The debate is raging in full swing: the dearth of recent refineries in the US. Many are surprised to see the continued increase in oil costs regardless of the surge in home oil manufacturing. Could refineries be the missing ingredient in the equation, they marvel. ‘Why not simply construct new refineries and scale down the price of oil,’ our readers continue to ask us. Sure, it is a truth- no new refinery has been constructed within the US in the past three many years. The last refinery constructed in the US at Garyville, Louisiana was approach again in 1976. So, the question is reiterated as the point is so apparent: new refineries. However then, there aren’t any straightforward three reasons, nor is the dimension only 4.
First although, let’s have a look at the prevailing worth of oil. Based on a AAA gasoline gauge report, the nationwide average for a gallon of gasoline is $3.62 – greater than thirteen cents from the previous week and 24 cents more than a month ago. After the fall in Could and June, gasoline costs have increased progressively for the last seven weeks, adding pain to the already pained shopper. Is this because of dwindling oil reserves? Effectively, of late home oil production has elevated by fourteen p.c in the final 12 months. In response to authorities sources, the oil manufacturing in the nation hit the very best ‘quarterly stage’ in virtually a decade (for the primary three months of this year). And, US produces fifty five % of the oil consumed within the nation, mainly due to production spikes in Texas and North Dakota.
Clearly there may be oil, so shouldn’t the oil worth lower? In any case, the extra the commodity, usually, lesser is the costs. Put it that manner, the present oil prices do sound ominous. It’s not as if larger demand has hiked the oil costs. Quite the opposite, demand for oil has been lowering with fuel efficient cars and ethanol blended gasoline. This July, crude oil demand in the U.S. dipped to its lowest in 4 years on the again of common financial development in the nation, based on the American Petroleum Institute. The demand for gasoline fell 3.Eight percent this July with consumption down 1.1 %. After the peak in 2007, demand for gasoline has been sluggish. That’s, regardless of improve in the worth of crude, demand for gasoline is at report low. So, the speculation does acquire drive – are lack of refineries hampering the fall in the price of oil? North Dakota produces greater than 600,000 barrel/month but has only one refinery in Mandan. An element of bafflement does linger to see the country producing substantial oil and but importing refined merchandise.
There is colossal hole within the realm of manufacturing and refining capacity in the nation. The refineries are churning at full capacity which makes them worthwhile, however on the downside there isn’t any room for mistake. They must deal with variable demand on one hand and better costs of inputs on the other. Just lately, Sunoco Inc. announced closure of its largest refinery leading to fears of gasoline shortage and higher oil costs in the US. Fortunately, a deal with the Carlyle Group saved the day for Sunoco Inc. and the oil business. But, the issues in the refining sector are far from over. Two refineries owned by Sunoco Inc. did close in the final eight months, which suggests a lack of practically half the gasoline and other refined merchandise within the East coast.
True, new technologies have elevated the domestic oil production. For once, though, the infrastructure in the US has failed to meet up with the surging home oil manufacturing. Barges, rails and trucks, imagine it or not, nonetheless transport crude. Naturally, the oil barely reaches the refineries and this mode of transport additionally makes oil dearer for the consumer. How about pipelines? We all know that imported oil is costly. Nonetheless, the Marcus Hook refinery continued to import oil at $114 a barrel in 2011, even when the West Texas Intermediate crude traded lower. Why? Lack of pipelines, again. And with this paucity in pipelines, crude produced in the country is not reaching the refineries. After all, the a lot hyped Keystone XL pipeline would connect Canada’s oil with refineries in the Gulf of Mexico and Houston, however that will take years.
Staying with refineries, the need for pipelines is more pronounced within the Gulf coast. The refineries within the Gulf coast contribute about forty five p.c of the refining capability, and 30 percent total crude oil manufacturing within the US. Of late, the imports have declined within the Gulf coast, because of drilling in the Eagle Ford Shale in Texas and Bakken shale in ND. Unsurprisingly, import of the dearer mild sweet Nigerian crude stood at 150,000 b/d in January, the bottom since 1996. (For the corresponding period, there’s decline within the import of Nigerian crude to the East coast too.) But, think about the determine with more pipelines in the region. Sure, the crude from Eagle Ford from Texas has started to arrive in the Gulf coast. Nevertheless, the crude is candy mild. A lot of the refineries within the Gulf Coast are more sophisticated, designed to process heavy and extra bitter crude. As funding to refine the lighter candy crude is expensive, the one option for the refineries is to blend the different crudes. The irony.
In the meantime, woes of the refineries within the East coast proceed. Two have already closed, and the remainder of them are barely managing to scrap by. These refineries are dependent on imported crude as they haven’t got easier access to cheaper West Texas Intermediate crude. Hence, they proceed to import the expensive Brent crude. There are plans to transport oil from North Dakota to the East coast by rail, but when?
Though a continuation of the import story, the scene is slightly different within the Midwest. The refineries here are having fun with increased earnings, credit score to generous provides from Canada and home oil. Imports from Canada reached 1.76 million barrels a day in the first quarter of 2012, an increase of nearly 22 percent from final 12 months (Source: EIA). Unsurprisingly, Canada is the biggest provider of crude to the US followed by Saudi Arabia.
Lately the Port Arthur refinery underwent expansion to virtually double its every day capability. So, why do refineries expand rather than build new ones? It’s easier due to the environmental rules. The apparent lack of logic in not having refineries does get answered when you take the surroundings beneath consideration. Refineries gobble up water, not to mention vast tracts of land, and contribute loads of CO2 to the air, as well. So, environmental regulation tends to be exhausting for anyone eager about refineries. The EPA laws are also strict on the sulfur content material Light crude is simpler to course of, has decrease sulfur content so it is easier to get the environmental nod. Heavy sour crude, on the other facet, has extra sulfur and is more difficult to course of. Sunoco Inc. is said to have lost $ 1 billion within the last three years, attempting to improve in accordance with the stricter EPA regulation.
Will the picture change? Everyone needs refineries, just is someone else’s yard. The brand new EPA regulation for brand spanking new refineries scheduled to be released this November has been deferred because of the Presidential elections. How is it going to pan out? Mitt Romney is all for more drilling. He wants to drill “just about each a part of U.S. lands and waters” but is silent on his take on refineries. For his part, Obama is for ‘energy independence’ but along with his strict environmental laws, no refinery is going to return up anytime quickly. The state of affairs is precarious. The demand isn’t expected to rise anytime quickly. EIA has lowered the forecast of oil consumption in 2012 and 2013.
Any destruction due to accidents (just like the recent fires), weather situations, and maintenance would have an effect on the supply with fast impact. As an illustration, the recent hearth within the Chevron refinery at Richmond, California disrupted nearly sixteen% of the supply within the area. Plentiful reserves, but liable to import fluctuations- which nation would wish to continue on this position?
If the refineries aren’t taken care of, the dream of cheaper crude would proceed to be a dream. That would be sad with the present domestic assets.
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