Essex502
06-08-2004, 08:33 AM
Lack of oil refineries blamed for price of gas
U.S. production capacity has hit nearly 100 percent and no new plants are being built to meet demand
By Melita Marie Garza
Chicago Tribune
The U.S. oil industry is absolutely certain that the high price of gasoline is the fault of OPEC and its production quotas. OPEC suggests that the industry look at the refineries in its own back yard.
``The fact is that the cost of a barrel of crude oil has increased from $25 a year ago to $41 today -- that's (nearly) a 40 cent-per-gallon increase,'' said Rayola Dougher, senior policy analyst for the Washington-based American Petroleum Institute. She noted that the Federal Trade Commission has attributed 80 percent of the increase in gasoline prices to the price of crude oil.
But Lawrence Goldstein, president of the Petroleum Industry Research Foundation, thinks OPEC may have a point.
Goldstein said the U.S. oil industry needs new refineries. The real issue, he says, is not oil production quotas, but lack of refining capacity.
``There is no spare refining capacity in the U.S. today and that means'' that the usual supply-and-demand balancing act has been thrown off kilter, Goldstein said.
Refineries now operate at 96 percent of capacity, whereas the average U.S. manufacturing plant operates at 76.7 percent of capacity. Since 1981, when refineries operated at 69 percent of their capacity, the number of refineries in the United States has dropped from 324 to 153.
Goldstein noted that before the last decade, whenever prices went up, U.S. refiners could rush to make more gasoline -- or pull supplies from discretionary inventories to meet demand, moves that eventually led to lower prices.
Now prices simply are propped up until there is a drop in demand.
At least three refineries proposed on the East Coast in recent years couldn't get off the ground, creating a chilling effect for such projects, Goldstein said.
As a result, the United States has become increasingly dependent on imports of finished petroleum products, especially gasoline and jet fuel. The reliance on imports comes even as American refiners have added 1.5 million barrels a day of capacity since 1994 by expanding and improving existing refineries in a strategy known as ``capacity creep.''
And ExxonMobil Corp. Chief Executive Lee R. Raymond said in May that new refineries are years away from being built.
``You would have to have confidence over a long period of time that refining margins would stay at a level to support'' a multibillion-dollar project that would take years to complete, Raymond said after the company's annual meeting in May in Dallas.
The American Petroleum Institute says a new refinery has a $1 billion price tag and a 10-year timeline for completion.
``There's no quick fix,'' Raymond said.
That last paragraph says it all.
U.S. production capacity has hit nearly 100 percent and no new plants are being built to meet demand
By Melita Marie Garza
Chicago Tribune
The U.S. oil industry is absolutely certain that the high price of gasoline is the fault of OPEC and its production quotas. OPEC suggests that the industry look at the refineries in its own back yard.
``The fact is that the cost of a barrel of crude oil has increased from $25 a year ago to $41 today -- that's (nearly) a 40 cent-per-gallon increase,'' said Rayola Dougher, senior policy analyst for the Washington-based American Petroleum Institute. She noted that the Federal Trade Commission has attributed 80 percent of the increase in gasoline prices to the price of crude oil.
But Lawrence Goldstein, president of the Petroleum Industry Research Foundation, thinks OPEC may have a point.
Goldstein said the U.S. oil industry needs new refineries. The real issue, he says, is not oil production quotas, but lack of refining capacity.
``There is no spare refining capacity in the U.S. today and that means'' that the usual supply-and-demand balancing act has been thrown off kilter, Goldstein said.
Refineries now operate at 96 percent of capacity, whereas the average U.S. manufacturing plant operates at 76.7 percent of capacity. Since 1981, when refineries operated at 69 percent of their capacity, the number of refineries in the United States has dropped from 324 to 153.
Goldstein noted that before the last decade, whenever prices went up, U.S. refiners could rush to make more gasoline -- or pull supplies from discretionary inventories to meet demand, moves that eventually led to lower prices.
Now prices simply are propped up until there is a drop in demand.
At least three refineries proposed on the East Coast in recent years couldn't get off the ground, creating a chilling effect for such projects, Goldstein said.
As a result, the United States has become increasingly dependent on imports of finished petroleum products, especially gasoline and jet fuel. The reliance on imports comes even as American refiners have added 1.5 million barrels a day of capacity since 1994 by expanding and improving existing refineries in a strategy known as ``capacity creep.''
And ExxonMobil Corp. Chief Executive Lee R. Raymond said in May that new refineries are years away from being built.
``You would have to have confidence over a long period of time that refining margins would stay at a level to support'' a multibillion-dollar project that would take years to complete, Raymond said after the company's annual meeting in May in Dallas.
The American Petroleum Institute says a new refinery has a $1 billion price tag and a 10-year timeline for completion.
``There's no quick fix,'' Raymond said.
That last paragraph says it all.