Friday, March 11, 2011

Obama on Oil: What He Didn't Say

I watched Obama's speech a few seconds ago.  He said that domestic production is at an all time high. I learned recently that this is true.  He said that the reason the price keeps going up is that the economy is coming back on line and that growing nations are consuming more oil (a common thread among many).  Those I would classify as half truths.  The economy is not growing anywhere near what it did in the last decade or the decade before, while these other nation's were experiencing similar growth in that period.  And, yet, gas prices and oil did not spike near uncontrollably as they have since the President took office.  Certainly, if the price of gasoline continues to rise, the economy is going to tank. 

So, what is the problem?

Well, we can drill all we want, but unless you have the number and type of refineries necessary to change it into gasoline along with the requisite delivery systems (ie, pipelines, trains and trucks) to take the oil to those refineries, it doesn't do anything except sit there:

Ironically, even though there's an oversupply of US oil-known as West Texas Intermediate, or WTI-problems with getting the crude refined have forced the US to import the more-expensive Brent, which is pushing up US gasoline prices.

So while American consumers looking to determine the direction of gas prices would normally look at US oil prices, they really should be looking at Brent. 

If you read that entire article, you will discover that the president is correct that the total percentage of over all oil being imported is around 50%, but the percentage of imported oil being refined to gasoline is 70% of our supply.   Because we can't refine our own crude because there are not enough refineries or delivery systems to do so.

You may ask why that is so.  Please direct those questions to the Oval Office.  Maybe one of his staffers will find the information and the president will FINALLY put the right strategy in place.

Oil and Refinery capacity

The Annual Energy Outlook 2004, produced by the Energy Information Administration (EIA), stated that financial and legal considerations make it unlikely that new refineries will be built in the United States.

Where is Sarah Palin when you need her?

The "legal matters" would be government regulations enforced by the EPA.  Several reports say that old refineries were "moth balled" because they were too inefficient while another report in 2004 suggested that gasoline demand in the US had declined and some indicate will continue to decline due to new fuel efficient vehicles and an aging population (that last part I am not sure that I get - especially since the population continues to grow).  Yet the last report as per the EIA was that the big "efficient" refineries were operating at capacity (ie, can produce very little or no more).  So, which is it?

Wikipedia (not yet updated with two new refinery builds) indicates that "the public" has demanded that no new refineries be built due to concerns about pollution:

Environmental restrictions and pressure to prevent construction of new refineries may have also contributed to rising fuel prices in the United States.[8] Additionally, many refineries (over 100 since the 1980s) have closed due to obsolescence and/or merger activity within the industry itself. This activity has been reported to Congress and in specialized studies not widely publicized.

So, we know what the problem is, but we are helpless to do anything about it?  It continues:

Today, national and state legislation requires refineries to meet stringent air and water cleanliness standards. In fact, oil companies in the U.S. perceive obtaining a permit to build a modern refinery to be so difficult and costly that no new refineries have been built (though many have been expanded) in the U.S. since 1976.

In 2009 through 2010, as revenue streams in the oil business dried up and profitability of oil refineries fell due to lower demand for product and high reserves of supply preceding the economic recession, oil companies began to close or sell refineries. Due to EPA regulations, the costs associated with closing a refinery are very high, meaning that many former refineries are re-purposed.
 Yet, oil companies are posting record profits and gasoline reserves have gone down

Gasoline inventories fell by 5.49 million barrels to 229.2 million, the biggest decline since September 2008, according to the department. Stockpiles were forecast to drop 1.5 million barrels. Supplies of distillate fuel, a category that includes heating oil and diesel, fell 3.98 million barrels to 155.2 million, the lowest level since June.
 To summarize:

1) We do have high oil production.
2) We don't have the capacity to refine it or transport it.
3) We don't have enough refineries (the right refineries for the oil produced - "sour crude" as opposed to "sweet light crude we get from Saudi Arabia, et al.
4) We don't have refineries because EPA regulations that raise the cost of production and transportation
5) "Nobody knows what to do about it."

Or, in the case of the President, he's not saying anything, but "renewable energy".

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