Refinery Problems Lead to Higher Gas Prices
Do you wonder why gas has been so expensive this summer? Wonder no more. Gas Prices Rise on Refineries' Record Failures - New York Times
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.
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.
The solution: build more refineries. Increase capacity. The problem: Congress.
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.
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.
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.
New refineries are super expensive. Companies would need to amass a large stockpile of cash -- earned from large profits -- before they would be willing to build a new refinery. But Congress keeps threatening to impose a windfall profits tax on the industry. Whose going to invest in a new refinery when your income could disappear at any time, courtesy of the U.S. Congress?
Note also, the mandates for new fuel mixes. It's hard to keep a refinery running when Congress and state governments mandate ever more exotic fuel mixtures. Each new gasoline blend makes the entire refining process a little more fragile. That leads to breakdowns and higher prices.
Once again, blame Congress for high gas prices. Don't let them trick you into blaming the oil companies.