There are numerous threads with people complaining about high gas prices, especially here in California, where my understanding is that we have some weird ‘blend’ that I presume meets a higher environmental standard that makes our prices even more crippling high. That said, without all the finger pointing at Democrats/Republicans as to who is to blame, it seems to me one of the big problems is a lack of refineries. It seems that they are always off-line, hit by a hurricane, etc. which always causes supply problems, which to me clearly shows there are not enough of them. So why is that the case?
I’m sure some of it is 1) environmentally unfriendly 2) extremely costly to operate and maintain 3) huge upfront cost to start one
O.k., I buy all that, but surely it is a profitable business to operate despite all that, and with all the investment money available, you’d think 2 and 3 wouldn’t be a factor. If environmental issues are a factor, why not build one in a state that is less environmentally focused (i.e. not California). And if it’s the EPA preventing it at the Federal level, why hasn’t someone opened one in another nearby country that is relatively politically stable (Canada or one of the Caribbean countries). Hell, I would think one of the Mexican drug cartels would want to invest in one right in Mexico as a profitable (and legal) way to get even more money. It would also seem to me that politicians (of any political leaning) would be behind it because it would create lots of jobs in the area where it is built, so presumably that wouldn’t be a factor other than the environmental thing. So what am I missing?
Even getting around regulations, building a refinery is an expensive and lengthy proposition. You need to be very sure there will be an almost guaranteed payout when you’re completely done. Changes in supply and demand years from now might make or break its profitability just when it’s coming online.
Yes, but it seems pretty clear with China and India coming into as much prosperity as they have, it’s clear we will need ever more gas in the future to meet their demands. Even if some game changing technology comes about in the next 10+ years that makes cars wildly more efficient (fuel cells, etc.) or able to use something other than traditional gas, 2nd and 3rd world countries would start utilizing our traditional (current) vehicles and still need gas. As such, I think the demand will definitely be there (and be very large) for the next 50+ years, and I’m surprised there has ever been any question about it. So what is the real sticking point? I can’t believe it’s really a risk that demand may not be there in the future… and as we’ve already discussed, supply is definitely finite, hence the need for more refineries…
EPA and state regulatory permitting makes it near impossible and cost prohibitive to build one.
Motor fuel demand is expected to decline aggresively over the next 20 years with the increased cafe standards (MPG requirements for new vehicles) being implemented.
Refineries do not always make money. Gasoline refining is a very cyclical business. Yes there are good years, but there are also many years where refiners lose money, depending upon the price of oil, etc.
Philster - really? Southern Texas seems like a great place to put one. If it’s far enough South, the hurricanes will miss it as well. Build one and you’ll create a mecca for laborers and you’ll be a hero if you’re a politician. And not to sound stupid, but if I already have a permit for one (assuming that is otherwise the long pole in the tent), can’t I expand it to do even greater volume at relatively low(er) cost?
The environmental regulations are a nightmare, and any large industrial complex draws a ton of NIMBYism when you actually try to go buy the land for it.
Both of these factors make it more desirable to expand existing complexes instead of building new ones.
Just to ‘throw gasoline on my fire’, I also wanted to ask, is it possibly easier to open a refinery on Indian land? With all the casinos and the relatively dead space of farmland throughout Central California, I would think someone could create an Indian casino/refinery that might at least partially skirt California’s crippling environmental laws.
I would think building, operating, and maintaining a refinery is a lot of hard, dirty, dangerous work. Why would they do that when they can just open a casino and sit back and watch pale-face hand them money?
I think your point about NIMBY is true in CA. There are few if any places left in the state that are either a) not near some community, and b) exempt from rigorous environmental law.
In CA we want our gas plentiful, clean, and cheap, so long as it is created somewhere else.
With gaming, the state still has a right to look out for its interests, since the effects spill out of the reservation. They can’t block Indian gaming outright, but the tribes have to come to an agreement with the state before they can open a casino. I would assume the same would apply to a refinery and environmental regulations, since those obviously would have ramifications beyond the reservation.
Also, South Texas is a rather poor place for it. You’d need tons of pipeline and/or rail lines to be built, not to mention some power plants and other infrastructure (including employee housing). You’d basically be building an entire small city with little to no guarantee you could recoup the absolutely massive overhead cost.
The area around Houston/Texas City/Galveston is ideal for Texas refineries for such reasons. There’s already plentiful transportation and pipelines, including ones directly from the Gulf. Power and waste management are also less of a hassle due to the existing infrastructure. Not to mention the large local availability of expertise (not just blue collar but engineers with relevant experience). That’s not to say capacity has stayed the same. All the refineries in the area have greatly expanded capacity in their lifetimes. It’s much easier than building new ones.
Everybody wants more refineries. Nobody (even Texans) want a new one in their backyard. Even new LNG plants have a hard time in the Houston metro area, and it’s one of the most energy industry friendly cities around.
This page from factcheck.org sums up what everyone else has said, and it includes an interesting illustration of the problem:
It also says the number of refineries has been cut in half since 1982, apparently on purpose by the industry to maximize profits, but to even it out they’ve doubled their output. It’s still shy of what we consume though.
I question whether a refinery is even all that property. I’m looking at the history of the refinery in Wood River, IL, just outside of St. Louis.
It was built by Shell, which merged its refinery operations with Texaco. That was sold to Tosco, which was later sold to Conoco, which later sold a half-interest in return for an interest in oil sands in Alberta.
I understand that corporations buy and sell assets all the time, but it doesn’t sound like anyone ever said “This is a cash cow that we can milk for years to come.”