positioned in a way that refining at a loss generates profits elsewhere. The only reason refineries are still pushing capacity to the limits is it costs a fortune to ramp down production.
1) Why do new refineries need to be built when companies are meeting capacity by upgrading and retrofitting old ones?
You have apparently never heard of the concept of "single point of failure". The fewer refineries there are, the greater the amount of disruption that occurs in the market (and the greater the increase in price) when one of them experiences a problem in production.
The truth is that all men having power ought to be mistrusted. James Madison
"Or does our government and the electorate who put them there have a right to know what's really going on?'"
Last time I looked the electorate was the oil companies and they know exactly what is going on.
Actually, the best way to demonstrate what happens without any kind of regulation at all, is to look at what is going on in Nigeria:
Almost 1.9 million barrels have have been spilled into the Niger river delta in the 20 years between 1976 and 1996 in close to 4,900 different incidents, and there doesn't seem to be any indication that this is going to reduce in the future.
See, in Nigeria there seems to be absolutely no business consequences to any kind of oil spills or accidents, so when the expenses of fixing a problem is greater than the expenses of the losses of oil, there's no incentive to pay for a fix.
After all, the only ones feeling the consequences is the local population, and they obviously aren't worth much to anyone.
You're a fucking ass-hole.
Refineries are operating nowhere near capacity and never have. When oils supplies start to peak, refineries go off-line and oils wells get capped. You never have maximum output.
Then combine that with speculators driving up the price over any issue, the oil prices remain artificially high.
Good luck with that.it's clear as mud. How's that workin' out for you?
The mind conceives, the body achieves, the spirit manifests.
Refinery capacity in other areas of the US couldn't help gas prices on the west coast.
There is sufficient capacity to make gasoline for the west coast issues. The problem is that it's illegal in California to sell it, as CA has specific requirements that only the refineries that regularly supply it are set up to deliver.
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