30 August 2007
The last summer drive
Not surprisingly, it will cost you:
[Gas prices] throughout the Plains and much of the Midwest are far above the national average. Industry analysts blame the higher prices in the region on a series of refinery outages, a Coffeyville, Kan., refinery that flooded earlier this summer, a large refinery outage in Illinois and the fire at the Wynnewood [OK] refinery in late spring.
All of which is true. But try this scenario on for size: let's say, just for the sake of argument, that the NIMBY issues could be resolved, that the Sierra Club were to issue a statement calling for more refineries, that various regulatory obstacles were temporarily (or even permanently) displaced. Do you think we'd actually get a sudden upsurge in refinery construction?
I'm thinking we wouldn't, for the simple reason that it would require some major capital investments, and oil companies, all else being equal, prefer to avoid major capital investments, lest the always-volatile oil market take a downward turn. And given the margins on gasoline production, which aren't exactly prodigious, they'd just as soon not bet the farm. Instead, they do things like buy back their own stock.
None of this, of course, is unexpected. And we all know what happens to companies with excess capacity: look at the US auto industry, which has been busy shuttering plants left and right. The "Something Must Be Done" crowd won't be happy about it, but I've lived through both of the energy "crises," and I'd rather have high prices and decent, if tight, supplies, than not-quite-so-high prices and hardly any supplies at all.Posted at 1:31 PM to Family Joules