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The Hovensa Oil Refinery cut its emissions to a fraction of the original design, yet is still one of the most efficient refineries in the world
Why is it that as oil prices lower, gas prices don’t keep dropping?

Well the folks over at CNN/Money have already reported that Gas prices are up as I’m sure just about everyone here in the states has noticed. The problem however is that the rest of the world is not feeling the hit as well.

A little research into the problem and you find out why the U.S. has faced rising gas prices for the past few years. It’s not the fault of rising oil prices; it’s actually the fault of the government. An article published over at Bulk Transporter gives a fair breakdown that Lack of refining capacity is what is killing us. This really isn’t a surprise since the last new oil refinery in the U.S. built was 31 years ago.

This lack of refining capacity can be attributed to several things. One is the fact that new refineries aren’t being built. Old ones are closing because they are coming up on the end of their lives and need to be replaced with newer ones. To make that worse, it is hard to get permits to build refineries due to clean air laws, and environmental groups contest the construction of these refineries.

One such example is the refinery proposed to be built in Yuma County, Arizona. Already the “Yuma County Citizens for Clean Air” is vowing to take this to the EPA as the Arizona State Government has issued the permit to build the refinery. This has already been 5 years in making, with likely many more ahead if these Environmental groups keep the issue tied up in litigation.

The other problem is that the current batch of oil refineries are outputting at 95% capacity or higher. We are producing as much gasoline as possible currently in the U.S. and without more refineries, and more efficient refiners we are unlikely to see the price of gasoline ease anytime in the near future.

Refineries are also more costly to produce these days. With stricter pollution requirements to adhere to, companies are looking to modern technology to help reduce the amount of pollution these plants produce. The good thing is that older refineries are being upgraded regularly, and right now refining capacity is down about 20% due to upgrades and overhauls to older refinery stock. Technology has improved to allow the cleanest refineries ever to be built, but at a hefty price tag around 2.5 billion USD each. A modern European refinery takes around 5 years to construct and become fully operational.

In the 1950's North America had about 320 oil refineries and produced about 6 million barrels of gasoline. As of 2005, the U.S. has about 140 Refineries and output a whopping 17 million barrels of Gasoline. Technology sure has come a long way, but is technology advancement fast enough to help ease gas prices or are more refineries an eventual answer we need to address.


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By masher2 (blog) on 4/12/2007 5:31:11 PM , Rating: 5
Many people like to blame the industry, but the fact is the National Petrochemicals Refiners Association (NPRA) has been begging the government for years to allow new refineries to be built, and capacity expansion at existing plants. But today, we find ourselves in a situation where, every summer, refineries cannot meet the demand for gasoline. So prices must rise high enough to force people to curtail at least a small amount of their desired driving, lest the pumps run dry.




By James Holden on 4/12/2007 11:38:30 PM , Rating: 2
Masher: I did a search for low-emission oil refineries and came up kind of empty. Any thoughts on this? I've driven past refineries before, and I can see why no one wants to have one within a few miles of their house.

I guess the question is, even if new tech comes out that would woo the NIMBYs, would people still be complaining about these?


By masher2 (blog) on 4/13/2007 10:34:35 AM , Rating: 4
Well, obviously every industrial process emits something, but I do know that current refineries emit less than one percent of what they did in the early 1970s.

The real question shouldn't be do they emit, but are they safe? And I think overwhelmingly, the evidence is that they are....even for people who live and work their entire life right inside one.


By noxipoo on 4/13/2007 1:34:19 PM , Rating: 2
no doubt the government has some of the blame, but how do you explain the record profits the oil companies are making, surely it's not just because we are all of a sudden using twice as much gas?


By masher2 (blog) on 4/13/2007 2:07:10 PM , Rating: 4
> "but how do you explain the record profits the oil companies are making"

Easy answer. The refiners are making more money because demand has risen, but supply hasn't. In this situation, only two things are possible. Either prices rise enough to make demand drop. Or demand continues to outpace supply, and shortages occur...i.e. the pumps run dry.

