The scheme is very simple. Oil companies are allowed to consolidate ownership of most US refineries over a number of years, and then collude to ensure no more are built. Once this dynamic is in play, and a friendly government is inclined to look the other way, the games begin. I know it’s not as entertaining as catching men trying to hook up with teenage girls on the internet, but who isn’t feeling this? Haven’t there been enough obligatory local and national news reports, all carbon copies of one another:
Reporter: And we’re standing twenty feet in front of a gas station near the studio, and as you can see by the sign, gas is expensive. We’re heading into the peak driving season, and that means people are going to be spending a lot of money. We talked to some people here about that.
Random Person 1: It’s really hurting, these high gas prices. I have a 732 mile commute each day, and it is tough.
Random Person 2: I don’t like high gas prices. I don’t know what I’ll do if they get higher.
Reporter: So you see, a lot of people aren’t happy about paying more for gas. Back to you…
If there are profits to be had, a refinery will be built, according to basic laws of supply and demand. However, who might stop someone from getting those profits? Either A)a monopoly, or B) a government.
I don’t think you can seriously say it’s (A).
I dont recall in the 90s oil companies colluding to destroy refineries or bringing them offline when gas and oil were dirt cheap.
Historical Oil Prices
The official on the video (poor quality) indicates that permits for new refineries haven’t been requested. The President has been mentioning our refining capacity for years now, yet year to year nothing changes.
caveat – it is absolutely profitable to bring a new refinery online, but look at the consolidation, cost and risks associated with building one…you’ll be competing against the giants, all of whom have DC in their back pocket.
The dynamic that takes hold is that regulation is targeted from inside the industry. A dairy farm I’ve been trying to gather information on from the upper NW was raided a couple weeks ago by and army of INS, cops, feds all armed to the teeth. This guy followed the rules, had paperwork on every worker, but unlike the large dairies in the area, paid more and offered benefits.
Why that one dairy with lower margins and a higher quality of life provided to its workers would be targeted out of all the dairies in the area…seems fishy. It’s like the Pinkertons back in the 1800s.
The cost of a dairy is exponentially lower than the cost of a refinery.
well, i do know refineries are very expensive and you have to go through a lot of red tape. I do know there have been expansions in existing refineries over the past few years. but keep in mind, the extra need for refining capacity is only a fairly recent phenomenon.
If a study is conducted on all US refineries, I’d be curious to know what percentage of overall capacity is controlled by whom. My idea of effective governance would be for a report on a refinery going offline to be followed up immediately by an inspection.
When the price per barrel of oil shot up, the gas sellers pointed to that and attributed the higher prices at the pump to that specific change. I find it is the same with the natural gas market. Tracking the commodity price for a number of years now, the utility companies attributed higher rates in the winter of 05-06 to Katrina. