The Biggest conspiracy with Oil: lack of Refineries

As far as I am concerned the biggest joke on all of us is the Annual gouging of us during the Summer season.


We are always told that it is due to demand outstripping production yet it seems convenient for the Oil companies to have an accident at a refinery or "scheduled Maintenance" at a refinery just before Memorial day? Doesn't that strike you as odd? Even odder, even though our usage of gas has gone up since the seventies, supposedly we haven't built any additional U.S. based refineries. Why? It's not like Big oil couldn't foot the bill for one with their big profits. Even then they would just pass the cost down to us. The price of oil hasn't kept pace with the increases we see at the pump. And U.S. refinery profit margins have stayed consistently above those around the world. We are being shafted IMO.

I don't know enough about the whole refinery situation and I bet most of us don't. It appears to be reason for our recent spikes however.

What do you think?

My other favorite line I just heard recently from someone in the Oil biz was something to the extent of:

"The increases we have seen recently at the pump art do to price spikes that happened in the last quarter of 2006."

Excuse me, don't gas stations and Oil companies raise their prices as soon as word of oil problems hit? Seems they are try to justify a "double dip" increase on the same problem. Funny thing is, most people don't remember this and just continue to pay and pay.

I suggest you take a look at New Jersey for an answer to you questions about oil refineries. It isn't because the oil companies don't want to build more refineries, it is because the environmentalists won't let them. Right after Katrina hit there was a push to build a refinery on the site of a former military base in New Jersey. In a matter of days, lawsuits were filed to prevent it's construction. The problem right now is that we only have about 75% of the refining capacity that we need. If a refinery has to shut down for maintaince, is damaged by an accident or the weather or has to convert it's end product, there is going to be an interruption in production causing a price spike. In the spring you have the change over from heating oil production to gasoline production that normally causes a spike in April or May. This isn't even counting the changes for the special gasoline blends required by environmental regulations in some areas.

And why would the government care be it local, state, or federal because the higher the price of gas the more they can tax the increased cost.

Originally posted by Realtruth
And why would the government care be it local, state, or federal because the higher the price of gas the more they can tax the increased cost.

No. Gasoline taxes are a fixed amount, not a percentage of the sale price. Cheaper gas actually generates more revenue because of increased usage.

It's not the refineries at all, Thats simply the diversion the oil companies have chosen to blame. Let me explain:

Remember a few years ago when California had rolling brown outs and shortages of electricity? Remember what they blamed that on? The talking heads on the news were told to report that no new power plants had been built in 25 years because no one wanted it in their back yard. It was all blamed on the shortage of power plants and no ones willingness to allow new plants to be built or upgraded.

Turns out it was Enron and other electricity brokers who were playing the market to maximize profits. Thats all it was, there was no power shortage.

The same thing is happening here, except they are saying that no new refineries have been built in the last 25 years because no one wants it in their back yard.

It's BS.

In the end it will turn out that the market was manipulated by those who realized they had the oportunity to gauge the hell out of the consumer. Thats all it will be.

Just my thoughts on it,

wupy

JIMC5499 is correct.

I work in the petroleum refining business and I can tell you first hand that it is the States and the Environmentalist who have blocked all attempts to construct new refineries. Not only in New Jersey but also in Arizona.

Due to this restriction on constructing new refineries, the older refineries must continually be upgraded and maintained. This requires frequent turnarounds.

The hard part for most people to grasp is that demand is not outstripping supply. The supply of oil is fine. Demand for gasoline is actually outstripping the ability to refine the oil into gasoline.

Oil companies would like nothing more than to build new refineries, as the opportunity to refine the oil (abundant supply - canadian sands) exist, but the capacity to do so is very restricted.

Additionally, it has been mentioned that "scheduled maintenance" is planned around major holidays. This is not true. The Scheduled maintenance, also known as Turnarounds, is mandated by the EPA and API Standards. The turnarounds occur when they must shut down. Equipment must be maintained according to government rules and regulations (example is the standard - API 650 for storage tanks).

