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PostEnergy: OIL: Production and refining (John Eipper, USA, 07/19/05 7:22 am)
Randy Black writes: Steve Torok certainly appears to know his business. Here are some additional facts to consider. When Mr. Torok states, "Building refineries at the end of the oil era is simply bad business," he is evidently following the mood of a limited element of the pessimistic media.
The contrary may be true if one is to believe U.S. Energy Information Administration which contends that oil production can continue to rise for decades. The EIA forecasts that supplies won't peak until 2037, based on the U.S. Geological Survey's estimate that, including what's been pumped and what will be, the world ultimately will have produced three trillion barrels. Indeed, the EIA can envision a scenario where world supplies don't peak until 2047, and the world produces 3.9 trillion barrels.
Apocalyptic forecasts for petroleum are nothing new. In the 1880s, executives of Standard Oil were convinced oil was running out in Pennsylvania and would not be found anywhere else, and sold their shares.
In 1981, 321 refineries (in the US) pumped out 18.6 million barrels a day of gasoline. Today only about 149 refineries, run by 60 companies in 33 different states, pump out 16.8 million barrels of gasoline a day ? almost two million barrels a day less. They are operating at 93 percent of capacity, well above the industrial average, with little time left for maintenance and upgrades.
Consider this: Whether you are paying $25 per barrel, or $60 (that's the range currently being charged across the USA, more or less), using average crude quality, you might get 42 gallons of gas out of one barrel of crude. Thus, you're talking about the cost of the crude per gallon at about $.80 to $1.50 per gallon. How then do we get to $2.50 per gallon at your local Exxon station?
Throw in transportation and refining costs, various taxes, and environmental costs and the profit margin for refiners takes a serious dip to about 6 percent, which is "less than half the industrial average." We must set some things straight with the politicians who twist the facts in an attempt to inflame the unthinking passions of American drivers. The next time someone suggests releasing the strategic reserves, give them another option, like 'How about we do some drilling?' Or 'How about we build some refineries'?
But there IS some good news in all of this. According to several reports the week of July 11, China's expanding need for oil has flattened considerably in the past couple of months.
From The Wall Street Journal (7/15/05, p. C4),
Chinese oil-demand growth was slowing, according to a Chinese state-run news agency. A report from the International Energy Agency, based in Paris, appeared to confirm that, with the energy watchdog revising lower its oil-demand growth forecasts for the year. "One thing I am starting to see is more articles on lower oil demand, especially in China," said Conrad Goerl, a partner and trader at MotherRock LP, a New York energy hedge fund. "That story seems to be getting a little bit more traction."