The excuse we hear for high gas prices is not so much the shortage of oil, but the lack of oil refineries. Ok. So build more oil refineries. Wait? Why would a oil company be so stupid to do that. That would not only require tremendous capital outlays, but it would also reduce the profit margins per gallon of gas sold. So why would a oil company be so stupid to do something like that? Why don't they just give away free solar panels with free electric cars to everyone?
<div class='quotetop'>QUOTE(burritos @ Aug 2 2007, 12:24 PM) [snapback]489365[/snapback]</div> This is generally a 2 fold problem as I see it. If it is in the interests of making money, the oil company would build it (ie, if their current refinery was so out of date it was costing them lots of money to conduct repairs and it was losing market share due to this). Another part of the problem is such a new refinary would likely be met with the need for numerous environmental impact statements and then protests from environmentalists (many of which want higher gas prices anyway).
<div class='quotetop'>QUOTE(burritos @ Aug 2 2007, 01:24 PM) [snapback]489365[/snapback]</div> My understanding is that the margins (profits) in refining were low for some years. Nobody wanted to build a US refinery because you couldn't make any money doing it. Interest is perking up only because margins have risen lately. Here's a google answers cite that says that, though I disagree with a lot of what was said: http://answers.google.com/answers/threadview?id=602587 The opening page of this DOE document captures it OK -- the black line is refinery margin - you can see it fall in the late 70, have low average value (with some spikes), then goes up toward 2005 (end of chart). I think that's the story -- that it just wasn't very profitable to build a new US refinery for the past couple of decades. Now it is. So now there's interest in building more US refineries. http://www.eia.doe.gov/emeu/perfpro/refmktg.pdf
Why would an oil company want build new refineries? They can charge an ever increasing price for their product made at exisitng refineries, so no additional capital investment! Then there is the negative publicity and all the legal battles.
There is generally a pretty violent NIMBY reaction (understandably, refineries smell like nice person, to put it nicely) to new refineries as well.
Refineries are being built, just not in the US. Iran, Saudi Arabia, and other exporting countries are building them. It allows them to 1) Sell the finished products, including plastics for a higher profit margin than selling the crude. 2) Stop importing gasoline due to their lack of refining capacity. This will ease the burden on existing refineries and make building new US refiniries a risky venture, given that we may be importing more GAS and less OIL in a couple of years. OR...exporting companies will simply use more of their own products internally and we simply won't get enough crude imports to keep our refiniries going at full speed anyways.
Also remember that just because new refineries are not being built doesn't mean that US refining capacity is not increasing. While it is true that no new stand alone refinery has been built since the 70's, existing refineries have been greatly expanded. By expanding an existing refinery instead of building a new one, the company avoids costly new environmental regulations.
Why should they refine more oil into gasoline when this is a perfect opportunity to restrict supply, thus providing an increase in price and profits for the demand?
Gas is a worldwide commodity like oil. When ME refiniries start producing their own, the rest of the world's refiniry demand will drop. This is why no one's building them, HERE. We are building them over there!