The refinery makes no money when it is not "refining" the oil. Also keep in mind that, as stated, these refineries are very old. As technology advances and regulations change to keep up with the technology, so must the refineries. A good example of what I am talking about would be the recent issuing of 40 CFR 60 - NSPS Subpart Ja. This is a new air quality standard for refineries. The Air quality standard was revised and implemented due to demand by the public. This will mean cleaner air for everyone. But this also means that refineries will have to comply with the new rule, resulting in a shutdown for the refinery so that technology can be upgraded to meet the new standard.

I can see how the average person can get the wrong impression through the media coverage. The whole process can be complicated and confusing if your not directly involved with the day to day issues of the refineries. Even the media sometimes gets it wrong. Hope this provides a little insight.

Thanks for the reply. It still strikes me as wierd that we haven't built any new refineries for Decades. I don't care who is to blame/doesn't want them, point blank until we have another source for fuel other than gas, we will be needing more refinery production. That means new refineries being built. I am sure some areas of the country wouldn't mind the influx of cash that building a refinery would entail.

I can understand the added regulation and such adding to down time. All the more reason to have newer and more refineries brought online. It just galls me that it always seems to hit just before Memorial Day. Is our storage capacity for gasoline so small that we can not stockpile it up during somewhat slower times of the year? It seems we are always filling a barrel that has built in holes in it. I understand it is a gas refining problem rather than a lack of oil, but something needs to be done.

Its fine to rant about gas prices, and bringing facts to the table. I for one was very upset with the way gas prices are! At one time I had a F250 ford truck/extended cab. ect. AT the point where it was costing me about 80$ just to fill it 3x a week started to really take its toll.
I down graded my car to something better on gas, a bike. Now Im not feeling the tight grip around my neck at the end of the week. And I get a great work out!
I understand its not pratical to ride a bike! Society is built to tease and look at people on bikes like losers!! Its the truth, you want to take a date out on your bike? No of chorse not, these oil companies have you By the BALLS son! But not me, sorry charlie I dont need gas, and I dont pay for it. And I dont care what people think either, becasue they are all part of the same problem. You want to cry about Oil companines making you their bitch, then why not stop letting them..
People are part of the problem, until they "get it" it will stay the same.
Try getting bike, even a motor cycle! I have a motor cycle for my far trips. No more cars, or trucks till things get better.
If more people would come together on this and say enough!! and really stop using their gas, we could all get somewhere!
But no, today is all about yourself, and your bigass truck, and flipping the bird as you go down the road at someone who rides a bike.. You laugh, and snicker.. Most people are so snide! And they dont even know they are the reason that the prices stay so high, and how they can say whatever they want, well because all those who whorship that gas for your way around the world. Its a huge Conspiracy, and I for one, will no longer be part of the problem! Mostly becasue I cant afford it anymore. nothing self rightous.

Great post by Pyrate90. Also, there is no conspiracy. If there were money to be made, more refineries would be built. Oil refining is a low margin business. I linked an article describing the basic issues. Refining has been a way below average way to make money historically. Sinking money into refineries is a bad investment compared to many other businesses.

It is simply media populist talking heads like Bill O'Reilly and Lou Dobbs that don't know what they are talking about that stoke the ignorance of the average American. Don't believe everything you hear, and look up the information for yourself.

Not to mention, when ignorant people like Bill O'Reilly and many others state over and over that the profits are massive and excessive, what they never say is that profits are divided over shares. And in massive companies where you divide over many many shares, the profits may be reasonable as a ratio to the company size. Anyone that gives raw profit numbers for any company as an excuse to imply profiteering is a very ignorant person, or a propagandist.

"Over the last 25 years, McKee said the S&P 500 has generated percentage returns somewhere in the low teens, while refining has returned about half that.

"There's a good reason there's been some discipline in the capital markets," he said. "It's been a pretty tough story over a long period of time.""

money.cnn.com...

Originally posted by TheMesh
Great post by Pyrate90. Also, there is no conspiracy. If there were money to be made, more refineries would be built. Oil refining is a low margin business.

I agree that was a great post by Pyrate.

