In a comment on one of my gasoline posts below, Barry Posner made some great observations about refinery capacity that are so good that I’m going to pull them out and post them here. I have been abstracting from refinery capacity in recent discussions of gas price fluctuations, because it has been a constraint for the past decade and will only become more of one. Here is Barry’s analysis:
Unless I missed it while reading this article, I think you overlook another important factor: capacity constraints in domestic refining capacity. We all know that the last new refinery in the US was built in 1976, and that many small refiners are forced to shutdown because capital improvements are not economic given RFG requirements.
This is partly due to NIMBY in the US, and is exacerbated by the patchwork RFG requirements and boutique gasolines: if there was a standard blend, we could simply buy more gas from refineries in places like the Virgin Islands, Dominican Republic, Jamaica and (in the near future) Cuba. We wouldn’t necessarily need new refineries on mainland US soil – but the boutique fuels make such projects more risky than they otherwise would be.
Reducing the number of blends required would ease short-term local spikes caused by localized refinery and pipeline outages (which will happen, random as they might be), and would encourage more refinery construction in the Caribbean, which would add some excess capacity (which is currently zero in the summer), thus dampening non-localized (natiowide) summer supply crunches.
New vehicle technology has made the 1990 revisions to the Clean Air Act very close to redundant. Now, if only we can get those revisions reversed without a giant handout to the ethanol producers…