Gasoline prices have really spiked these last few weeks and will keep on rising because the United States does not have sufficient refinery capacity to make the gasoline and diesel we need.
And the refineries we have are old and keep shutting down. Or blowing up.
This Spring has seen unusually high prices at the pump. Over 10% nationally, but in some areas like California, it’s above $4/gallon.
My own Washington State is over $3/gallon, up almost 50¢ in the last month.
Spring usually sees higher prices because demand surges as drivers get on the road after winter. Crude oil prices are up as well from problems in Venezuela and Libya, new sanctions on Iran and OPEC cutbacks.
That’s all true, but this quick jump is mainly about refinery problems – yet again.
Unexpected refinery outages and fires in San Francisco, Texas and Los Angeles put an additional strain on our already overburdened refining capacity as a number of refineries are already closed for seasonal maintenance.
This has happened before and will again, over and over, until we do some of the infrastructure fixes everyone admits we need, like building more oil refineries.
But wait. Aren’t we supposed to be reducing the amount of oil we use in an attempt to decrease our carbon footprint?
Yes, we are. But unfortunately, we keep increasing our use of oil. Worldwide, oil consumption rose by 600 million barrels in 2017.
It’s why the United States’ carbon emissions went up again in 2018. We keep making more internal combustion engines than we are making fully electric vehicles. Last year, Americans bought about 360,000 electric vehicles, an 80% increase over 2017, and the most in history.
But at the same time, we bought well over 17,000,000 new gas and diesel vehicles, the most in history. Globally, it’s even worse – almost 80 million new petroleum-powered vehicles come onboard every year compared to only a million electric vehicles.
But it’s refineries that are the lynch-pin of global transportation.
Petroleum refineries are the little-appreciated bottleneck in oil’s path from the well to the pump. Gasoline has to be refined from crude oil and the United States has no spare oil refinery capacity. Whenever one of our refineries goes down, gasoline prices go up.
Just like they did after the Chevron Richmond Refinery fire in 2012. And the Chevron Richmond Refinery fire in 1999. And the Chevron Richmond Refinery fire in 1989.
It’s become a major problem in the last 25 years and we are ignoring it.
In fact, refinery fires, explosions and unplanned shutdowns like the ones last month are so common that they hardly make the news. In 2015, a series of fires and outages in several eastern refineries stopped 20% of the refining capacity in the eastern half of the United States (Reuters).
After a small fire at BP’s largest U.S. refinery, Daniel Horowitz, the spokesman for the U.S. Chemical Safety Board, said “operational incidents, including small fires, at refineries are reasonably common.” So common that, if they don’t involve fatalities or offsite damage, the Chemical Safety Board doesn’t even bother to investigate.
Wow! If nuclear energy had that many problems, we’d have mobs with pitchforks massing outside every plant.
I don’t understand why an industry that makes over $100 billion in profits each year can’t spend less than one thousandth of that to ensure smooth and safe operations in something so critical to their own business, let alone America’s business.
The recent oil war between Saudi Arabia and the United States had given us the lowest gasoline prices in years. And that can continue for a long time to the benefit of ordinary Americans and small businesses. If we can refine it without incident.
The United States refines about 7 billion barrels of oil every year, and we turn that oil into 280 billion gallons of gasoline, diesel, jet fuel and a few other things.
The United States rose to power on the back of our immense refinery capacity in the 20th century. No one had anywhere near our capacity. No one else does even today.
It’s why Canada needed the Keystone XL Pipeline to get their tar sands crude oil to our refineries along the Gulf Coast. No one else can refine so much so cheaply so they can sell it overseas (OCI). And that makes Canada, and the refineries, much more money, even if it doesn’t help the rest of us.
In fact, so much money can be made exporting, that the oil industry successfully pushed to raise the 1975 limits on exporting American crude oil overseas since much of our crude is sweet and easier for foreign refineries to process. Our refineries are engineered to process the really tough stuff like tar sands oil from Canada and heavy oils from Venezuela.
To make matters worse, we aren’t building new refineries. So we have overworked our old ones. Their average age is 40 years, and some are almost 90. Only one new one has been built in this century. They are getting decrepit, and it takes serious maintenance and upgrades to keep them going safely.
What’s critical is that, while we closed half our refineries over that last two decades, the productivity of the remaining refineries has almost doubled. According to the Energy Information Administration, 301 refineries processed over 6 billion barrels of oil in 1982. In 2014, only 149 refineries processed almost the same amount of oil. Now these refineries top 8 billion barrels a year.
Americans consume about 7.5 billion barrels of oil each year, so shutting down refineries, or diverting their product elsewhere, for whatever reason, really hurts. Existing refineries have been running at or near full capacity since the mid-1990s. And more and more of their refined products are being shipped across the world because the profit is better.
Which begs the question: If we’re at full capacity, what other oil would be displaced by new Canadian crude delivered through new pipelines like the Keystone XL? And if tar sands oil is going elsewhere, does that mean we have to import even more expensive final product like gasoline, because we’d be refining less for ourselves? How much will that raise gasoline prices?
But why aren’t new refineries being built in the United States?
First, they’re expensive - several billion dollars to build, and small profit margins lead to a decades-long payoff period – who wants to invest in something like that?
Second, there are a lot of environmental requirements on where and how they can be built, and it takes years to permit them.
Third, nobody wants one anywhere near their backyard.
If you’re a for-profit company, it just does not pay to build them. But it pays to overwork the ones we have. They’re essential to the world’s economy. And they make more money if you ship the product overseas.
In the 1980s and 1990s, we had a surplus of refining capacity, so the industry decided to shut half of them down. Some members of Congress suspected that these closings were calculated to increase oil company profits, but the notoriously low return on refinery operations was probably sufficient disincentive.
Had they known tars sands and unconventional fossil fuels would become so easy to extract, they might have kept a few more open.
So, old refineries keep breaking down, prices go up, no one wants to build new ones and oil consumption keeps growing. What can go wrong?
