Aaah, I love the type of message that you posted and the current debate in congress and in the media. It's again time to round up the usual oil company suspects, as we can be assured they are the bad guys behind those nasty prices at the pump.
>>With oil company profits at an all-time high. What, pray tell, is stopping them whatsoever from increasing refinery capacity? It appears natural economic forces will more than compensate for this production bottleneck. In addition, it appears that any reasonable prognostication could have pinpointed the need for increased refining. Why was increased refining capacity not initiated years ago?<<
Believe it or not, oil companies are a business driven to meet shareholder expectations of profitability. They are not simply prone to adding capacity unless there is a reasonable return to be made on what amounts to very large capital investments.
For many years, there has not been sufficient economic incentive to invest money in refining capacity. Capacity and supply were adequate, demand reasonable. However, enormous sums of money have been spent complying with increasingly stringent and in some cases arbitrary environmental regulations. These are huge costs that make zero money for the refining companies. Would you spend your own money under those circumstances?
Some inefficient refiners found it impossible to compete under these conditions and were forced to shut down. Major refiners hunkered down and made the necessary environmental investments to allow them to continue to operate. While some capacity improvements were implemented where economically attractive, the emphasis in refining over the past 20 years has been to work extraordinarily hard to control costs in order to preserve a reasonable return for their shareholders. The world is a cleaner place as a result of all of that, but guess what, we now are in a capacity pinch.
One thing that could be done to ameliorate this situation would be to streamline environmental regulations. Note that this doesn't necessarily mean relaxing them, but rather implies rationalizing them. Having one set of low-emissions standards for the country would help relieve inter-regional supply/demand inefficiencies and would allow refiners more flexibility in meeting demands on a national basis from a variety of refining sites. But this obviously is only one step to addressing the overall energy problem.
>>Simple economics will solve this problem.<<
Correctomundo, economics coupled with lots of science and engineering effort will indeed solve this problem, but not over the short term. If additional investment in refining capacity (or developing and deploying alternative energy sources) appears to be capable of generating a sustainable profit, then you can be sure that a variety of businesses will invest in these endeavors. Companies don't naturally spend money to not make profits. They can be legislated into doing that, but excessive government intrusion into the natural order of business is not always without side affects (witness California power). That’s how capitalism works.
Short term, there is no easy solution for high gasoline prices. It is not a simple or quick thing to bring new refining capacity on line. It typically takes 1-4 years to get new designs from drawing board to operation, depending on the scope of the changes. Note that refineries also run 24x7, so you have to shut them down to install capacity at existing facilities. Depending on when and how long the plant is down could affect short term prices of finished products.
Assuming there is money to be made in construction of new refining capacity, one could place bets on construction management firms like Fluor, Foster-Wheeler, Brown and Root (division of Halliburton) or Kellogg (not sure who owns them). Bechtel is another good bet, but since they are private, you'd need to work for them to benefit from a pickup in their workload. These firms could also see action from a pickup in nuclear power plant construction.
From an alternative energy source standpoint, might want to consider fuel cell researchers like Ballard Power Systems and a few others. Note that the major oil companies themselves are also doing significant work in this area and in some cases have established partnerships with auto manufacturers to bring the technology to market as quickly as possible. Fuel cells that consume gasoline components may be more practical than those that use say hydrogen, as they would allow use of existing refining and distribution capacity.
>>But if the supply shortage is a fabricated event, look for consumers to shift in droves to alternative energy sources to the extent that it actually could hurt oil company profits in the not too distant future.<<
If it’s economically attractive, consideration of alternative energy sources will happen regardless of whether the current events are "fabricated" or not. We as consumers are always free to make our own immediate economic choices. For instance, perhaps we should immediately rush to trade in our SUV's and purchase electric or hybrid vehicles?
Look at the cost of this type of change with current technologies and do the math. For most people, it makes more economic sense to simply reprioritize and reallocate available funds to pay for gas at this point. Granted, some people are going to suffer more than others, but that’s life. While there is a certain visceral appeal of trying to boycott oil consumption and move immediately to a life powered by the sun, wind and other elements, over the short-term most of us just can’t afford to do that.
>>…any reasonable prognostication could have pinpointed the need for increased refining.<<
Any reasonable prognostication can identify the fact that energy demand will continue to rise in the future. Thus, rather than looking back, each of us should be planning ahead and considering whether lifestyle changes are appropriate (maybe we should consider a smaller, more fuel efficient car next time we buy rather than a hulking 4-wheel drive?).
Just as importantly, we should be encouraging our elected officials to put in place an effective long-term energy policy that fosters investment in oil supply and refining capacity as our currently dominant energy source, seeks to prudently address environmental concerns, and offers greater incentives to stimulate conservation and the development next generation technologies. |