I disagree on it still not having some conspiracy aspects. Just because there is less money to be made does not prevent it from being partially a conspiracy.

Does not artificially limiting the supply of refined gasoline lead to increased profits for the oil companies? I am sure the markup on a barrel of gas is more than a barrel of crude oil? Can someone in the biz let me know for sure. In certain circles that would lead people to think they were manipulating things for their utmost profit (price fixing in a sneaky way), not responding simply to supply and demand. If manipulating things to achieving your goal and then attributing the lack of refineries to other explanations other than "it's not as profitable" sure has some conspiracy aspects to it IMO.

Why have electrical companies brought more plants online in the last thirty years yet we haven't built a single U.S. refinery in that same time span? Wouldn't it have been more profitable for them to just raise the price of electricity and make excuses for the lack of new power plants? You can't honestly tell me with a straight face that the demand for gasoline in the U.S. has not gone up dramatically enough to have more refineries built.

Originally posted by JIMC5499
I suggest you take a look at New Jersey for an answer to you questions about oil refineries. It isn't because the oil companies don't want to build more refineries, it is because the environmentalists won't let them.

I don't think the oil companies wants to build new oil refineries hence their tax deductible contributions , to say nothing of support of the creation, to environmentalist movements. I think they long ago realised that no one trusts them so they had to create and aid the movements that would put believable democratic pressure on governments that would allow them to regulate prices by subjugating themselves to the new regulations they could largely control by their funding and support of the 'elected' candidates.

Right after Katrina hit there was a push to build a refinery on the site of a former military base in New Jersey. In a matter of days, lawsuits were filed to prevent it's construction.

Which in my opinion exposes the fact that 'the people' were not the prime movers as this is the type of organizational prowess you usually find in corporate structures. The environmentalist movement is simply too effective a movements, in a world were tens of millions still starve to death each year, for me to believe that it's primarily driven by the interest of 'the people'. If 'the people' were anywhere near as effective when it came to their primary interests maybe i could believe but our world does not reflect that and most certainly not for a lack of effort and organization.

The problem right now is that we only have about 75% of the refining capacity that we need. If a refinery has to shut down for maintaince, is damaged by an accident or the weather or has to convert it's end product, there is going to be an interruption in production causing a price spike.

Why does that lead to a price spike when the oil used comes from stockpiles that were bought MONTHS ago? How can prices rise in a week or two when there are quite large private reserves of refined fuels? One or storms can not do this and it would in fact take the creation of nearly perpetual artificial 'crisis' to result in the 'spikes' we observe and then normally only weeks or months after the 'crisis'; anything sooner is at best just market driven speculative forces out to make a fast buck. These spikes are in my opinion rarely anything but opportunistic price gouging sprees that the public have been duped into accepting.

In the spring you have the change over from heating oil production to gasoline production that normally causes a spike in April or May. This isn't even counting the changes for the special gasoline blends required by environmental regulations in some areas.

Are we really to believe that people who can operate oil exploration rigs and nation wide transportation and production networks gets caught with their pants down every year due to some kind of 'changeover' they did not start soon enough? I just don't see why i should believe them when they attempt to create excuses for yet again 'having' to hike their prices.

Stellar

Originally posted by Pyrate90
JIMC5499 is correct.
I work in the petroleum refining business and I can tell you first hand that it is the States and the Environmentalist who have blocked all attempts to construct new refineries. Not only in New Jersey but also in Arizona.

And while that is perfectly true how come the environmentalist movement have managed so much in so few decades while labour unions in the US have to fight for their very survival while income and living standards stagnates or declines for the vast majority of American workers? Why has this movement been so very successful in blocking the expansion of the energy infrastructure and why should anyone believe that the average people achieved this without the aid of the state and very corporations who are supposedly 'hurt' by these regulations?

Due to this restriction on constructing new refineries, the older refineries must continually be upgraded and maintained. This requires frequent turnarounds.

So it costs a bit of extra money but even the occasional shortages has barely ensured that gas, accounting for the far weaker dollar and inflation, is now more expensive than in the late 70's and 80's? Knowing that one can but wonder if all of this regulatory policy were all that coincidental and thus just a 'lucky break' for big oil on the back of a stupendously successful campaign by average Joe's....

