U.S. Oil Refining Capability

Q: Does the U.S. lack adequate oil refining capabilities?

A: We’ve got half as many refineries as we did in 1982, and they’re not meeting demands. Rules, sensible challenges and financial components all play a task.

FULL Question

The lack of U.S. oil refinery capacity retains being blamed for a few of the big increases in gasoline costs. Do we lack refining capability and, if that’s the case, why?

FULL Answer

Though oil refinery productivity within the United States has been enhancing, the variety of operating refineries has been dropping steadily. In 1982, the earliest 12 months for which the Energy Data Administration has information, there were 301 operable refineries in the U.S., and they produced about 17.9 million barrels of oil per day. At present there are only 149 refineries, however they’re producing 17.4 million barrels – lower than in 1982, but more than any yr since then. The rise in efficiency is impressive, however it isn’t enough to meet demand: U.S. oil consumption is 20.7 million barrels per day. Refinery capacity is not the only factor in the price of gasoline, and in keeping with the EIA it isn’t an important one either (that could be the cost of crude oil), but it is actually a contributor.

Current refineries have been working at or near full capability because the mid-nineties, however are failing to satisfy daily consumption calls for. But there hasn’t been a new refinery built within the U.S. since 1976. Why? Several components: Constructing a refinery is expensive, there are a whole lot of environmental restrictions on the place and the way they can be constructed and no person wants to dwell near one. One company, Arizona Clean Fuels, has been making an attempt to construct a refinery within the Southwest since 1998. Getting a permit to construct took seven years, and the corporate twice modified the plant’s proposed location due to environmental restrictions and land disputes. The refinery is projected to have a $three.7 billion total value tag. The EIA recorded per-barrel earnings of $5.29 in 2006; at that charge, the a hundred and fifty,000-barrel-per-day refinery would must operate for nearly 13 years earlier than its income outweighed the cost of building it.

In short, the explanation for not including more refineries is easy: It’s arduous, and it is expensive. The rationale that we have so few in the first place is more sophisticated. In the 1980s and nineties, there was a surplus of refining capacity. Then, over the course of two many years, half of the plants shut down. In 2001, Oregon senator Ron Wyden introduced to Congress a report arguing that these closings had been calculated choices meant to increase oil firm income. Fewer refineries means much less product in circulation, which suggests a decrease supply-to-demand ratio and more revenue. Wyden’s report cites inside memos from the oil business implying that this discount was a deliberate try and curtail profit losses.

The economic pressures of oversupply could have led to plant closings even with no extra calculated decision, in fact. In 2005, the head of the Nationwide Petrochemical and Refiners Affiliation testified at a Home listening to that the rate of return on investment in refining averaged simply 5 and a half percent from 1993 to 2003.

– Jess Henig

Sources

Porter, Adam. “Global refinery scarcity shifts power steadiness.” BBC Information. 2 Oct. 2005.

Mouawad, Jad. “No New Refineries in 29 Years? There Would possibly Well Be a Motive.” The brand new York Occasions. 9 May 2005.

Schoen, John W. “U.S. refiners stretch to fulfill demand.” MSNBC. 22 Nov. 2004.

Reynolds, Sarah. “East County oil refinery will move.” Yuma Sun. 5 Feb. 2008.

Associated Press. “Arizona refinery permit took seven years, Senate told.” 14 Jul. 2006.

Wyden, Ron. “The Oil Business, Gas Supply and Refinery Capacity: More than Meets the eye.” 14 Jun. 2001.

109th United States Congress. “Petroleum Refineries: Will File Earnings Spur Investment in New Capability?” Home Subcommittee on Vitality and Sources.

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