Posted on 05/02/2004 10:36:33 AM PDT by Dog Gone
Higher prices show that our insatiable demand for gasoline is catching up with our willingness to produce it.
The price of gasoline rose over the winter, but that was just the beginning of an inevitable upward trend. Summer will give us an even better feel for things to come. Complaints by motorists and accusations by politicians will not avoid the unavoidable: Most Americans simply cannot have all the gasoline they want much longer.
We already burn more of this precious but cheap commodity than U.S. refineries can make. For the past two years, imports climbing toward 1 million barrels per day have kept supply in step with consumption. But within three years, we'll be extracting as much from foreign suppliers as they can spare. At that point, demand cannot continue to grow at the current pace. It cannot exceed supply.
When demand hits the ceiling, some of us, or all of us, will use less. Government may impose a rationing scheme (which seems unlikely) or price will allocate supply. Those who can afford it will get as much as they want. Others will not.
For some reason, America's politicians and special-interest groups never mention the limits of oil companies' capacity for making gasoline. The domestic refining industry has not grown significantly for years, and it will probably shrink in years to come. Plant emissions rules, community hostility and a series of money-wasting betrayals by regulators discourage expansion. So does the burden of paying for equipment to make fuels that comply with clean air rules for a marketplace so competitive that investments do not earn any money. Worse yet, these conditions encourage closure of marginal facilities. Many consumers say they won't cry for the big, rich oil companies. If so, they'll cry for themselves in the gasoline line -- or leave the keys in their SUVs, hoping they'll be stolen.
America burned 8.93 million barrels of gasoline a day in 2003, 8.14 million barrels of it produced by domestic refineries. If U.S. refineries operated at peak gasoline output despite seasonal swings in motor fuel sales, they might sustain 8.7 to 8.8 million barrels a day of production, assuming their equipment could take the stress. In years to come, regulations, among them the measures that force ethanol into the motor fuel supply, will reduce the amount of gasoline refiners can make.
Meanwhile, if nothing changes our living patterns and taste for large, inefficient vehicles, demand will continue to rise. We buy more thirsty SUVs than thrifty sedans. Over the past five years, that preference has driven gasoline consumption upward an average of 1.6 percent per year. Such a pace will push demand to 9.2 million barrels a day in 2005 and 9.4 million in 2006.
Most foreign refineries are unable to make gas that is suitable for sale in the United States. They simply do not have the equipment to turn out a product that meets our specifications. The latest elevation of our standards, which will quickly reduce the sulfur content of our motor fuel to practically zero, severely restricts the amount of gasoline we can import from such traditional suppliers as Venezuela. Asia, the only place on Earth where the refining industry still expands rapidly, does not install the expensive deep-desulfurization equipment required to meet our standards. Today only one overseas refining system, Western Europe's, can increase its output of sulfur-free gas. But Europe, like the United States, will not significantly increase its capacity to produce gas. European oil companies have neither the capability nor the incentive to expand their gas-making hardware. In three years or less, if U.S. gas demand grows as expected, they will produce to their maximum. Then our real trouble will begin.
Let me stress an essential point. We must not pretend that a supply increase can save us. Even if public opposition and economic impediments to refinery expansion should disappear today, the oil industry could not install new equipment fast enough to prevent a shortage two or three years from now. No company can order the major process hardware to make gasoline -- pipe stills, catalytic crackers, alkylation units, cokers and reformers -- off the shelf. It takes three years to build and install those big, costly, complex units. Add another year for design, engineering, bidding and funding. In the real world, securing operating permits would entail anywhere from a year to as long as it takes for one to lose hope.
Meanwhile, a few companies are taking risks that will soon pay handsome rewards. They are acquiring any fairly priced or underpriced U.S. refining assets that come on the market, of which there have been a number in recent years. Almost every time there is a merger, the Federal Trade Commission mandates the disposal of a refinery or two. When a wayward natural gas company has to raise cash to remain solvent, it sells refineries. A few companies with vision are always eager to buy.