The hard part for most people to grasp is that demand is not outstripping supply. The supply of oil is fine. Demand for gasoline is actually outstripping the ability to refine the oil into gasoline.

That's only hard to grasp for the few , or vast majority it sometimes seems, people who have done absolutely no research. It is quite clear to me that we could easily refine enough crude but that it would likely lead to a sharp drop in gas prices and thus lead to less profit for big oil and less control of a citizenry who then becomes more mobile.

Oil companies would like nothing more than to build new refineries, as the opportunity to refine the oil (abundant supply - canadian sands) exist, but the capacity to do so is very restricted.

I would like you to find me some evidence that big oil companies in fact want to build new refineries in the US as in my reading experience they do not seem to be trying very hard or at all.

Additionally, it has been mentioned that "scheduled maintenance" is planned around major holidays. This is not true. The Scheduled maintenance, also known as Turnarounds, is mandated by the EPA and API Standards. The turnarounds occur when they must shut down. Equipment must be maintained according to government rules and regulations (example is the standard - API 650 for storage tanks).

In my opinion the selective implementation of regulations and standards raises more questions than answers; if they are so well 'regulated' why do they still get away with breaking the law?

The refinery makes no money when it is not "refining" the oil.

But it would have, and hundreds did, to close if prices dropped and regulations increased...

Also keep in mind that, as stated, these refineries are very old. As technology advances and regulations change to keep up with the technology, so must the refineries. A good example of what I am talking about would be the recent issuing of 40 CFR 60 - NSPS Subpart Ja. This is a new air quality standard for refineries. The Air quality standard was revised and implemented due to demand by the public.

It's new but under the 'clear skies act' the air pollution will, if fully implemented, actually get worse so without having studied this specific regulation i'll just say that i don't believe they are cleaning up their act as fast as rising price 'logic' would have us believe. Improvements have obviously been made but i think it's mostly a shell game without great penalties and even then not nearly often enough.

This will mean cleaner air for everyone. But this also means that refineries will have to comply with the new rule, resulting in a shutdown for the refinery so that technology can be upgraded to meet the new standard.

Our air quality have consistently improved since the start of the industrial age, London had it's worse air pollution levels hundreds of years ago, and i don't believe these rising prices can or should be blamed on refinery shutdowns or so called 'upgrades'.

I can see how the average person can get the wrong impression through the media coverage. The whole process can be complicated and confusing if your not directly involved with the day to day issues of the refineries. Even the media sometimes gets it wrong. Hope this provides a little insight.

I can also see how the average person may get the wrong impression when the terrible media coverage is reinforced by the opinions and 'knowledge' of 'industry people' such as yourself.

Stellar

Originally posted by Pyrate90
JIMC5499 is correct.

I work in the petroleum refining business and I can tell you first hand that it is the States and the Environmentalist who have blocked all attempts to construct new refineries. Not only in New Jersey but also in Arizona.

If anyone is interested, take a look at who is financing those "environmental groups" that protest the building of new refineries. It might come as a shock to you.

Then again, to the conspiracy people, it just might not.

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trimmed big quote down to relevant bit.



[edit on 2/8/07 by masqua]

Originally posted by TheMesh
Great post by Pyrate90. Also, there is no conspiracy. If there were money to be made, more refineries would be built.

There are money to be made but they were still being closed.

www.consumerwatchdog.org...

wyden.senate.gov...

www.10news.com...

feinstein.senate.gov...

So i don't see why should believe them when their very own internal documents proves the case against them; they are closing refineries to create artificial shortages when their prices are already at record highs.

Oil refining is a low margin business. I linked an article describing the basic issues. Refining has been a way below average way to make money historically. Sinking money into refineries is a bad investment compared to many other businesses.

U.S. refiners are enjoying record profit margins as a result of above-normal demand for gasoline and diesel produced by ConocoPhillips, Exxon Mobil Corp., Valero Energy Corp. and other refiners. Margins averaged $9.79 per barrel of crude oil processed into fuel during the second quarter of this year, up $4.49, or 84 percent, from a year earlier and the highest quarterly average on record.

