Thursday, May 24, 2007
Thursday Thirteen
Thirteen things you may not know about refineries:
1. There has not been a new "grass-roots" refinery built in the U.S. since 1976. A few refineries have been shut down since then. Actual refining capacity is slightly less than it was in 1976, by about 500,000 barrels a day. (Our demand is also up by the same amount.)
2. There have, however, been several expansions and "de-bottlenecking" projects in the existing refineries, which have increased refining capacity. New equipment and technologies are much more efficient, as well as having much less impact on the air and water.
3. It is highly doubtful that any new refineries will be built in the U.S. Why? Because everyone wants cheap gas and a plentiful supply, but no one wants a refinery nearby. I believe the term is NIMBY: Not In My Back Yard. Public protest stops construction.
4. They have been trying to build a new refinery in Arizona, which would supply California via pipeline, for years and years. They cannot get the permits.
5. Somewhere between 1/3 and 1/2 of the refining capacity of this country is located on the Gulf Coast. This percentage will increase because it is much easier to get permits to expand than to build new. One refinery in Port Arthur TX is ordering the equipment now for an expansion that will more than double the size of the refinery. It will be the biggest in the country when they are done, at 600,000 barrels a day.
6. The downside to having all those refineries in the same area? -- Hurricanes. The back-to-back hurricanes Katrina and Rita in 2005 shut down almost every refinery along the Gulf Coast. In Louisiana and Mississippi, refineries were damaged and flooded. Several of them had to bring in FEMA trailers to house the workers before they could work on re-starting the refinery.
7. When Rita appeared to be headed straight for Houston, all the refineries shut down in advance. One huge refinery, in fact, currently the biggest in the country, had workers shutting down the refinery in the middle of hurricane Alicia in 1983; they were not going to repeat that scenario.
8. Refineries are full of sophisticated equipment. As long as it's running, things tend to be okay, but when you shut down or start up machinery, you are very likely to have problems.
9. Just like a car needs regular maintenance, the machinery in the refineries also needs to be maintained. For some processes, there is duplicate equipment, so if a problem develops in a pump, they can switch to the other pump while they work on the first one.
10. There are also some extremely sophisticated, extremely expensive machines which are not duplicated, or "spared", as they call it. Refineries try to run 8, 10, even 12 years without ever shutting those machines down. They plan the "turnaround" years in advance. Parts are ordered, crews are scheduled, cranes and other equipment rented.
11. But sometimes when they get the machine apart, they discover problems they didn't anticipate. Urgent orders are placed, but these are things that can't be done overnight, and even when the suppliers are working around the clock, it takes time to make the parts. When they get everything repaired and back together, they may have problems when they start up the equipment. And sometimes there are terrible accidents outside of the turnarounds, like the explosion and fire at BP in Texas City. That refinery, which is the 2nd biggest in the country, is still only operating at half capacity.
12. The U.S. government told the refineries not to have any turnarounds after the 2005 hurricanes. As quickly as they could get their machines up and running, they were making gasoline. Believe me when I tell you that there was some very direct involvement of the government in making sure that refineries started up as quickly as possible. But the maintenance can't be put off forever. A few had turnarounds last fall; a lot of others are having them now.
13. So all this talk you're hearing about the Evil Refineries colluding to drive up the price of gasoline is a bunch of nonsense. Do I think the oil companies manipulate the market? Almost certainly. But they are not doing it by deliberately making less gasoline. I am in those refineries on a regular basis, and they are running flat out. They are expanding, they are de-bottlenecking, they are improving the reliability of their machinery. I certainly don't want to be an apologist for Big Oil, but I do want to set the record straight on this.
1. There has not been a new "grass-roots" refinery built in the U.S. since 1976. A few refineries have been shut down since then. Actual refining capacity is slightly less than it was in 1976, by about 500,000 barrels a day. (Our demand is also up by the same amount.)
2. There have, however, been several expansions and "de-bottlenecking" projects in the existing refineries, which have increased refining capacity. New equipment and technologies are much more efficient, as well as having much less impact on the air and water.
3. It is highly doubtful that any new refineries will be built in the U.S. Why? Because everyone wants cheap gas and a plentiful supply, but no one wants a refinery nearby. I believe the term is NIMBY: Not In My Back Yard. Public protest stops construction.
4. They have been trying to build a new refinery in Arizona, which would supply California via pipeline, for years and years. They cannot get the permits.
5. Somewhere between 1/3 and 1/2 of the refining capacity of this country is located on the Gulf Coast. This percentage will increase because it is much easier to get permits to expand than to build new. One refinery in Port Arthur TX is ordering the equipment now for an expansion that will more than double the size of the refinery. It will be the biggest in the country when they are done, at 600,000 barrels a day.
6. The downside to having all those refineries in the same area? -- Hurricanes. The back-to-back hurricanes Katrina and Rita in 2005 shut down almost every refinery along the Gulf Coast. In Louisiana and Mississippi, refineries were damaged and flooded. Several of them had to bring in FEMA trailers to house the workers before they could work on re-starting the refinery.
7. When Rita appeared to be headed straight for Houston, all the refineries shut down in advance. One huge refinery, in fact, currently the biggest in the country, had workers shutting down the refinery in the middle of hurricane Alicia in 1983; they were not going to repeat that scenario.
8. Refineries are full of sophisticated equipment. As long as it's running, things tend to be okay, but when you shut down or start up machinery, you are very likely to have problems.
9. Just like a car needs regular maintenance, the machinery in the refineries also needs to be maintained. For some processes, there is duplicate equipment, so if a problem develops in a pump, they can switch to the other pump while they work on the first one.
10. There are also some extremely sophisticated, extremely expensive machines which are not duplicated, or "spared", as they call it. Refineries try to run 8, 10, even 12 years without ever shutting those machines down. They plan the "turnaround" years in advance. Parts are ordered, crews are scheduled, cranes and other equipment rented.
11. But sometimes when they get the machine apart, they discover problems they didn't anticipate. Urgent orders are placed, but these are things that can't be done overnight, and even when the suppliers are working around the clock, it takes time to make the parts. When they get everything repaired and back together, they may have problems when they start up the equipment. And sometimes there are terrible accidents outside of the turnarounds, like the explosion and fire at BP in Texas City. That refinery, which is the 2nd biggest in the country, is still only operating at half capacity.
12. The U.S. government told the refineries not to have any turnarounds after the 2005 hurricanes. As quickly as they could get their machines up and running, they were making gasoline. Believe me when I tell you that there was some very direct involvement of the government in making sure that refineries started up as quickly as possible. But the maintenance can't be put off forever. A few had turnarounds last fall; a lot of others are having them now.
13. So all this talk you're hearing about the Evil Refineries colluding to drive up the price of gasoline is a bunch of nonsense. Do I think the oil companies manipulate the market? Almost certainly. But they are not doing it by deliberately making less gasoline. I am in those refineries on a regular basis, and they are running flat out. They are expanding, they are de-bottlenecking, they are improving the reliability of their machinery. I certainly don't want to be an apologist for Big Oil, but I do want to set the record straight on this.
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