Right now every refiner in the country is working their plant at full capacity, and still barely able to keep up with current demand. Had gas prices remained low, they wouldn't be able to meet demand, and you'd now be walking to work.

The solution is even easier. Allow several new refineries to be built, and prices will drop fast.


By Ringold on 4/13/2007 4:10:54 PM , Rating: 3
It's also worth pointing out that the 'record profits' part of his post was misleading. In absolute dollar amounts, yes, Exxon Mobil seems to be raking it in, but if most businesses not just in America but around the world had the volume of sales/revenue that Exxon did and made the same amount of profits, they'd suddenly be considered abject failures within their industries. Oil company profit margins aren't really the greatest, and not every company in the energy complex is minting money. The media slant wouldn't make it look it this way because they have an axe to grind but Exxon, and the other refiners, are making gentlemanly sums of money, but not excessive.

Evidence of this fact will be seen in any 'excess profits' tax passed by Congress. You'll never see them set it to tax profits beyond a certain margin, which would make the most sense if a profit tax was their goal. They'll instead look at XOM's quarterly numbers, subtract some amount of money from their profits, and set the cap at an absolute dollar amount. It'll be a direct political tax on certain companies, and a large disincentive for anybody to grow revenues to such a size.


By TheDoc9 on 4/14/2007 8:20:35 PM , Rating: 2
In the study of modern U.S. economics, I've found that it's actually the commodities market that drives oil prices. The capacity idea is more of a do something with the right hand while the left hand is doing something else argument.


By masher2 (blog) on 4/14/2007 9:09:21 PM , Rating: 2
> "I've found that it's actually the commodities market that drives oil prices..."

Excluding the questionable nature of that argument, I have to point out that we're discussing gasoline prices, not oil. The two are correlated, but loosely....when oil did its runup from just over $10/bbbl to $50/bbl (an increase of 500%), gas prices only doubled. Similarly, gas prices increase every summer due to increased demand, whether or not oil prices increase.


Democracy's Failure
By Ringold on 4/12/2007 7:31:20 PM , Rating: 3
The founding fathers, or at least a few of them, warned that unrestricted democracy would ultimately be a serious weakness. (They noted none had succeeded) They tended to focus on how a slim majority could usurp entirely the rights of the minority through the police power of the state with their votes, but this is an example of the polar opposite; a few NIMBY nut jobs that pop up anywhere an important project wants to set up shop. Instead of taking the collective good in to consideration and dismissing the throngs of protesting hippies, we listen to their complaints.. and listen and listen.

As much as it pained me to say 'collective good', this is an example of government taking individual rights too far.. and there are plenty of examples of government taking a near-communist stand totally dismissing minorities for the sake of the greater good.. Two different extremes from the same government.

I can't put my finger on the precise cultural problem, but there is indeed a problem, the symptoms are very easy to see.. It'd be easy, especially in this case, to pin blame on a certain political group, but next decade it could be a different party with different problems.

Anyone with a philosophy degree, feel free to chip in. :)




RE: Democracy's Failure
By James Holden on 4/12/2007 11:46:37 PM , Rating: 2
I'd say its more a testament to the power of the media than anything else. Any moron with a website can draw a million hits no matter how skewed or bias his research and ethics are. It's a real lot easier for fringe cases to pull up unusual campaigns and get a ton of attention for it (google for "the most hated family in america").

I don't have any answers, but I am a little disturbed that the ethos of free speech hinders progress in the world more than anything else -- and that's my favorite constitutional right.


RE: Democracy's Failure
By Sahrin on 4/13/2007 11:16:59 AM , Rating: 3
Ironically, I think the answer to your semi-rhetorical question is the one thing Americans point to when they think of freedom: The Bill of Rights.

The Constitution, as a "form" - completely and totally isolates the government from the people. Qualifications are required for election to any branch of government, and the the representative portion of the government has no direct control over the operation of the country. It is very, very undemocratic, as has been noted by many a political scientist. This, in my opinion, very closely follows the forms proposed by Plato w.r.t. government and a leadership of "enlightened thinkers."

