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The problem with gas prices: Congress restricts supply

Little-Acorn

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This has been going on since the 1960s. If the vaunted Democrat-majority congress wants to "make real changes" as they kept claiming during their campaigns, here's a good place to start. But are they trying?

So far, I've seen nothing from them in this area, except for attempts to make us drive less, and/or drive smaller, lighter, more dangerous cars.

Even that cloud has a silver lining, though. If they keep this up, gas prices will rise so high that it will become economically practical to start developing alternate technology that has bee priced out of the market so far.

-------------------------------------

CONGRESSIONAL CRITICISM MISSES MARK ON GAS PRICES

As gas prices pass $3.00 a gallon, several members of Congress have
taken aim once again at oil companies, promoting everything from a
windfall profits tax to breaking the companies up. Yet rather
than attacking "big oil," Congress should look in the mirror,
says H. Sterling Burnett, senior fellow with the National Center for
Policy Analysis (NCPA).

The real problem is that while energy prices are subject to the basic
economic laws of supply and demand, Congress continually restricts
supply, says Burnett. For instance:

* Congress chose not to lift the moratorium on new oil and gas
production on the U.S. Outer Continental Shelf, putting more
than 85 billion barrels of oil (quadruple current U.S.
reserves) off limits.

* Congress has repeatedly refused to allow oil development in
the coastal plains of Arctic National Wildlife Refuge (ANWR),
putting 16 billion barrels of oil off limits.

* Congress dictates the types of gasoline that Americans burn,
mandating 57 different gas blends that must be refined with
seasonal changeovers.

"The rhetoric coming from Congress shows a naïveté
about energy markets and a blatant disregard for their own role in
causing high prices," says Burnett. Further, by limiting
domestic supply opportunities, Congress has required that oil
companies, and therefore pump prices, are reliant on oil from foreign
countries sold on the world market, rather than their own domestic
reserves.

Source: "Congressional Criticism Misses Mark on Gas Prices,"
Earthtimes.org, May 11, 2007.

For text:

http://www.earthtimes.org/articles/show/news_press_release,104813.shtml
 

Care4all

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oil prices are lower but gas prices are higher...

drilling more oil won't improve our situation imo, but building more REFINERIES would lower gas prices.

The oil companies do not want to build more gas refineries because it would make gas cheaper and provide less PROFIT OPPORTUNITY to them.

That's the bottom line.

I think that we basically killed competition by allowing the big mega mergers...

these 5 big guns are sticking together and not building refineries with their huge profits because they all want to keep making their huge profits...

if we had 20 businesses out there insted of five, then some of these companies might have built refineries so that they could offer gas at a lower price to BEAT THEIR COMPETITION at the pump imo.

Care
 

hjmick

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oil prices are lower but gas prices are higher...

The oil companies do not want to build more gas refineries because it would make gas cheaper and provide less PROFIT OPPORTUNITY to them.

That's the bottom line.

That's not the bottom line. Four members of my immediate family have worked for Exxon, three of them retired from there, and every one of them will tell you that the issue of building more and newer refineries lies not with the oil companies but with environmentalists and the communities where said refineries would be built or upgraded.

Everyone wants cheaper gas, they just don't want the refineries in their back yards. There hasn't been a new refinery built in the U.S. in over 30 years and over the past 10 years, about 50 refineries have shut down. The growing demand for gasoline and other refinery products is straining our refining capacity to its limits.


High energy prices are not the problem. High energy prices are a symptom of the problem. We’re using energy faster than we’re producing it.
 

Care4all

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That's not the bottom line. Four members of my immediate family have worked for Exxon, three of them retired from there, and every one of them will tell you that the issue of building more and newer refineries lies not with the oil companies but with environmentalists and the communities where said refineries would be built or upgraded.

Everyone wants cheaper gas, they just don't want the refineries in their back yards. There hasn't been a new refinery built in the U.S. in over 30 years and over the past 10 years, about 50 refineries have shut down. The growing demand for gasoline and other refinery products is straining our refining capacity to its limits.


High energy prices are not the problem. High energy prices are a symptom of the problem. We’re using energy faster than we’re producing it.

The 50 refineries were shut down BECAUSE of the mergers....

Do YOU really think that IF the oil companies REALLY wanted to build refineries, which would bring their PROFITS DOWN, they could not find a way with all of their money to lobby congress to allow them to build one on one of our closed bases or in a remote area?

The oil companies can build thousands of refineries in the usa, we have plenty of free land, especially in the middle of our country....And there are regions like the northeast that have many refineries, where it is ALREADY in the citizen's "backyard" where they could build additional new refineries...

But it is my understanding that where the environmental issues come in to play is that these new refineries built need to meet higher standards on emissions which cost a little more to build....?

Care
 

hjmick

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Environmental standards have made it virtually impossible to build new oil refineries in the United States, permitting and testing have stretched the process out to an excess of 10 years before ground breaking can begin. Approval could mean having to collect up to 800 different permits.

Another problem is, building even a small refinery would require an investment of $2 billion to $4 billion (at a time the industry must devote close to $20 billion over the next 5 or so to reducing the sulfur content in gasoline and other fuels). Most experts feel that the demand for gasoline will decline significantly by 2030 which means a company faces a limited window for return. That's called good business. Now, if the cost to build wasn't so high and the environmental issues weren't so stringent, more refineries would be built.

