Slippery Business
William K. Wolfrum has a nice comic riff on oil refineries . The oil apologists claim that the evil terrorist environmentalist have been blocking the heroic and patriotic oil companies from building refineries.
WKW notes, quite accurately, that no one has even started the planning process to build a refinery since 1976. What he doesn’t mention is that when oil companies have merged since 1976 they often shut down existing refineries. What refineries remain have to run all out to meet normal demand, with no reserve capacity. Like the electrical generation industry, the oil industry has eliminated extra capacity because the only possible reaction to a shortage is higher prices for what they produce. If they produce more, the price will drop. It’s not like there’s any competition.
2 comments
Uhm, there’s another reason. Small refineries are too expensive to upgrade when new blends of gasoline are needed or new pollution controls are required or newer more efficient catalytic cracking methods are created, and are too expensive to run as-is when there are larger refineries that are using the new methods to get more out of the oil. It is far cheaper to instead add another boiler complex to an already-upgraded large refinery and close down the old refinery. That way you can share the electrical and pipeline infrastructure with the rest of the refinery, thus having a smaller per-boiler cost. You also need fewer operators per-boiler since one operator can keep an eye on multiple stacks, and have reduced maintenance costs since you are only paying for electricians to come maintain electrical gear at one refinery rather than 10 refineries, etc.
It’s all about obtaining economies of scale, in other words. There is, in fact, far more refining capacity today than there was 30 years ago, concentrated in fewer, but much larger, refineries. Unfortunately, we also use far more oil today than we did 30 years ago :-(. But to whine that there are fewer refineries today than there was 30 years ago is irrelevant — it’s like whining that there are fewer general-purpose microprocessor foundaries today than there was in 1978. True enough — most makers of general-purpose microprocessors in 1978 are long gone or now make only specialty semiconductors. But there are far, far more microprocessors manufactured today than in 1978 — just in much larger and more expensive plants ($5 billion or more per plant) that manufacture tens of millions of microprocessors per year.
– Badtux the Manufacturing Penguin
However, that still goes to the point that no new refineries were contemplated, and therefore complaining about “eco-terrorists” is bogus. If they had wanted new refineries they already had pre-approved locations that they shut down for economic reasons. The refineries weren’t built because the oil companies made the decision not to build them, not because planned refineries were opposed.