The controversy is raging in full swing: the dearth of recent refineries in the US. Many are shocked to see the continued increase in oil costs despite the surge in home oil production. May refineries be the missing element within the equation, they marvel. ‘Why not just construct new refineries and scale down the value of oil,’ our readers continue to ask us. Sure, it is a reality- no new refinery has been constructed in the US previously three many years. The final refinery constructed in the US at Garyville, Louisiana was manner back in 1976. So, the question is reiterated as the point is so obvious: new refineries. But then, there aren’t any straightforward three causes, nor is the dimension solely 4.

First although, let’s take a look on the prevailing value of oil. In keeping with a AAA gasoline gauge report, the national common for a gallon of gasoline is $three.Sixty two – more than thirteen cents from the earlier week and 24 cents more than a month in the past. After the fall in Could and June, gasoline costs have elevated gradually for the last seven weeks, adding ache to the already pained consumer. Is this due to dwindling oil reserves? Well, of late home oil manufacturing has increased by fourteen % within the final 12 months. In line with authorities sources, the oil production within the nation hit the highest ‘quarterly stage’ in virtually a decade (for the primary three months of this yr). And, US produces 55 p.c of the oil consumed in the country, primarily as a consequence of manufacturing spikes in Texas and North Dakota.

ly there is oil, so shouldn’t the oil price lower? In any case, the more the commodity, typically, lesser is the costs. Put it that approach, the current oil costs do sound ominous. It is not as if larger demand has hiked the oil costs. On the contrary, demand for oil has been lowering with fuel environment friendly cars and ethanol blended gasoline. This July, crude oil demand within the U.S. dipped to its lowest in four years on the back of average financial growth within the country, based on the American Petroleum Institute. The demand for gasoline fell 3.Eight % this July with consumption down 1.1 %. After the peak in 2007, demand for gasoline has been sluggish. That is, regardless of improve in the price of crude, demand for gasoline is at report low. So, the speculation does achieve force – are lack of refineries hampering the fall in the worth of oil? North Dakota produces greater than 600,000 barrel/month but has only one refinery in Mandan. An element of bafflement does linger to see the country producing substantial oil and yet importing refined products.

There’s colossal hole within the realm of manufacturing and refining capability in the nation. The refineries are churning at full capability which makes them worthwhile, but on the downside there is no such thing as a room for mistake. They must deal with variable demand on one hand and better prices of inputs on the other. Just lately, Sunoco Inc. introduced closure of its largest refinery leading to fears of gasoline shortage and better oil costs within the US. Happily, a deal with the Carlyle Group saved the day for Sunoco Inc. and the oil trade. But, the problems in the refining sector are removed from over. Two refineries owned by Sunoco Inc. did shut in the final eight months, which suggests a loss of nearly half the gasoline and other refined merchandise in the East coast.

True, new technologies have elevated the home oil production. For once, although, the infrastructure within the US has didn’t meet up with the surging domestic oil production. Barges, rails and trucks, believe it or not, still transport crude. Naturally, the oil barely reaches the refineries and this mode of transport also makes oil costlier for the buyer. How about pipelines? We all know that imported oil is expensive. Nonetheless, the Marcus Hook refinery continued to import oil at $114 a barrel in 2011, even when the West Texas Intermediate crude traded lower. Why? Lack of pipelines, once more. And with this paucity in pipelines, crude produced within the country is not reaching the refineries. After all, the a lot hyped Keystone XL pipeline would connect Canada’s oil with refineries in the Gulf of Mexico and Houston, however that will take years.

Staying with refineries, the necessity for pipelines is extra pronounced in the Gulf coast. The refineries in the Gulf coast contribute about 45 % of the refining capability, and 30 p.c complete crude oil production in the US. Of late, the imports have declined within the Gulf coast, because of drilling within the Eagle Ford Shale in Texas and Bakken shale in ND. Unsurprisingly, import of the costlier light sweet Nigerian crude stood at a hundred and fifty,000 b/d in January, the lowest since 1996. (For the corresponding interval, there’s decline in the import of Nigerian crude to the East coast too.) But, think about the determine with more pipelines within the area. Yes, the crude from Eagle Ford from Texas has started to arrive in the Gulf coast. However, the crude is candy mild. Most of the refineries in the Gulf Coast are extra subtle, designed to course of heavy and extra bitter crude. As funding to refine the lighter candy crude is costly, the one option for the refineries is to blend the completely different crudes. The irony.

Meanwhile, woes of the refineries within the East coast continue. Two have already closed, and the rest of them are barely managing to scrap by way of. These refineries are dependent on imported crude as they haven’t got simpler access to cheaper West Texas Intermediate crude. Therefore, they proceed to import the costly Brent crude. There are plans to transport oil from North Dakota to the East coast by rail, however when?

Though a continuation of the import story, the scene is slightly different in the Midwest. The refineries listed here are enjoying increased profits, credit to generous provides from Canada and home oil. Imports from Canada reached 1.76 million barrels a day in the primary quarter of 2012, a rise of almost 22 % from final yr (Source: EIA). Unsurprisingly, Canada is the most important provider of crude to the US adopted by Saudi Arabia.

Just lately the Port Arthur refinery underwent expansion to nearly double its every day capability. So, why do refineries develop fairly than construct new ones? It is easier due to the environmental rules. The apparent lack of logic in not having refineries does get answered when you’re taking the atmosphere underneath consideration. Refineries gobble up water, not to mention huge tracts of land, and contribute a great deal of CO2 to the air, as effectively. So, environmental regulation tends to be hard for anybody interested in refineries. The EPA rules are also strict on the sulfur content material Mild crude is less complicated to process, has lower sulfur content material so it’s simpler to get the environmental nod. Heavy bitter crude, on the opposite facet, has more sulfur and is harder to course of. Sunoco Inc. is said to have misplaced $ 1 billion within the final three years, trying to improve in accordance with the stricter EPA regulation.

Will the image change? Everybody wants refineries, simply is someone else’s backyard. The brand new EPA regulation for brand new refineries scheduled to be released this November has been deferred because of the Presidential elections. How is it going to pan out? Mitt Romney is all for extra drilling. He needs to drill “nearly each a part of U.S. lands and waters” but is silent on his take on refineries. For his half, Obama is for ‘vitality independence’ but with his strict environmental laws, no refinery is going to come back up anytime quickly. The situation is precarious. The demand isn’t anticipated to rise anytime soon. EIA has lowered the forecast of oil consumption in 2012 and 2013.

Any destruction as a result of accidents (just like the current fires), weather circumstances, and upkeep would affect the provision with fast effect. As an illustration, the recent fireplace within the Chevron refinery at Richmond, California disrupted almost sixteen% of the availability in the region. Abundant reserves, yet susceptible to import fluctuations- which country would want to proceed on this place?

If the refineries aren’t taken care of, the dream of cheaper crude would proceed to be a dream. That can be sad with the present home assets.