Why does the industry appear to have built its last refinery? Three reasons: refineries are not particularly profitable, environmentalists fight planning and construction every step of the way and government red-tape makes the task all but impossible.

If that's not enough, the industry's long-term rate of return on capital is just 5 percent, less than could be realized by simply buying U.S. Treasury bonds.

For the record, the last refinery built in the U.S. was in Garyville, La., and it started up in 1976.

When Hampton Roads Energy Corp. proposed building a refinery near Portsmouth, Va., in the late 1970s, environmental groups and local residents fought the plan, and it took almost nine years of battles in court and before federal and state regulators before the company canceled the project in 1984.

It's not about the price of gas at the pumps. It's about the long term profitability of refineries, resistance from communities and environmentalists, and the cost of construction for new refineries.
 

Care4all

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Environmental standards have made it virtually impossible to build new oil refineries in the United States, permitting and testing have stretched the process out to an excess of 10 years before ground breaking can begin. Approval could mean having to collect up to 800 different permits.

Another problem is, building even a small refinery would require an investment of $2 billion to $4 billion (at a time the industry must devote close to $20 billion over the next 5 or so to reducing the sulfur content in gasoline and other fuels). Most experts feel that the demand for gasoline will decline significantly by 2030 which means a company faces a limited window for return. That's called good business. Now, if the cost to build wasn't so high and the environmental issues weren't so stringent, more refineries would be built.

Why does the industry appear to have built its last refinery? Three reasons: refineries are not particularly profitable, environmentalists fight planning and construction every step of the way and government red-tape makes the task all but impossible.

If that's not enough, the industry's long-term rate of return on capital is just 5 percent, less than could be realized by simply buying U.S. Treasury bonds.

For the record, the last refinery built in the U.S. was in Garyville, La., and it started up in 1976.

When Hampton Roads Energy Corp. proposed building a refinery near Portsmouth, Va., in the late 1970s, environmental groups and local residents fought the plan, and it took almost nine years of battles in court and before federal and state regulators before the company canceled the project in 1984.

It's not about the price of gas at the pumps. It's about the long term profitability of refineries, resistance from communities and environmentalists, and the cost of construction for new refineries.

Thanks! That explained a great deal...!

But why did they close 50 of them?

Care
 

hjmick

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Some of the closures were the result of age, older refineries get harder and harder to bring up to date. Some were the result of mergers. Some refineries are/were independently owned and operated, when they became too costly to keep open, they closed. Some closures were the result of redundancy. Every company buys from each other. Chevron buys from Exxon, Exxon buys from Shell, Shell buys from Texaco, so on and so on, this practice means you don't need three or four refineries to feed the stations, maybe you only need two.
 

hjmick

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Thanks! That explained a great deal...!

You're welcome. A lot of people really don't understand why gas prices are so damn high, I know I didn't. It was a series of discussions with my mother and a couple of her husbands coupled with some reading that helped me understand (never accuse an oil company a relative works for of being greedy). It's not completely the fault of the President and Congress, there are other forces that weigh heavily on the price we pay at the pump. They could take steps to make it easier to build new refineries, but at what possible cost to the environment? They could eliminate the taxes we pay on a gallon of gas, both at the state and federal level, that would help. The special mixtures is another issue that could be addressed. In California we have a blend for winter and one for summer.

It's crazy and it sucks.

They say that adjusted for inflation and all that crap we are still paying less that we did in 1981. Does that make you feel any better?

Me neither. :)
 

Care4all

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You're welcome. A lot of people really don't understand why gas prices are so damn high, I know I didn't. It was a series of discussions with my mother and a couple of her husbands coupled with some reading that helped me understand (never accuse an oil company a relative works for of being greedy). It's not completely the fault of the President and Congress, there are other forces that weigh heavily on the price we pay at the pump. They could take steps to make it easier to build new refineries, but at what possible cost to the environment? They could eliminate the taxes we pay on a gallon of gas, both at the state and federal level, that would help. The special mixtures is another issue that could be addressed. In California we have a blend for winter and one for summer.

It's crazy and it sucks.

They say that adjusted for inflation and all that crap we are still paying less that we did in 1981. Does that make you feel any better?

Me neither. :)

I am not working, but my husband uses 15 gallons a week getting back and forth to work...that about a $200 dollar a month in cash gas payment...and that is just for him for work....let alone what I use or outside work traveling for him! We are lucky we picked up a hyundai two years ago that he drives which gets 32-34 miles per gallon.....or we really could be in worse shape!

Where we live, in maine, food is very expensive....especially healthy food like fruits and vegetables that get hauled in here from California and Florida...some probably arrive by boat from the southern east coast, but I am uncertain or some might be flown in to a big northeastern city and then hauled here? Regardless, the gasoline it costs them to get the veggies here is DEFINATELY REFLECTED IN OUR FOOD COSTS, our prices.....

We own our home so no mortgage there, but the biggest bill we have a month is our food, then energy in the winter, then gasoline...

Care
 

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