Why Tight Refining Capacity?

We have heard in the news that rising prices for petroleum products are due largely to limited refining capacity. There aren't enough refineries because of tight environmental controls that make it harder to build new ones.

Kenneth S. Deffeyes, in his book, Beyond Oil, gives his perspective:

An editorial in the June 21, 2004, issue of BusinessWeek complained that the 30 percent increase in oil prices induced only a tiny increase in company exploration budgets. Similarly, U.S. refineries are running close to capacity, but no new refineries have been built since 1976. Oil tanker ships are fully booked, but outdated tankers are being retired faster than new ones are being built. Instead, the industry seems to be hoarding cash, buying back stock, and paying out dividends. What is going on? Why don’t higher prices and increasing demand encourage investment? Suppose, for a moment, that the premise of this book is correct: We have already found most of the oil. Drilling for the few leftovers yields neither fun nor profit. Should the major oil companies drill a string of dry holes just to keep the editors of BusinessWeek happy? If, as I claim, world oil production is about to decline, then there is no point in adding refineries or increasing the size of the tanker fleet.

It is unnerving to think that the refining capacity problem will only be temporary because soon there will not be enough crude to feed into them, but this is the point Deffeys drives home. He is a geologist, highly respected in the oil world. Beyond Oil gives an enlightening look at the geology of hydrocarbons and other energy resources that can be taken from the ground. It then considers the implications of the downward slope of oil production. This book is highly recommended.

tags: peak oil  energy  oil  

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