On the West Coast, the most profitable market for U.S. refiners, margins averaged $23.07 a barrel last quarter, double those a year ago and the highest on record, according to Bloomberg data.

To contact the reporter on this story: Jim Efstathiou Jr. in Washington

quote.bloomberg.com...

An April 5th internal Shell document released today by FTCR shows that Bakersfield's refining margin at $23.01 per barrel, or about 55 cents profit per gallon, topped all of Shell's refineries in the nation. That means, for example, that margins are 36 cents per gallon higher in Bakersfield than in Port Arthur, Texas. The internal document comments under the category of refinery margins "Wow."

"Only an oil company that wants to short the market and artificially drive up the price of gasoline would demolish a highly profitable refinery rather than sell it," said Jamie Court, president of FTCR and author of the book Corporateering (Tarcher/Putnam). " Shell has deceived the public about Bakersfield and must be forced to keep this refinery open or sell it to a competitor. This evidence should also spur a national moratorium on all further domestic refinery closures."

In a letter sent today, FTCR called upon California Attorney General Bill Lockyer to file suit under the state's Unfair Business Competition Law to force Shell either to sell the refinery or to keep it running. The consumer group said it could seek such legal relief itself should the Attorney General not act. The letter can be read at www.consumerwatchdog.org... and the Shell documents

www.questionsquestions.net...

I'm not sure that it's all that bad a place to invest your money but then the people who own these groups are mostly into controling the markets with profit being a side issue.

It is simply media populist talking heads like Bill O'Reilly and Lou Dobbs that don't know what they are talking about that stoke the ignorance of the average American. Don't believe everything you hear, and look up the information for yourself.

When you are ready to start following your own advice maybe the rest of the 'ignorants' may as well.

Not to mention, when ignorant people like Bill O'Reilly and many others state over and over that the profits are massive and excessive, what they never say is that profits are divided over shares.

Profits are profits and dividends have, as far as i know, have consistently declined over the last few decades. Bill O'Reilly and other 'talking heads' are very many things but it's quite stupid to consider those who are propagandizing and stealing from you 'ignorant' or , as the so called American 'liberal' intelligentsia would have you believe, 'stupid'. If they were much less effective in keeping the public misinformed and misdirected maybe that argument could be accepted but they are clearly quite effective so lets not pretend otherwise.

And in massive companies where you divide over many many shares, the profits may be reasonable as a ratio to the company size. Anyone that gives raw profit numbers for any company as an excuse to imply profiteering is a very ignorant person, or a propagandist.

Corporate profits are simply not divided among the share holders and pretending that happens should disqualify you from stating any more of your opinions related to financial markets.

BP, alone among oil companies, publishes its estimate of global
industrywide refining profits. This "Global indicator refining margin"
shows US margins, which are mostly profit, at $24.40 per barrel, up from
$17.90 last year. In Europe and Asia, refining margins averaged only $6.50
per barrel, barely above last year's $6.30 a barrel.
"This makes the US consumer the cash cow of gasoline profits," said
Dugan. "It's a clear call for government to investigate what's going on in
refinery costs and profits."

www.prnewswire.com.../www/story/07-24-2007/0004631837&EDATE=

Fuel makers are reaping unprecedented profits after refinery breakdowns cut supplies, sending prices at the pump to a record $3.22 a gallon in May. The average U.S. profit margin on refining widened to a record high of almost $24 a barrel in the second quarter, up 50 percent from a year earlier.

``This is the best quarter I've ever seen for refining margins, and I've been tracking the industry for 10 years,'' said Charles Ting, an analyst at Lehman Brothers in New York.

Valero's per-share profit was 14 cents higher than the average of 16 analyst estimates compiled by Bloomberg. Marathon, whose overall profit fell 11 percent to $1.55 billion, or $2.25 a share, exceeded the average analyst estimate by 11 cents.

www.bloomberg.com...

