China has agreed to boost crude oil imports from Saudi Arabia by over a third next year, two Beijing-based trading sources said on Monday, helping fuel new refineries in the world's second-biggest consumer.
Saudi Arabia, the world's biggest oil exporter, will sell Sinopec Corp and PetroChina about 200,000 barrels per day (bpd), or 38 percent more crude in 2008 than this year, equal to about a tenth of China's total oil consumption.
Note the bold. Note the underlined. 38% more than this year. New refineries. Meanwhile as we chase the alternative fuel unicorn in this country, the high cost of a barrel of oil makes oil sands and other huge reserves of less easily recovered oil deposits more feasible - if we actually give the OK to recover them.
And new refineries? Here? Are you kidding? We'd rather see food prices go up as we mandate ridiculous ethanol production numbers (per our new "energy" bill) than actually exploit proven petroleum reserves.
Why no one’s making more gas Refineries are making money like never before, so why aren’t more people getting in on the action? By Steve Hargreaves, CNNMoney.com staff writer June 5 2007: 5:25 PM EDT
NEW YORK (CNNMoney.com) — Motorists must get tired of hearing how refinery problems are causing high gasoline prices.
In a free-market economy, if there really was such a shortage (most experts say there is), and refining profits are so high (any oil company earnings report will attest they are), then why aren’t people building more refineries?
The oil industry has long said refineries are too expensive, too hard to get a permit for, aren’t necessarily needed when the government is calling for a reduction in gasoline use, and take so long to build that gasoline prices could collapse by the time one comes online. Instead, they are boosting output through expansions at existing refineries.
Consumers don’t necessarily buy this, instead thinking the industry is in cahoots to restrict supply and reap massive profits.
But it’s not like oil companies are the only ones who could build refineries. After all, the technology isn’t particularly complex. And with everyone from investment banks to insurance companies to private equity firms, chasing high returns in an era of low global interest rates, there’s a ton of cash out there just looking for a place to go.
So why hasn’t anyone plunked it down to make more gas?
Money to be made The refinery shortage, cited by experts as a main culprit behind the recent record high gasoline prices of over $3 a gallon, has been a windfall for the oil industry.
Exxon Mobil made nearly $2 billion profit in worldwide "downstream operations," which include refining, in the first three months of 2007 alone.
The difference between what refiners pay for a barrel of oil and how much they can sell the products for, known in the industry as "crack spreads," has tripled in the last 12 months, according to Antoine Halff, head of energy research at Fimat in New York.
"Refinery profits have really been ballooning over the last few years," said Halff.
The cash bonanza has generated some interest.
"I get calls from everyone in the universe," said Peter Beutel, an oil analyst at the consulting firm Cameron Hanover.
But he said so far he hasn’t heard of anyone building a new refinery.
A call to the Environmental Protection Agency, which is involved in the permitting process for new refineries and refinery expansions, didn’t turn up any evidence of a new refinery permit. A spokesman there said refinery expansions are more likely, although the agency was still searching its database at the time of this article.
Louisiana, a state long friendly to oil and gas interests, is actively seeking a new refinery.
Marathon Oil has built a $3.2 billion refinery expansion, Valero has a $1 billion expansion, and the state is in talks with the Kuwait national oil company for a massive new 500,000-barrel-a-day facility, said Michael Olivier, secretary of Louisiana Economic Development.
But even in Louisiana, where Olivier said the Marathon expansion permit was approved in less than a year, no completely new refinery has been built nor are there solid plans for one.
Russia bullies BP - U.S. motorist, take note "I’ve heard a lot of people thinking about it," said Mike McKee, a Dallas-based director at KPMG corporate finance, the banking arm of the consultancy KPMG. "But it’s a pretty daunting task."
McKee said investors outside the oil industry have the same fears as the oil firms, plus one other.
"Margins are better now than they have been in 20 years," he said. "But as an investor, you’d be looking at jumping in at a historic peak, and it gives you pause."
In short, investors, like the oil industry itself, are concerned that refining will one day revert to being a barely profitable business.
"These guys don’t want to put money into a business that’s historically cyclical," he said.
Over the last 25 years, McKee said the S&P 500 has generated percentage returns somewhere in the low teens, while refining has returned about half that.
"There’s a good reason there’s been some discipline in the capital markets," he said. "It’s been a pretty tough story over a long period of time."
Ethanol is simply welfare for the farm states, it is not an energy policy or even part of a rational energy policy.
If the government cared, they could simply gurantee to keep oil prices high enough, through tariffs, to make shale oil and tar sands profitable. Guaranteed profitability would drive the necessary investment, financed by drivers paying well under $3 a gallon. It would certainly be cheaper than our current Middle Eastern wars. I’d feel better with our seventh century adversary impoverished and half a world away.
We won’t even drill ANWR, or off the coast of Florida, where the oil is. We are not serious. We enable fanatical Islamists through our purchases of Middle Eastern oil. Instead, we get some lame proclamation that cars are going to get better mileage in the future.
Clue for Washington: markets work. As soon as people realize that gasoline is going to stay expensive, they start making transportation choices (smaller, shared, public, move closer) that work for them.
I live close to work, and drive a Civic. My neighbor needs his full sized pickup - he’s a contractor. Good luck with that new mileage standard...
This is why I have been a holder of many thousands of shares of Valero stock for many years. The environazis will not allow new refineries and make it difficult to even expand existing ones so the existing refineries just make buckets of money. Of course, they are also typically the ones who whine about high prices while filling up their Explorers and Suburbans. I just smile and watch the stock price go up and up.
What Free Market Unicorn doesn’t admit, of course, is that the oil companies have watched the lawsuits brought by eco freaks every time they breathe deeply, and have made the rational business decision not to bother. Doesn’t matter what the people want, its’ what can get past the Democrat judges.
Oh, and CNN isn’t exactly what I consider an honest reporter, either.
What Free Market Unicorn doesn’t admit, of course, is that the oil companies have watched the lawsuits brought by eco freaks every time they breathe deeply, and have made the rational business decision not to bother.
Let’s cut the clutter and the irrelevancies...
"...oil companies... have made the rational business decision not to bother."
You are just not quite bright enough to wrap your brain around the whole picture, preferring to swallow the convenient tales that fits your worldview.
* An internal 1996 memorandum from Mobil demonstrates the oil company’s successful strategies to keep smaller refiner Powerine from reopening its California refinery. The document makes it clear that much of the hardships created by California’s regulations governing refineries came at the urging of the major oil companies and not the environmental organizations blamed by the industry. The other alternative plan discussed in the event Powerine did open the refinery was "... buying all their avails and marketing it ourselves" to insure the lower price fuel didn’t get into the market. Click here to read the Mobil memo.
* An internal Chevron memo states; "A senior energy analyst at the recent API convention warned that if the US petroleum industry doesn’t reduce its refining capacity it will never see any substantial increase in refinery margins." It then discussed how major refiners were closing down their refineries. Click here to read the Chevron memo.
* The Texaco memo disclosed how the industry believed in the mid-1990s that "the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)" As a result of such pressure, Washington State eliminated the ethanol mandate — requiring greater quantities of refined supply to fill the gasoline volume occupied by ethanol. Click here to read the Texaco memo.
It’s good business not to have more supply than there is a demand for.
So what if it screws the country, it’s the conservative way.