The Bill of Rights rips power out of the hands of the "focal point" of power and hands it back to individuals. Unfortunately, there is no way to moderate the power individuals possess - I can apply my free speech right, for instance, to essentially any instance. (eg, I want to make anti-homosexual hate speech in a public place. No rational person wants to be around that - but I can use my 1st Amendment rights to force the community to hear me, and then sue the community for a substantial sum to boot).

A lot of people think that the above situation is a result of a move toward socialism - it is not. Socialism doesn't adequately address this problem either (well, it addresses it in so far as it explicitly ignores is). This is a unique problem to the way the power structure was broken in the United States by modifying the constitution. I think the writers of the constitution capitulated on the amendments in response to a) threats of non-ratification and b) pressure from the UK (short term decision).

Do I think the Bill of Rights is bad? No. A lot of people try to plot a "spectrum of government" and put total democracy on one end and "totalitarianism" on the other. The reality is that the spectrum for all systems of government is "system" on one end and "anarchy" on the other. The best system is one that gets as close to anarchy as possible without losing social cohesion.

I don't think it's the fault of one certain political group or even a "class" of society (eg middle-class, suburbanites, libertarians etc), it's just a flaw in the structure.

The fundamental problem is asking people to accept a system over which they have no control, other than the acceptance of the system itself. Everytime people get involved in government, things go to a hot place in a handbag. Citizens for a Blue Sky in Arizona is the group this week - and it is their power to override the true good in society (evaluated and decided by representatives) that interferes with societal progress.


RE: Democracy's Failure
By masher2 (blog) on 4/13/2007 11:25:11 AM , Rating: 2
> "The Constitution...is very, very undemocratic."

It's not meant to be democratic. The US is a republic, a very different form of government indeed...and, in the eyes of both myself and the Founding Father, a superior one.

But generations of grade school children have been taught that unrestrained democracy can solve every problem from world hunger to a cure for cancer...so they see this a bad thing.

> "Everytime people get involved in government, things go to a hot place in a handbag..."

Which is one of the arguments against unfettered democracy, eh?


RE: Democracy's Failure
By Sahrin on 4/13/2007 2:56:54 PM , Rating: 2
Masher,
I understand that The US is a republic - that was my point, as you elegantly reinforce - grade school children are taught from a young age that we are a democracy and democracies are filled with happy, productive, tax paying, reproducing citizens.


RE: Democracy's Failure
By Master Kenobi (blog) on 4/13/2007 3:08:36 PM , Rating: 1
True democracy is quite literally anarchy, thus why true democracy does not work. Stick with a republic, it has a better foundation behind it.


RE: Democracy's Failure
By Ringold on 4/13/2007 4:02:34 PM , Rating: 2
quote:
Citizens for a Blue Sky in Arizona is the group this week - and it is their power to override the true good in society (evaluated and decided by representatives) that interferes with societal progress.


That specifically causes many gears in my mind to grind to a hault.

Side A) Society must advance.
Side B) Property rights must be absolutely secure to encourage investment, growth and security.

But.. in cases like this, society can't grow because it could infringe upon property rights by way of an externality (pollution).

My thought is that a Republic could, in a better form, make an intelligent decision to ignore propery rights in this very specific case, and cases in the future, given that those in power had almost absolute powers but the restraint not to use them abusively.

But as has been pointed out, we're closer to unrestrained democracy now, with a focus on individual rights (at times, like when it suits a goal like anti-pollution groups, but not when it comes to taxes or wealth redistribution). As far as school children being indoctrinated with democracy.. ask a reasonably intelligent child or teenager what he'd think of going back to the good old days when members of the Senate were elected by state legislatures -- not at all by the people. Assuming they care about and know about politics at all, they'll think you're some kind of fascist. No, merely a republican, with a little r. Can anybody even imagine a Lincoln-Douglas debate with the current setup?

Good discussion all around, though. Thanks for the responses.