Refinery profit margins have more than doubled since last fall, according to one rough measurement, and now stand at $39 per barrel on the West Coast. That's more than double their average of $17 for the last five years.

Not that the balance is much better elsewhere. The whole country saw a wave of refinery closures in the 1980s and 1990s as companies shut down facilities with profit margins they considered too low. That, to oil company critics, proves the companies' intent to squeeze U.S. drivers.

"As an industry, they made a decision in the early '90s to reduce capacity," Dugan said. "None of this is necessary."

No refineries have been built since 1976. But existing refineries have been slowly expanding their production. Bay Area refineries, for example, have plans to expand capacity by 1.1 million gallons of gas per day, about 2.5 percent of the 43.5 million gallons Californians use each day.

sfgate.com.../c/a/2007/03/09/MNGF9OID9N1.DTL

"Before Katrina, all we heard was refining was at its max and can't keep up, so what if there's a hurricane or a terrorist attack?" said Shireman, whose company owns 53 filling stations. "Things aren't as tight as they led us to believe."

www.iht.com...

Based on the return on equity of comparable firms, which is the basic measure of profitability on which oil companies themselves rely when they report their earnings to their shareholders, oil companies are earning far too much (see Exhibits 9 and 10). In the past five years, they have set record after record. Total company profits reflect increased profits on crude oil and natural gas, as well. In the quarter century between 1974 and 1999, major oil companies had a higher return on equity than all manufacturing only twice. Since 2000, their return on equity has exceeded all manufacturing six of seven years, and every year since 2002. Excess profits earned by oil companies in 2003-2006 are about $200 billion (see Exhibit 11).

www.consumersunion.org...

So they are in fact making record profits and have little idea what to do with all the money. Fact is this is a critical industry that can and does impact the ENTIRE economy and such concentrations of power and gouging of the markets should not be allowed if wider economic growth were in fact the aim of the US administration.

"Over the last 25 years, McKee said the S&P 500 has generated percentage returns somewhere in the low teens, while refining has returned about half that.

"There's a good reason there's been some discipline in the capital markets," he said. "It's been a pretty tough story over a long period of time.""

money.cnn.com...

Which interestingly enough did not prevent investment in this are and certainly did not lead to serious shortages or very high prices. How can it be that you can still get a barrel of oil cheaper ( spot market prices) in 2005 than in 1981? Why are refinery profits up by such wider margins when the price of oil has not significantly risen?

Stellar

[edit on 4-8-2007 by StellarX]

Originally posted by Pyrate90
I can see how the average person can get the wrong impression through the media coverage. The whole process can be complicated and confusing if your not directly involved with the day to day issues of the refineries. Even the media sometimes gets it wrong. Hope this provides a little insight.

America has a lot of empty land. Throw a dart at the map of Texas. I don't believe for a second that big oil simply has its hands tied by the government.

It's more profitable to let the current system putter along than to upgrade it.

But they can't come out and say that so they use the government as a scape goat. Just because some places haven't let them build doesn't mean there is no place to build.

Excellent post Stellar, you get a way above from me for what it is worth.

When will people realize that they are literally being screwed by the artificial controls on the supply of gasoline? Why do you think there is such a big rush toward Bio Fuels rather than other cleaner technologies? It's a shell game (no pun intended) where the consmer only stands to spend more money not only on gas but basic food stuffs. If it is more profitable for a farmer to grow bio fuel grains, what do you think will happen to the price of breads and cereals at the marketplace due to less production of grain for foodstuffs? Big business is going to get you comming and going on biofuels.

Can anyone in the industry defend the difference in the margins per barrel with European and American Refining? The Difference is staggering.

This idea that refining capacity is neglected because of a low profit margin make no sense to me. Don't the same petroleum companies own both the crude oil wells and the refineries? Doesn't the value of crude oil depend on the ability to refine it into useful products?

Seems to me that the refineries are the perfect choke point to use in keeping the supply limited, and prices up. Blame the oil companies, or their stooges in government, the fact is we're getting hosed. They're not building more refineries for the same reason DeBeers isn't digging more diamond mines.

edit for sp

[edit on 4-8-2007 by resistor]