🚀 go-pugleaf

timeOday wrote:
> Like I said, most of it is already imported, why not refine it BEFORE 
> importing?   It's no more bulky as gasoline than crude.  By importing 
> just a few percent as finished product, we'd easily put slack into our 
> own refining capability.

This looks like a really good article on the subject:

http://www.washingtonpost.com/wp-dyn/content/discussion/2005/09/06/DI2005090600718.html

That article makes several good points about the current situation.  It says:

	The problem with the recent gas price spike is not with crude
	supply, but refining capacity. The Bush administration tried
	to help relieve that bottleneck by waiving environmental rules
	that prevent import of certain types of refined gasoline, which
	is helping quite a bit.

So, apparently one of the reasons we don't import refined oil is that
there are environmental issues with doing that.  I don't know what
they are specifically, but I do remember an announcement that Bush
was temporaril waiving restrictions on foreign imports of refined
oil.  So, part of the reason we don't import more refined oil may be
that there are regulatory difficulties with doing so.

And here's a second reason why offshore refineries aren't being built:

	San Jose, CA: Since American oil companies appear to be unwilling
	to build additional refineries into the US, why don't other
	companies build additional refineries in foreign countries, and
	import refined producs into this country? Is it more difficult
	to import gasoline and heating oil than regular crude?

	Steven Pearlstein: I've been asking the same question myself,
	and getting not very good answers from the
	Obviously, transportation costs are higher when you import.
	But you might well save on production costs if you did it in
	Aruba. So I don't know why investment in offshore refineries
	that are designed and built to produce gas for the American
	market haven't been a good alternative. Again, my suspicion
	is that they don't want to invest in too much capacity.

I would add two things to that.  The first is that he may have a
point about transportation costs.  Elsewhere, he makes the point that
oil is a commodity, and we buy crude oil from a wide variety of places.
The oil has to travel from wherever the supply is to wherever the
demand is.  If we have refining capacity near the demand (you'll
note that both New Orleans and Houston are ports and are geographically
pretty central within the US), then you can be pretty sure the oil
only has to make ONE trip.  But if you move the refining capacity
elsewhere, then it might be near the supply, but that depends on
where the supply is (and again, it is a commodity market), so it
might not be near the supply.  You could create a situation where
the refining capacity is at a third location that isn't on the way
between the supply and the demand, so you would increase
transportation costs.  Either that, or you *only* buy crude oil
from locations that can refine it as well as producing it, which
means crude oil is no longer a commodity and you pay higher prices
for it.

The second thing I have to add is that, most likely, as a practical
matter, no new investment will occur, whether offshore or onshore,
until the existing refineries are not only inadequate to meet
demand but have been inadequate for a long time and expected to be
for a longer time.  Nobody wants to make an investment in a facility
that will pay off in the long term but will only be in demand for
a year or less.  Only sustained shortages will cause new investment
in refineries.  And, in a sense, refineries are managed like
airplane rides:  it's a very expensive resource, so they run as
close to capacity as possible.  On an airplane, they overbook on
the theory that some passengers will not show, because it's very
important to them not to leave a seat empty if they can avoid it.
It's the same thing with refinery capacity.  When it's so expensive
to build, they have no motivation to have reserve capacity just to
be prepared for stuff like hurricanes.

I thought this article made one other good point that was really good:

	I think we should be careful of saying the oil companies
	took advantage of the situation, although they will enjoy
	a windfall profit for a while. Look, in any market, when
	supply is interrupted and demand exceeds supply, the price
	rises. And the effect of the higher price is to ration the
	scarce commodity to those who need it most, while depressing
	demand -- both of which are a good thing, under the
	circumstances. If oil companies were to keep prices
	artificially low, out of some sense of obligation, all that
	would happen is that gas stations would run out sooner, with
	other bad consequences. The right policy response to this
	isn't to limit prices -- it is to consider some form of
	windfall profits tax. But you really wouldn't want to get
	into that unless these exhorbitant prices persist for a
	long time. Those kind of taxes are notoriously tricky to
	devise and administer.

Since changing prices are the natural way of regulating things in
a situation where the relationship between supply and demand is
changing, I don't think we should try to prevent the prices from
changing.  Price is our society's way of assigning value to things,
and if something important is suddenly scarce, it *is* more valuable
as a result of being scarce.  But a tax on the record profits
wouldn't necessarily be such a bad thing.  I'm sure we could
find a use for the money, and it wouldn't cause shortages like
a price cap would.  Heck, you could even use the money to give
everyone a tax refund -- as long as it wasn't geared towards how
much gas you use, it still wouldn't screw up the way prices help
keep supply and demand balanced.

   - Logan