SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Gold/Mining/Energy : Big Dog's Boom Boom Room
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Ed Ajootian who wrote (101077)5/18/2008 1:12:09 PM
From: Elroy Jetson  Read Replies (1) of 206325
 
Your supposition seems so reasonable that even I am inclined to readily agree with you, but I know from past experience that it doesn't work out that way.

When refinery margins last turned down and remained bad for many years most of Chevron's refineries would vacillate between small losses and small profits. But the wondrous state-of-the-art Pascagoula refinery, designed to handle the most sour and heavy crudes, marked up solid losses every year.

It was pride alone that kept it open. The argument was made that it would be more costly to shut it down, due to the unamortized capital costs, but this was a mental fig leaf. The truth was these were sunk costs and at the time the refinery was worth only scrap.

Of course there was the unquantifiable argument that Chevron needed to experience running Pascagoula as all refineries would eventually need to be of this sort. This appealed to the company psyche that we were a technological leader, so many could explain Pascagoula's losses as a very expensive R&D operation. Still the losses were the same.

When light sweet crude oil prices fell to $12 a barrel, sour heavy crude was going for $6. Obviously if it had declined to $1 or less things would have been better, but there's lifting and transportation costs associated with any oil, especially oil that has to be heated just to move it.

All I can tell you is a refinery that costs three times as much to build and twice as much in variable costs to operate does not do well in a downturn.
.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News