Except for the fact that planned US refining capacity expansion has been reduced, this article pretty much should be old hat to VLO investors.
cantonrep.com
Lack of refinery capacity keeps cost of gasoline up, say experts
Wednesday, May 16, 2007
By IAN TALLEY
Dow Jones
WASHINGTON The U.S. is likely to face several more years of high gasoline prices as refining capacity is expected to remain tight in the years ahead, a panel of high-ranking witnesses warned the Senate Energy and Natural Resources Committee on Tuesday.
Attempting to probe the causes behind record-high gasoline prices, the committee didn't hear any evidence of price-gouging that many Democrats are seeking in their battle against Big Oil.
Rather, the expert witnesses said that a historical lack of investment in infrastructure - predominantly refinery capacity - was a primary factor in rising prices.
The American Automobile Association says pump prices in 31 of the 50 states and the District of Columbia now average more than $3 a gallon, and the Energy Department's Energy Information Administration is predicting retail prices will continue to rise in the next few weeks as high wholesale price hikes drive pump prices up.
EIA head Guy Caruso reiterated the agency's summer energy outlook - posted last week - which forecast the tightness in the gasoline market may ease with more refineries returning to service. He also warned, however, "should hurricane damage to petroleum infrastructure exceed our base case assumption, crude oil and gasoline prices would be expected to increase substantially."
Long-term problem
This isn't a short-term predicament, but a decades-long cycle.
"The underlying problem is the U.S. petroleum industry's infrastructure" - including refining, pipeline and storage - "is just unable to cope with increasing demand during the strong U.S. and global economy that we've witnessed over the last several years," Caruso told the committee.
"The increasingly complex world of stringent product requirements and other logistical issues have stretched this industry thin, and therefore, there's insufficient capacity to deal with unexpected change, whether it be weather-related, economy-related or industrial accidents," he said.
Although the U.S. consumes around 22 million barrels of crude oil a day, it only has the capacity to refine around 17 million. The remaining demand for refined products such as gasoline, diesel and heating oil must be met by imports.
But when other countries experience either crude shortages - such as major exporter Nigeria, where ongoing political violence has shut down more than a third of production - or experience refinery problems such as in crude-exporter Venezuela, the demand puts U.S. consumption in a pinch and can exponentially hike prices.
Caruso said until more investment into the infrastructure is made to provide a capacity cushion, "then the only pressure relief valve when unexpected events occur is price." In the summer, gasoline prices historically rise on the capacity shortage while in the winter heating oil and natural gas prices typically rise.
Although the industry is investing in new refinery capacity, the amount it plans to build has fallen significantly, EIA senior oil analyst Joanne Shore told reporters after the hearing.
Last year, around 1.6 million barrels a day was planned for the next five years, Shore said, but since then only a little over 1 million barrels a day of added capacity is now expected to be built by 2011.
"Anybody who blames record high U.S. gasoline prices on "gouging" at the pump simply reveals their total ignorance of oil supply and demand fundamentals," Deutsche Bank's managing director of the Integrated Oil and Gas research team, Paul Sankey, told the Senators. |
