Media in Trouble: All the news thats UNfit to print!: Refining Capacity

"The information of the people at large can alone make them safe, as they are the sole depositary of our political and religious freedom." --Thomas Jefferson 1810

Tuesday, September 27, 2005

Refining Capacity

OK free marketeers! Challenge:

Why hasn't the invisible hand aremed with its supply and demand curves built a refinery in over 30 years?

Is it because the government has strangled would be refinerers with so much regulatory paperwork and bureaucratic red tape? Or is it that the oil industry would rather take its record profits and lobby congress to drill in National Wildlife Reserves?

I dunno. But seems to me, if they have money to pay lobbyists for one thing, they could have money to pay lobbyists to lobby for something else, like ease of restrictions on refinery building.

I think this is argument is crappy. Just how would a lack of refining capacity cause a spike in crude oil?

It seems to me there would be all this extra oil sitting around waiting to be refined, causing stockpiles of crude, which would in turn reduce the price of crude. The only price that can possibly be affected by "lack of refining capacity" is that of the end product, gas.

So when a Saudi Oil Minister starts lobbying for more refineries I take it as rather disengenous. Particularly when such remarks come accompanied by these:
Saudi Arabia's oil minister said Tuesday that world oil reserves are more than enough to meet rising future demand but that without new refineries prices will remain high and markets volatile.

"These are turbulent times for oil markets. Prices are under pressure because the petroleum industries infrastructure is stretched thin," Ali Naimi told the 18th World Petroleum Congress in Johannesburg. "Most of the spare capacity of the 1980s and 1990s has disappeared, resulting in a system that has a much smaller margin for error."

He goes on to suggest that the oil refiners are perhaps gaming the system. By not accepting an extra 2 million barrels a day, aren't they loosing out on some extra supply, even if their refining capacity can't handle it. Last I checked Oil doesn't really have an expiration date, and even if it did, seems that we are suckin' so much of it that the demand alone won't keep the stock piles of barrels OPEC was offering on the refinery shelves that long.

I know I am naive about the intricate details of the oil market, but I didn't know it was the only market that "supply and demand" doesn't apply to.

So let's see what our checklist says:

Supply - CHECK
Demand - CHECK

This has been the case for a very long time. Ever since gas became the blood that runs our economic veins. Seems to me, if you ain't expandin refining capacity by now, you are either A) loosing out on a particularly needy market and thus loosing money, or B) You are gaming the system so that you only release so much so you basically keep the price of your product super high.

So oil economists, esplain this one to me. Cuz I don't get it. And if government regulations are the culprit, perhaps all those ANWR lobby dollars could have been directed at said regulations.