RE: Democracy's Failure
By masher2 (blog) on 4/13/2007 4:47:56 PM , Rating: 2
quote:
Side A) Society must advance.
Side B) Property rights must be absolutely secure...
I would consider this to be a false dilemma. In this particular case, the desires of the property owners and the needs of society run hand in hand.

The conflict is coming from a small group of individuals who are not the property owner...but want to exert control over what happens on that property anyway.


And on the flip side...
By Mithan on 4/13/2007 8:02:18 AM , Rating: 2
The flip side of this argument is that as prices increase, it forces people to turn away from gas guzzling SUV's, wasting gas on things we don't need, having 10 cars in the drive way etc, etc, so in effect, having less refineries might be a good thing in the long run, as the price increase in gas forces us to do things that we normally wouldn't if the price was cheap.

Lets face it, people are people. We are never going to switch from Petroleum products as long as its cheap, until someday in the future this "habit" bites us in the ass, hard. No, I am not talking about saving the trees either, I am talking about more practicial issues such as energy independance and the fact that oil will not last forever, no matter what people say.

So ya, more refiners would lower the price of gas a few cents a litre but in the long term, having a bit higher price for gas NOW will force us to THINK and start CHANGING to other innovations that might actually save our ass in 10 or 15 years by pushing us to buy/make more fuel efficient cars, lower gas consumption so we don't care so much about things like OPEC, bring in new much needed technologies, etc.

In other words, this may not be such a bad thing. People are very resistant to change and I think the world can agree that its addiction to oil needs to change and soon and thus, having higher prices at the pump may bring this change now, before some thing happens and it is a sudden change we are not prepared for.




RE: And on the flip side...
By masher2 (blog) on 4/13/2007 10:32:06 AM , Rating: 2
> "as prices increase, it forces people to ..."

To change their lifestyle, yes. Which is the hidden (or sometimes, not-so-hidden) goal of every environmentalist. This is the real reason that many envirommentalists have come flat-out and said that a supply of clean, cheap energy is the last thing they want. Which probably explains their opposition to nuclear power.

But cheap, clean power is a good thing. It-- more than any other factor-- determines our standard of living. Personally, I want my standard of living (and that of my children) to rise, not fall. And I certainly want to give the boon of cheap energy to the Third World, where millions of childrens die annually for easily-preventable causes.


RE: And on the flip side...
By Ringold on 4/13/2007 4:21:25 PM , Rating: 2
I read not long ago and not for the first time that it appears the most important thing to establish first in an impoverished area is cheap, reliable electricity. Seems counter-intuitive compared to clean water, food, and so on, but according to World Bank and IMF studies, electricity has a significantly larger impact. Funny it's what environmentalists want to deny the developing world like you said.

Besides, everybody would live a better lifestyle if energy markets were free and alternative sources were forced to be price-competitive with an unhindered oil complex. Instead, we're setting ourselves up for huge distortions from any kind of efficient outcome; alternative energy is being subsidized heavily while competing with a strangled oil industry.


Good read
By Chillin1248 on 4/12/2007 5:05:55 PM , Rating: 2
It seems as though Oil refining and Nuclear energy face similar problems, the facilities for them are just not being built as we need them.

I mean they are both pretty Envorimentally safe (considering the alternatives) and cost effective.
-------
Chillin




RE: Good read
By James Holden on 4/12/2007 11:35:30 PM , Rating: 2
Well, I don't know how safe oil refining is. I wouldn't be quick to lump these two together -- nuclear has far less impact on the environment than these refineries do.

But, as Chris points out, this is a pretty big problem. It's amazing we've stretched the existing refineries as far as we have.


yuma?
By kattanna on 4/13/2007 1:25:50 PM , Rating: 2
one thing i dont get is why the big fight in yuma..i mean there AINT that much out there. my parents, and now most of my family live out there, so i have visited it many times.

outside the immediate area, there is nothing put empty miles of desert..and more empty miles.

its actually a great place to put such things.




RE: yuma?
By Master Kenobi (blog) on 4/13/2007 2:53:28 PM , Rating: 2
That's why I pointed it out specifically :)


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