View Full Version : Big Oils list of excuses why we pay out the ass.

07-22-2007, 02:39 PM
Gas Prices Rise on Refineries’ Record Failures

July 22, 2007

By JAD MOUAWAD (http://topics.nytimes.com/top/reference/timestopics/people/m/jad_mouawad/index.html?inline=nyt-per)
Oil refineries across the country have been plagued by a record number of fires, power failures, leaks, spills and breakdowns this year, causing dozens of them to shut down temporarily or trim production. The disruptions are helping to drive gasoline prices to highs not seen since last summer’s records.

These mechanical breakdowns, which one analyst likened to an “invisible hurricane,” have created a bottleneck in domestic energy supplies, helping to push up gasoline prices 50 cents this year to well above $3 a gallon. A third of the country’s 150 refineries have reported disruptions to their operations since the beginning of the year, a record according to analysts.

There have been blazes at refineries in Louisiana, Texas, Indiana and California, some of them caused by lightning strikes. Plants have suffered power losses that disrupted operations; a midsize refinery in Kansas was flooded by torrential rains last month.

American refiners are running roughly 5 percent below their normal levels at this time of the year.

“You have a system that is taxed to the limit,” said Adam Robinson, an energy research analyst at Lehman Brothers (http://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-org). “This is what happens when spare capacity is eroded.”

After Hurricanes Katrina and Rita disrupted the nation’s energy lifeline two years ago, oil companies delayed maintenance on many of their plants to make up for lost supplies and take advantage of the high prices. But, analysts say, they are now paying a price for deferring repairs.

As a whole, refining disruptions have been considerably higher than in previous years: they averaged 1.5 million barrels a day in the first quarter, compared with 700,000 to 900,000 barrels a day from 2001 to 2005. In the days after the hurricanes (http://topics.nytimes.com/top/reference/timestopics/subjects/h/hurricanes_and_tropical_storms/index.html?inline=nyt-classifier), refiners were forced to briefly halt as many as five million barrels of production.

In 2006, when refiners were still reeling from the impact of the hurricanes, disruptions in the first quarter averaged 1.35 million barrels a day.

Many factors have led to the rise in gas prices, including disruptions in oil supplies from places like Nigeria and Norway. But analysts say the refining bottleneck in North America has been one of the main drivers of higher energy prices this year.

The refining crunch has pushed wholesale gasoline prices up 35 percent this year and has contributed to a 23 percent gain for crude oil prices. Oil futures in New York closed at $75.57 a barrel on Friday.

Some critics of the industry have theorized on Internet blogs that the squeeze on gasoline and other refined products points to a deliberate effort among oil companies to bolster profits by keeping supplies tight. But experts point out that the companies have little incentive right now to hold back on fuel supplies.

“Every refinery would like to run as much crude as possible but they simply can’t,” said David Greely, senior energy economist at Goldman Sachs (http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org), who in a recent report compared the drop in domestic refining with an “invisible hurricane.” “These are more complex systems. There are more chances for things to go wrong. And when things go wrong, they tend to back up the system.”

Meanwhile, refiners have been scrambling to meet a raft of environmental regulations, phase out toxic additives, add ethanol to the fuel mix and introduce new ultralow sulfur standards for gasoline and diesel. Industry insiders attribute much of the fragility of refining operations to the difficulty of making these cleaner fuels.

Refiners spent $9 billion from 2002 to 2006 to make low sulfur diesel. But producing these cleaner fuels means processing crude oil more intensely through the refining process, at higher pressures and temperatures. This, in turn, leads to more chances for glitches or breakdowns, refiners say.

“It’s a marvel we can continue to run refineries the way we do these days given the many requirements and specification changes we have,” said Charles T. Drevna, executive vice president of the refining industry’s main trade group, the National Petrochemical and Refiners Association. “There comes a time when the piper has got to be paid.”

This year’s problems have raised alarms about the safety of refining operations, especially after a deadly accident at a BP (http://topics.nytimes.com/top/news/business/companies/bp_plc/index.html?inline=nyt-org) refinery in Texas two years ago that killed 15 workers. The federal Chemical Safety Board issued a highly critical report blaming a broken safety culture at BP. But the board’s chairwoman, Carolyn W. Merritt, who has spoken out about safety problems at refineries, said there was a pattern in many other refinery incidents that the board had investigated.

“There is a lack of investments in modern equipment,” Ms. Merritt said. “The overwhelming preponderance is that if you have inadequate engineering and equipment, poor process safety management, and poor staffing, you’re set up for a catastrophe.”

Ms. Merritt, who was appointed by President Bush and will retire after her five-year term ends in August, also said the Occupational Safety and Health Administration (http://topics.nytimes.com/top/reference/timestopics/organizations/o/occupational_safety_and_health_administration/index.html?inline=nyt-org) does not conduct enough inspections. “There is no enforcement,” she said.

OSHA defended its record and said it had inspected almost 500 refineries from 1994 to 2004. The agency also said it would inspect all refineries under its jurisdiction within the next two years. “OSHA inspections of refineries have proven to be effective,” the agency said.

Meanwhile, demand has been rising relentlessly, providing little respite to the nation’s aging energy infrastructure. Even as consumers complain loudly about high prices, they show no signs of scaling back. Gasoline consumption reached 9.66 million barrels a day in the first week of July, the second-highest level on record.

“The cushion that used to be available five to seven years ago for these unplanned perturbations is no longer there,” said Jeet Bindra, Chevron (http://topics.nytimes.com/top/news/business/companies/chevron_corporation/index.html?inline=nyt-org)’s president of global refining. “When a refinery has a hiccup, there are consequences on supplies.”

