ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, September 28, 2005

Energy Prices - The Rest of the Story

There's an excellent article in the Wall Street Journal today:

Giant Squid in Wild Is Captured on Film By Japanese Team
Associated Press
September 28, 2005 8:48 a.m.

TOKYO -- When a nearly 20-foot-long tentacle was hauled aboard his research ship, Tsunemi Kubodera knew he had something big. Then it began sucking on his hands. But what came next excited him most -- hundreds of photos of a purplish-red sea monster doing battle 3,000 feet deep.

woooops, wrong story.

Here we go. (get a subscription if you don't have one... great publication!)
Refining Incapacity
September 28, 2005

Midway through his press appearance Monday, we wondered if President Bush was going to don a cardigan. He was waxing on about energy "conservation," a la Jimmy Carter, and at one point he even said Americans should "curtail nonessential travel." Maybe they should turn down their thermostats and let their kids tap their keyboards with gloves on, too.

Only belatedly did Mr. Bush get around to the real energy problem that Hurricanes Katrina and Rita revealed for all Americans to see: the degree to which government policy has limited energy production so that a single big storm can deliver a supply shock that sends prices through the roof. Exhibit A is the oil refining industry, which hasn't built a new refinery in America since ... before Jimmy Carter was in office (1976).

Rita shuttered 27% of the nation's capacity to refine crude oil into gasoline, heating oil and other products. This followed Katrina, which shut down 10% of capacity, sending the average price of gasoline up to $3.07 a gallon. Things are now slowly getting back to "normal," though normal is not a synonym for good.

In 1981, there were 325 refineries in the U.S. with a capacity of 18.6 million barrels per day. Today, there are 148, with a capacity of about 17 million barrels -- though U.S. demand for gasoline has increased more than 20%. From 1993 to 2002, the average return on investment in the refining industry was 5.5%, or less than half the S&P industrials average of 12.7%.

One explanation for this performance is the historically low gas prices over much of the past 20 years; there has often been little incentive to build new capacity. But just as big a problem are onerous and costly regulatory burdens that have sucked profits from the industry. This includes a permitting process that is subject to endless bureaucratic delay and court challenges. The one company that is even considering building a new refinery -- Arizona Clean Fuels Yuma -- has been trying to obtain its necessary air permits for nearly seven years.

I watched the Today show as they talked about how tapping the Strategic Oil Reserve would be a temporary solution. They mentioned that refining capacity was a problem, but didn't indicate that it was the main issue which is causing the high gasoline prices.

I also heard on Smash & Allman in the Morning (on FM 97.1 here in St Louis and available via streaming over the web) that this study by the RAND Corporation that there are millions of barrels of oil in the US, primarily shale oil in Colorado. The only problem with this technology is that it is essentially strip mining and can have a devastating environmental impact. I don't know the details of what new technology could be implemented (or developed) to minimize that impact, but I know that Canada's primary oil fields are made up of shale oil and there is growing concern regarding the environmental impact there. (In fact, it was a red herring used by the Leftists as to why ANWR shouldn't be tapped... like comparing apples and oranges from an environmental impact standpoint).

Your Co-Conspirator,
ARC: St Wendeler