The Absurd Report

Number of refineries declines but capacity expands

Investments in new capacity and improved technologies have enabled U.S. refiners to produce record amounts of fuels for consumers. However, for many years, the rate of return on investment in U.S. refining lagged behind the returns for the S&P Industrial average. It is only
in recent years that refiners have enjoyed higher average earnings. Refiners need to continually
invest, and do so even when earnings are lower.

While no new refineries have been built since 1976, the industry has added the equivalent of one new average-sized refinery each year over the last decade. Since 1985, refining capacity has increased by 20 percent even though we have 57 fewer refineries because it has been more efficient to expand at existing refineries. The infrastructure to bring crude in and get products out is in place, the permitting process is quicker, and it is more
cost-effective to add on to a refinery versus building a new one. In addition, the elimination
of subsidies under the government price and allocation controls in 1981 led to closure of
many smaller, less efficient refineries through the 1980s and 1990s.

Capacity has increased while at the same time, industry invested $50 billion to make the cleanest burning fuels in the world. Much of the investments were in technologies and investments to meet stringent clean air standards set by the Clean Air Act of 1990.

Energy legislation enacted in 2005 made a positive contribution by permitting accelerated
depreciation for certain U.S. refinery investments placed in service before 2012; this helped to
make U.S. refinery investments more attractive economically. According to the [tag]U.S. Energy
Information Administration[/tag], current domestic refinery expansion plans will boost domestic refining capacity by about one million barrels per day by 2012, the equivalent of five new refineries. Moreover, a number of refinery modifications or expansions have been announced to handle increased processing of heavier crude oils including synthetic oil derived from Canadian oil sands.

U.S. Crude Oil Resources

Our nation’s energy security requires policies that do not disadvantage the investor-owned
oil companies, but rather enables them to be competitive in the global marketplace. Our nation
needs policies that promote greater supplies of oil and natural gas, not policies that hinder our
industry’s ability to provide American consumers the energy they demand and need. We have
abundant volumes of oil and natural gas resources beneath federal lands and coastal waters, but the bulk of these resources have been placed off-limits to development.
For example, according to federal government estimates, there is enough oil in these areas to
power more than 60 million cars for 60 years.

U.S. Natural Gas Resources

There is enough natural gas to heat an additional 60 million homes for another 160 years. However, more than 85 percent of the coastal waters adjacent to the lower-48 states, and which extend up to 200 miles from our shores, are off-limits to oil and natural gas exploration. And, 75 percent of the most prospective, technically available U.S. onshore areas are off-limits or accessible only with significant restrictions.

U.S. Corn Use 2007-2008 (13 Billion Bushels)

Ethanol production is now taking roughly 25 percent of the U.S. corn crop. This percentage
is expected to increase over the next several years due to a significant ramp-up in the renewable fuels mandate included in the 2007 Energy Bill enacted by Congress.

The Federal Reserve Bank’s February 2008 Monetary Policy Report to Congress reports that:
“Last year’s increase in the PCE price index for food and beverages, at 4½ percent, was the largest in nearly two decades. Food prices accelerated in response to strong world demand and high demand for corn for the production of ethanol.”

The Bottom Line - There may come a day in the future when an alternate source of fuel will replace oil but that day is not here now and for the present oil still remains the most efficient and economical fuel available.

So when politicians tell us we need to decrease our dependency on fossil fuels as they rail against “Big Oil” Corporations and threaten them with “Windfall Profit Taxes” are they not discouraging future development? Are they not driving an industry off shore that pays more in federal taxes than the bottom 50% of individual taxpayers in this country?

When government makes it literally impossible to build a new refinery in this country are not adding to the bottleneck (supply and demand) of delivery gasoline to the pump which drives prices up?

Is it not this same government and the politicians in Washington in their self-defeating wisdom that has placed “abundant volumes of oil and natural gas resources beneath federal lands and coastal waters off-limits to development?

Do you see a pattern developing here?

It is the political class that it is literally biting off the hand that supplies the fuel to keep our economy running. It is the politicians in Washington who by putting their own self severing needs for reelection ahead of our national interest.

In the meantime it is government who chases windmills and subsidizes biofuels like Ethanol that have caused food prices to rise. Government in Washington is all about the politicians in Washington and their eternal quest for power and getting reelected. Nothing more and nothing less.

I am mystified why their isn’t outrage on the part of American public on this issue because directly affects your future and your pocketbook.

The government solution to any problem is usually at least as bad as the problem.—Milton Friedman

Part I can be seen here…

Part II can be seen here…