I became aware that there is a link between gasoline prices in the USA and the success if my Brent Crude Speculation. It is a moronic, psychological link, but it is real. High gas prices in the USA are ruining my speculation. Why gas is rising in the USA? Because refineries are breaking down at a record rate. Why?
First, they are old and poorly maintained. It is almost impossible to build a new refinery in the USA. The permitting process (Aha!) is onerous. A group in Arizona is trying to build a new refinery, and it took them 7 years just to get the permit. If they proceed and build the refinery, it will have taken 14 years from the time they started the process.
Second, refining is a very risky and low return business. The poor returns of the 1980s and 1990s have caused companies to neglect refining investment, culminating in BP’s Texas City disaster. Reduced investment has brought about a lack of qualified engineering, procurement and construction staff. The tightness of US refining capacity at this time is not because companies are unwilling to invest in more capacity, it is that they are unable. Refineries are complex.
Third, the impact of years of stringent environmental regulations. New regulations may redirect capital that might have gone into expanding refining facilities. They increase the costs of producing the fuel. Additional processing requirements, as in the case of ultra-low sulfur diesel (ULSD) and gasoline - reduces product yield. And additional equipment will increase the complexity of the refinery. The more complex, the less reliable. From 1994 to 2003, the refining industry spent $47.4 billion, not to build new refineries, but to bring existing ones into compliance with ever new and stringent environmental rules.
Summing up, the refining bottleneck will not be solved easily. Gasoline will be scarce this summer. The consumer will get used to pay more. No good for me.
First, they are old and poorly maintained. It is almost impossible to build a new refinery in the USA. The permitting process (Aha!) is onerous. A group in Arizona is trying to build a new refinery, and it took them 7 years just to get the permit. If they proceed and build the refinery, it will have taken 14 years from the time they started the process.
Second, refining is a very risky and low return business. The poor returns of the 1980s and 1990s have caused companies to neglect refining investment, culminating in BP’s Texas City disaster. Reduced investment has brought about a lack of qualified engineering, procurement and construction staff. The tightness of US refining capacity at this time is not because companies are unwilling to invest in more capacity, it is that they are unable. Refineries are complex.
Third, the impact of years of stringent environmental regulations. New regulations may redirect capital that might have gone into expanding refining facilities. They increase the costs of producing the fuel. Additional processing requirements, as in the case of ultra-low sulfur diesel (ULSD) and gasoline - reduces product yield. And additional equipment will increase the complexity of the refinery. The more complex, the less reliable. From 1994 to 2003, the refining industry spent $47.4 billion, not to build new refineries, but to bring existing ones into compliance with ever new and stringent environmental rules.
Summing up, the refining bottleneck will not be solved easily. Gasoline will be scarce this summer. The consumer will get used to pay more. No good for me.
No comments:
Post a Comment