Avro why don't you read this and tell me again about how well capitalism is working for you and me.
Ignorance is bliss!
A Star Consumer Watchdog Report
Big squeeze by big oil
The U.S. oil industry, wanting to drive up profits, shuttered dozens of refineries over the past quarter century. You feel the pinch at the pump every time you fill up.
[SIZE=-1]By STEVE EVERLY[/SIZE]
[SIZE=-1]The Kansas City Star[/SIZE]
ARKANSAS CITY, Kan. — The dormant complex here at the edge of Kansas is a weathered still-life of a bygone era.
Remnants of rusty pipes and storage tanks hint at the oil refinery that once hummed here on the banks of the Arkansas River.
Property that could produce enough gasoline to satisfy half the state’s thirst for the fuel is now overrun with prairie grass. Abandoned buildings sit with plywood-shuttered windows.
It’s a fate few here thought possible. Even nine years after the refinery closed, some former employees still can’t believe what happened to the economic lifeblood of the community since 1918. They still ponder how a deal to sell the refinery fell apart.
So does Malcolm Turner. He led a group that wanted to buy the refinery. They offered the owner, Total Petroleum Ltd., $37 million and thought they had a deal. But Turner said Total backed out at the last minute — offering scant explanation.
Seeking answers, Turner hopped on a flight from Dallas to Total’s North American headquarters in Denver. Over a round of golf with Total executives, the discussion finally got to the question: Why would Total walk away from $37 million and prefer to sell a perfectly good refinery for scrap?
“They finally said by closing the refinery it would tighten up the market,” Turner recalls. “They thought they would benefit.”
At the time, Total told employees the sale fell through and the company was closing the refinery for business reasons. The company has declined repeated requests for more comment on its decision-making process.
Turner, a decades-long veteran in the oil industry, was dumbfounded that the company shut the plant. But similar stories have been quietly playing out across the country — wiping out thousands of good-paying jobs, devastating communities and, ultimately, squeezing consumers at the gas pump.
Drawing from dozens of interviews and previously undisclosed government documents,
The Kansas City Star has discovered a largely untold story of a rapidly consolidating industry that has clamped down on refining capacity to drive up profits. Now, as retail gas prices routinely surge to more than $2 a gallon, what started as a legitimate business concern about overcapacity has become a recurring theme that has limited refining capacity in the world’s largest oil-consuming nation.
The refining issue now occupies the world economy’s center stage.
The Organization of Petroleum Exporting Countries, which itself has been under fire for high oil prices, has criticized the shortfall in U.S. refining capacity. In April, the foreign policy advisor to Saudi Arabia’s Crown Prince Abdullah said additional supplies of crude oil to the U.S. would “make no difference” because we lack the refining capacity to make it into gasoline.
Federal Reserve Chairman Alan Greenspan recently called our domestic refining capacity “worrisome.”
President Bush proposes using former military bases as sites for new refineries. Others urge a streamlining of environmental regulations to make it quicker to gain the necessary permits to build refineries. Still others argue for fewer types of environmentally friendly reformulated gas to eliminate production bottlenecks.
But such proposals miss a central question: Does the oil industry even want to significantly increase refining capacity?
ExxonMobil Corp., the world’s largest oil company, last year had a return on investment of about 25 percent on its refineries. Its 2004 earnings were $25.3 billion, a record for a public company. The company now has a cash horde of more than $20 billion. But while the company is using some of its extra cash to buy its own stock, it doesn’t have plans to build another U.S. refinery.
“You won’t see our investment spending swing with changes in near-term commodity prices,” Exxon CEO Lee Raymond recently told investors at the company’s annual meeting.
Over the past 25 years, 176 refineries have closed in the United States — including refineries in Sugar Creek and Kansas City, Kan. A new U.S. refinery hasn’t been built since 1976. Even with upgrades and expansions at the remaining refineries, domestic capacity is down 9 percent since 1981, while demand for gasoline has increased 38 percent
Today this country, which once had far more refining capacity than it needed, can no longer depend on its own refineries for all its fuel needs — even when they run virtually at full speed. Imported gasoline now accounts for 10 percent of supply, and that number is expected to grow.
The industry’s refining margins, the difference between crude oil and wholesale gas prices, have doubled and tripled at times to nearly 60 cents per gallon. Refinery and marketing profits, according to the U.S. Department of Energy, were up 292 percent for the last quarter of 2004 when compared with the same period the previous year.
The refinery squeeze already has contributed to some of the most volatile gas prices in memory. Indeed, the gasoline market now is so tight, say industry executives, that any demand spike, refinery outage or pipeline shortage can easily cause prices to soar.
Refining margins were a big topic at an oil industry conference held last fall at a resort near Las Vegas.
“Any little thing that happens, prices shoot up,” Bill Greehey, chief executive officer of Valero Energy Corp., told the audience.
Greehey, in a remarkable moment of candor for an often tight-lipped industry, dubbed this the “Golden Age of Refining,” saying “the best is yet to come.”
