Adrian Moore on Refinery Capacity

Lynne Kiesling

Reason’s Adrian Moore discusses the binding constraint that is refinery capacity in the US in a commentary from the Orange County Register. Very good summary and analysis.

Just a few new refineries would alleviate the problem and help keep our gas prices lower and steadier.

But getting an oil refinery built is next to impossible, hence the 30-year construction drought. There will always be environmental activists who fight any new proposed refinery, regardless of where it might be located and how environmentally safe it is. And our environmental rules give them the upper hand.

The environmental impact-report process mobilizes the “not in my back yard” elements to oppose any proposed refinery, but it does not mobilize people or groups who are looking at national energy needs. You wind up with a very lopsided discussion where potential problems are thoroughly and perhaps overly represented, but the only group pointing out the benefits of the refinery is the “evil” oil company asking to build it – even though every automobile driver would benefit.

Consider the example of Arizona Clean Fuels, which has been trying to build a small refinery outside Yuma for almost 10 years. It took five years just to get air-quality permits. Now they hope to be operational in 2010, 15 years after they started the project.

Adrian also mentions that technological change has made modern refineries more clean, which changes the production/emission tradeoff that has informed the absence of new refinery construction over the past 30 years.


9 thoughts on “Adrian Moore on Refinery Capacity

  1. People seem to get too caught up in the number of refineries; that no NEW ones have been built. What should be looked at is the capacity of existing refineries. Not only are their no new refineries built since the 70s, there in fact fewer than there were back then

    However…

    Current refining CAPACITY is actually higher now than it was then. Existing refineries have been expanded, even if no NEW ones have been built.

    Also, it is now economically feasible to outsource refining on a global scale, so that the risk is spread beyond our borders.

    Generally, the rise in prices is demand and speculation driven, not supply related.

  2. Vic,

    It is economically feasible to outsource refining of crude oil into commodities fungible in a global market. A significant portion of US gasoline consumption is imported refined product. However, a large and growing portion of the US gasoline market is composed of “boutique” blends which are not globally fungible, either economically or technically. It is for this reason that the “boutique” gasolines sold in the US are also produced here.

    Valero is currently acquiring refinery capacity equipped or adaptable to refining “sour” crude, which is currently available in the market at a discount of ~$14 per barrel. They have seen an opportunity for competitive advantage created by both a shortage of US refinery capacity, in general, and capacity suitable for “sour” crude refining, in particular. They have even begun branded distribution in limited geographic areas. However, again, these are not incremental refineries.

  3. Further proof, if any were needed, that the main impediment to rational energy policy is the “environmentalist” movement.

    Daniel Yergin’s article on energy security

    http://www.opinionjournal.com/editorial/feature.html?id=110007204

    points out that: “Katrina’s shock underscores a transition in the idea of energy security. For three decades, the operating concept was “1973 Vintage”: … it focused on securing the flow of crude, primarily from the Middle East, and coping with any disruption. …

    But a host of developments–from terrorism to the California power crisis to the East Coast blackout to Katrina–have emphasized a return to what might be called the World War II model of energy security, assuring the security and integrity of the whole supply chain and infrastructure, from production to the consumer. … This more expansive concept of energy security requires broader coordination between government and the private sector; more emphasis on redundancy, alternatives, distributed energy and backup systems; planning and pre-positioning of vital supplies (“strategic transformer reserves” for electric substations); and methods that can quickly be applied to promote swift market adjustment. As with the August 2003 blackout, this crisis underlines the need for modernization and new investment in the energy infrastructure that supports our $12.4 trillion economy.”

    If every siting decision can be tied up in federal court for 25 years, implementing an energy policy, particularly one that focuses on security through diversity, is going to be impossible.

  4. EP,

    True regarding 60 Hz AC.

    However, it would be nice to get the overall efficiency of the electric generation, transmission and distribution processes above 30%. That would reduce the effective multiplier on rectification, battery in-out losses and motor/generator inefficiency.

    Last I knew, effective battery range deteriorated about 30% within the first 3-6 months. Is this still true?

  5. Why do I run across all these comments that regulations are the reason for new refineries.

    The fact is that it has been a poor unprofitable business for decades. the industry has been consoldating — the number of refining firms has ben cut in half over the past decade — because we had so much excess capacity that no one made any money in it.

    This accounted for some 90% of why we did not build new refineries. Yes, regulation and not in my back yard played a role, but it was minor.

    All you have to do is look at the returns of the publically traded refining companies to see what I am talking about.

  6. Why do I run across all these comments that regulations are the reason for new refineries.

    The fact is that it has been a poor unprofitable business for decades. the industry has been consoldating — the number of refining firms has ben cut in half over the past decade — because we had so much excess capacity that no one made any money in it.

    This accounted for some 90% of why we did not build new refineries. Yes, regulation and not in my back yard played a role, but it was minor.

    All you have to do is look at the returns of the publically traded refining companies to see what I am talking about.

  7. “Why do I run across all these comments that regulations are the reason for new refineries.

    You don’t. What I said is:

    If every siting decision can be tied up in federal court for 25 years, implementing an energy policy, particularly one that focuses on security through diversity, is going to be impossible.

    That is prospective not retrospective.

  8. The question about refining

    Has environmental regulation been responsible for leaving the U.S. with inadequate gasoline refining capacity? The story is not as simple as some have suggested.

Comments are closed.