Lack of Refinery Capacity Causing Gasoline Crisis Worldwide
The last refinery built in the United States was built clear back in 1976. We now have to import over 10% of our refined gasoline to keep up with the demand in the United States. The United States has been operating consecutively at 90% or higher capacity for our refineries since 1992 and downtime and major disruptions(Hurrican Katrina) to refinery operation have had a crippling effect upon our economy. The World is currently operating close to 90% capacity for refineries. It has been obvious for a long time now that both the World and the United States need to build new refineries. So why haven't new refineries been built? While it is true that environmental opposition and regulations are a major obstacle to building new refineries, it is also true the big Oil Companies know that peak oil will occur within 5 years and fear that excess capacity from new refineries will not be needed for the next 20 years as the World starts switching to alternative fuels. Arizona Clean Fuels LLC has secured most of the permits to build a new refinery in Wellton, Arizona but is having trouble getting the investors to build a $2.5 billion refinery. Additionally, Oil Company profits increase for Refinery operations if the supply of refined gasoline can be limited by not having enough refinery capacity to flood the market with excess refined gasoline. The mergers of Big Oil Companies also has resulted in less competition in the market place for refinery operations. The current trend shows small refinery operations being shut down while large refinery operations expand their refinery capacity. It is more economical to run big refinery plants compared to small refinery plants.
It is estimated that refinery capacity worldwide from 2004 to 2010 will increase from 84.6 million barrels/day to 93.9 million barrels/day. This is an increase in refinery capacity of 9.3 million barrels/day for this time period for the World. Meanwhile demand for crude oil is expected to increase from 82.6 million barrels/day in 2004 to 90.4 million barrels/day projected for 2010. This is an increase in demand of 7.8 million barrels/day.
The graph above shows the World will continue to struggle with insufficient refinery capacity with a surplus capacity of 103% for year 2005 and only marginal improvement for year 2010 with a surplus capacity of 103.9%. Surplus capacity plotted above is the ratio of the World refinery capacity to World demand. Thus in 2005 World refinery capacity only exceeded World demand by 3%. Although, there is a very slight improvement in Worldwide excess refinery capacity by 2010, it is still not enough spare capacity to handle the necessary downtime for maintenance, downtime from hurricanes/earthquakes and other natural disasters, and downtime and loss of refined product due to sabatoge, terrorism, and threats of war and boycotts. Sufficient Worldwide supply of refined gasoline for the years 2006-2008 to meet the projected demand for these years will be extremely tight and even a slight disruption in supply of gasoline, supply of crude oil, or unexpected downtime for refineries will cause Worldwide problems as well as driving up the price of gasoline and other refined crude oil products(fuel oil, asphalt, methane, propane, butane, paint, plastics, detergents, lubricants, solvents, etc).
What regions of the World will new refineries and expansion to refinery capacity occur by 2010? Most of the expanded refinery capacity will come from the Far East and the Middle East. These regions are increasingly becoming more hostile towards the United States and our future capability to get 10% of our gasoline from imported sources may be in jeopardy. Saudi Arabia and Kuwait have made offers to build new refineries in the United States since the big Oil companies have not stepped up to the plate. Saudi Arabia is also a major investor for the refinery that Arizona Clean Fuels LLC is trying to build in Arizona. The list below shows where the 9.3 million barrels/day increase(base year 2004) in Worldwide Refinery capacity is projected to occur by 2010.
- Far East: 2.8 million barrels/day increase
- Middle East: .9 million barrels/day increase
- Latin America: .8 million barrels/day increase
- United States: .7 million barrels/day increase
- Former Soviet Union: .3 million barrels/day increase
- Other: .2 Million barrels/day increase
Hurricane Katrina has dramatically shown how fragile our crude oil and gasoline situation is. “The Gulf of Mexico coast region is a major oil and natural gas supply center for the United States with significant offshore oil and natural gas production, refining capacity, and petrochemical facilities, and serves as a major import hub and nexus for pipeline infrastructure. In the Gulf coast region, Federal offshore crude oil production accounts for 1.5 million barrels per day (29 percent of total U.S. production); crude oil refining capacity accounts for about 8.0 million barrels per day (47 percent of total U.S. production); and offshore natural gas production accounts for about 10 billion cubic feet per day (19 percent of total U.S. production).” Many experts believe there is a 40 year cycle for hurricanes and weather and that the Gulf Coast is in that part of the cycle when a high frequency of hurricanes can be expected. Hurricane Katrina had a major impact on gasoline and crude oil because the weather caused downtime for crude oilrigs and refineries and also because of keeping barges from bringing in imported oil and gasoline. Hurricane Katrina caused a 736,000 barrels/day drop in gasoline production, a 409,000 barrels/day drop in gasoline imports, a 4.3 million barrels drop in weekly gasoline inventory, a 6.45 million barrels drop in weekly crude oil inventory(overall inventory still remained above 2004 level), a 932,000 barrels/day drop in crude oil imports, and a 1.06 million barrels/day drop in crude oil.
The chart below shows there is a continuing problem in year 2006 for maintaining adequate gasoline inventories in the United States to meet the demand.
