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Politics : Formerly About Advanced Micro Devices
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To: combjelly who wrote (228526)4/11/2005 7:10:20 PM
From: TimF  Read Replies (1) of 1578544
 
Oil companies are very vertical, so not only would refineries have to be built, oil terminals secured, distribution established, etc. To get set up would literally cost 10s if not 100s of billions of dollars. And at any point the majors could cut any such fledgling competition off at the knees.

The 10s or hundreds of billions would get you an integrated distribution network. The majors might be able to cut you off if you just have the billion dollar refinery but not if you have invested in the whole infrastructure. They can't under price you because they have to pay the world price for oil as well and because refinery capacity is tight. They can't flood the market with gasoline. If they sell for a lot less their product will be used up and their will still be a market for yours, meanwhile they will have forgone a lot of profit or even lost money, and they would probably have regulatory problems as well.

They could under price you (even if it caused them losses, and risked government action against them) if refinery capacity was loose but that isn't the case and it doesn't look like it is going to be the case any time soon.

Of course if you act based on the assumption that capacity will be tight and it winds up not being so tight you could lose a ton of money, and the decisions have to be made years before you will see any revenue, so I can understand how companies are reluctant to sink a lot of money in to refineries. Esp. with the environmental and NIMBY issues.

Tim
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