FactCheck.org has posted an article that answers the following question:
“The lack of U.S. oil refinery capacity keeps being blamed for some of the large increases in gas prices. Do we lack refining capacity and, if so, why?“
The short answers are below the fold.
(1) Yes, the U.S. lacks the necessary refining capacity to meet current demand. Today we have less than half the number of refineries that we had in 1982. Americans currently consume 20.7 million barrels of oil per day. But our refineries are processing only 17.4 million barrels per day.
However, while refining capacity is a contributing factor to the price of gasoline, the Energy Information Administration identifies the cost of crude of oil as the primary reason for high gasoline prices. (I stand behind what I’ve written in earlier articles. With supply essentially fixed, the only way for Americans to lower gasoline prices is to decrease their demand by changing their driving habits.)
(2) It’s very difficult and expensive to build a new refinery, and profit margins are slim. The price tag for a new refinery is several billion dollars, and you can expect to earn only a few dollars of profit per barrel. It will take many years for the refinery to generate as much money in profit as it took to build it.
Why has the number of refineries in the U. S. dropped by more than half since 1982? In 2001, Oregon senator Ron Wyden asserted that U.S. oil companies intentionally allowed refineries to shut down in order to restrict the supply of petroleum products, thus raising profits.
Personally, I could never accept the suggestion than an oil company would stoop to such economically immoral behavior. (Yeah, right!)
Follow this link for the full article.
If you’re interested in how an oil refinery works, check out these links, but I cannot vouch for their accuracy.
- Chevron Canada: How Does an Oil Refinery Work?
- How Does an Oil Refinery Work? (From Conoco.)
- Wikipedia: Refinery.
No doubt that domestic refineries would help gas prices, but as mentioned above it’s all about the price of crude. The real problem here are commodoties and futures speculators with more money than sense.