Part of the problem, analysts and refiners said, stems from the hurricanes two years ago. In Louisiana and Mississippi, many refineries were flooded, and about a quarter of the nation’s refining capacity was shut for weeks.

“Since refining has become such a wonderful business, refiners have delayed maintenance,” Mr. Robinson said. “But when they do go down, they stay down for longer and they discover all sorts of problems.”

In late March, for example, a fire at a large compressor at a BP refinery in Whiting, Ind., caused a hydrogen-treating unit that removes sulfur from some oil products to shut. That meant BP had to turn off a crude oil unit for early maintenance. Two weeks later, a brief power disruption damaged another distillation tower. And in July, a third crude oil tower was shut briefly so operators could fix a small leak. Since the first incident, the 405,000 barrels-a-day refinery has been running at about half its capacity.

Not all refining disruptions are the result of similar incidents. Refineries typically schedule yearly maintenance that sometimes requires them to halt production entirely. But even these long-scheduled shutdowns can now take longer to complete.

No refineries have been built in the United States in over three decades, because refiners say they are too costly. Instead, they have been expanding their existing refineries.

All this is happening as the industry goes through another golden age. After 20 years in the doldrums, the refining business has never been so good for oil companies. Refining margins — the difference between the price of crude oil and the value of refined gasoline made from it — have shot up as much as $25 a barrel for some types of crude oil, compared with about $5 a barrel just a few years ago.

But with a third summer of high gasoline prices, lawmakers are debating legislation they claim would punish oil companies for exploiting the tight supply situation and engaging in “price gouging.” At the same time, they are pressing refiners to produce more fuel.

“Refiners want to keep running in today’s economic environment,” said Mr. Drevna of the refiners association. “But when they shut down they are accused of gouging the system. When they don’t, they are criticized for overrunning their facilities.”


07-22-2007, 02:43 PM
U.S. oil may hit $95 if OPEC does not hike output: Goldman

Monday, July 16, 2007; 11:10 AM

(AuGmENTor: Now, based on the article above, it seems it wouldn't MATTER what OPEC's output was if the outdated refineries can't refine it fast enough as it is. So who are these guys kidding?)

NEW YORK (Reuters) - U.S. crude price could top $90 a barrel this autumn and hit $95 by the end of the year if OPEC keeps oil production capped at current levels, Goldman Sachs (http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=GS&nav=el) said in a report issued on Monday.

U.S. oil prices have risen to near $74 per barrel, driven this month by higher demand and lower supplies, the report said, pointed out that such fundamentals could tighten further unless key OPEC members hike output.
"We believe an increase in Saudi Arabian, Kuwaiti and UAE (United Arab Emirate) production by the end of the summer is critical to avoid prices spiking above $90 a barrel this autumn," the report stated.

OPEC agreed last year to lower output by 1.7 million barrels per day (bpd), and Goldman said global oil production is down about 1 million bpd from last summer's levels.

Disappointing output growth from non-OPEC producers also helped tighten supplies, Goldman said, adding global demand was up by 1 million bpd from year-ago levels.

"Our estimates show that keeping OPEC production at current levels and assuming normal weather this coming winter, total petroleum inventories would fall by over 150 million barrels or 6.5 percent by the end of the year, which would push prices to $95 a barrel without a demand response," the report forecast.

A decision by OPEC to open the taps could take $5 to $10 off the price of a barrel of crude as some speculators exit the market, although the fall might be brief.

"Such a pullback would likely prove temporary as long as global economic growth remains strong, and the consequent reduction in oil spare capacity would increase the market vulnerability to unexpected oil supply disruptions," Goldman said.

10-19-2007, 10:30 AM
"We believe an increase in Saudi Arabian, Kuwaiti and UAE (United Arab Emirate) production by the end of the summer is critical to avoid prices spiking above $90 a barrel this autumn," the report stated. Gee, they hit the nail right on the head! And yet I heard on the radio this morning that it had nothing to do with production...

10-19-2007, 11:57 AM
I know this will run counter to what many people here believe, but I think Saudi Arabia oil has peaked and they can't increase output. They haven't increased output since 2005. Why is that? Nobody knows for certain, but I believe Matthew Simmons when he says Saudi Arabia has peaked.

I share your skepticism of the oil companies. They are colluding criminals, no doubt. But I don't believe the Peak Oil theory is a fraud perpetrated by the oil companies. So I don't believe rising oil prices are a result of refining problems. I think the problem is global oil production is peaking. The real problems may not be felt for several years, but then that is how Peak Oil is supposed to reveal itself, only when it is in the rearview mirror.

10-19-2007, 12:01 PM

It should be noted that the cost of gasoline is heavily subsidized. Here's one example:


There are many other such studies. One obvious not-so-hidden cost of gas is the cost of occupying foreign countries.

In other words, the explicit cost of gas (what you pay at the pump) is actually very low.

10-19-2007, 12:41 PM
I know this will run counter to what many people here believe, but I think Saudi Arabia oil has peaked and they can't increase output.
Not neccassarily. I am kinda still on the fence about the whole peak oil thing. My problem is that there are just too many conflicting opinions on any given subject. And with this one, there is no hard evidence to support either claim. If anything, I would be more inclined to believe peak oil being real, as I put alot of faith into Michael Ruppert.
Recentlty my father told me they had just found some new "oil patch" (don't know the correct terminology) right here in the US. Utah maybe? And I know that with drilling technology refined (hell yah pun intended) they can reach oil that 20 years ago they couldn't.