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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (84420)	5/12/2007 12:44:23 PM
From: ChanceIs	Respond to of 206191

>>>it is hard to think of a business with a better moat, and in VLO's case, it is very well positioned to capture the sour discount in this age of diminishing sweet crude.<<< A point well taken about the moat around refiners. I think that he refiners are well insulted from encroachment upon their territory. My current thinking is more than a little biased by my sour Calpine experience. Let me discuss the "Calpine Moat." Calpine knew how to do business with California. California probably has the toughest environmental standards for new electrical generation (or any industry) and a bureaucracy which would make the Byzantines envious. Calpine knew how to get permits through, and they did. They had what looked to me like a good (great) moat. But a year after the crisis, the California legislature started accusing Calpine of having monopolized the permits and therefore having a lock on future generation growth - you know - they controlled the market - very illegally. The utilities (which of course wanted to dispose of restructuring and build and operate their own new generation) would not enter into long term contracts from the as yet unbuilt Calpine plants.....because California was short of power, and long term commitments would discourage new construction. Yes you read that correctly - if the utilities committed to purchase power to satisfy their current shortages, then when the future demand arrived, nobody would build because the utilities were already committed - to satisfy the demand level from four years ago. No long term power contract, no project financing, no new plant, permits stay on the shelf, Calpine accused of dragging its feet, Calpine permits revoked??? Scary. Very scary. At some point, when the electric demand far exceeded the supply and a crisis had erupted, a court would determine that the public interest would best be served by making those permits public property. I posted the other day that TXU wrote off about $750 million in "plant development" costs associated with the coal plants which won't get built. Some of that was for generation cancellation charges. But a big chunk was for all of the legal and preconstruction engineering. Those costs are real, and a permit represents a significant asset. So. Moats around refiners. Unlike Calpine, there is no vested large business entity which wants to seize back what used to be its sole property (until electric restructuring in 1992). If anything, the Dems might have a point about refiners limiting production. I don't take that point at all. I know that there has been vast capacity expansion at existing plants. Nah. For refiners, I don't see new plant popping up next door. Maybe in the extreme case of a bombed out Detroit paying a refiner to build we might get some "greenfield" construction. The danger lies in the government deciding to socialize an "economy sustaining" piece of property in the interest of the public good. I think that a very real scenario. More refinery capacity is not the answer to the US problem, which is fundamentally an ever increasing demand for gasoline in an environment where the feedstock supply (especially the sweet stuff) is dwindling. Babbling on - I must confess more than a little amusement. 1) Consumers are pained by high prices, 2) The high prices come from gouging (whatever that is), 3) Since it is gouging, the government will punish the gouging by taking a tax, 4) At the end of the day, prices and pain remain high and the "extra" money which had been transferred from the people to the refiners, will instead be transferred to the government. I will watch this issue very carefully. I am going to the Senate Energy Committee on Tuesday. This is something which I wold not attempt to play. The government can take a very long time to move. However, if there has been a frenzy and the government moves, then air can rush out quickly. This happened with natural gas and electricity price caps in the summer of '01.