Why do the consumer protection lobby and the environmental pressure groups say nothing about this real and urgent problem? They must see a gasoline shortage coming. Do they want it to occur? One of their favorite legislative goals, higher mileage standards for automobiles and light trucks, could soften the collision between gasoline demand and supply.
In one way or another, consumption is going to stop growing. The only thing we can control is how hard we hit the supply barrier. We can strike it head-on or at an angle. An early warning could allow people of moderate means to buy efficient vehicles in time to make a difference in their mobility and personal finances. Whether they have to pay $3 per gallon or carry ration books to the filling station, they'll thank whoever gave them timely advice.
Our leaders, who have debated energy policy for years without acknowledging any concern for a potential gasoline shortage, must now demonstrate courage and vision. They must admit that the nation's gasoline problem has no practical supply-side answer and lead us toward reducing consumption.
Tusiani is chairman and chief executive of Poten & Partners Inc., which provides brokerage and consulting services to the oil, gas and maritime industries. He is a senior fellow at Columbia University's Center for Energy, Marine Transportation and Public Policy.
Not true. We can refine all the gas we could ever need. We can build more refineries. We just have to curb the power of the enviro-nazis.
Hah, Washington is filled with nothing but cowardly, spineless wimps bent on being re-elected.
This just demonstrates how woefully inept economics education is in the ranks of journalists (not to mention the rest of the country). Economics dictates that a commodity cannot be both precious and cheap. One of this conditions precludes the other.
Not the only solution. We can also expand capacity at exising refineries. They are located where the oil comes in, and already connected to the distribution pipelines.
Not the only solution. We can also expand capacity at exising refineries. They are located where the oil comes in, and already connected to the distribution pipelines.
It's not hard to see the train wreck that is going to happen.
That was exactly my take on the article.
This of course is not an unstoppable force of nature. High prices under normal economic rules is the incentive to build and expand refining capacity. The inability to do so is purely political. You can ignore economics but you can't escape them. If you effectively outlaw expanding refineries you guarantee high gasoline prices. You can escape the political fallout by blaming the oil companies, but the energy bottleneck can't be finessed.
We buy more thirsty SUVs than thrifty sedans.
Oh, the SUV canard. People buy the vehicle they need and pay a price for it. The shortage of gasoline doesn't come because your neighbor needs a station wagon and can't buy one, it comes because your elected and unelected leaders won't allow a refinery in your neighborhood. The same problem applies to other energy projects. We have an existing generating plant in our town that is being shutdown because the local leaders won't allow it to operate anymore; they want the plant razed and replaced with shopping centers. Only a few months ago we were beset with blackouts and importing power at enormous cost; memories are short, though.
Most foreign refineries are unable to make gas that is suitable for sale in the United States
This again is not a law of nature. The problem of politically designed gasoline is self-inflicted. We can't import gasoline from one state to the other for the same reason. Elect morons to office and this is what you get. If you imagine that eggs come from the supermarket and electricity is your birthright, and gasoline is evil and should nonetheless be cheap, you are a candidate for manipulation by people who aren't fit to rule you, but will.
It takes three years to build and install those big, costly, complex units.
Three years is nothing. This is what a lot of people do for a living. Open the gates and get out of the way. The sky is not falling; people are throwing rocks in the air and blaming the sky.
An early warning could allow people of moderate means to buy efficient vehicles in time
People don't need to be encouraged to buy efficient vehicles. At three dollars a gallon people will do it without one dollar being spent on a PR campaign.
But if people don't get realistic about where oil and gas come from, the price will only continue to rise and no amount of bellyaching will prevent it. Only a change in political attitudes toward energy production can do that. Either you're for it or you aren't. If you aren't, get ready to pay a lot more.
Great line.
Roger that!
BUT... the free market doesn't work if government regulations interfere too heavily, and that's the situation now. I live in California, and lemme tell you, the free market doesn't dictate how refineries are built out here. If the Left can't crush free enterprise directly, they'll sabotage it clandestinely.
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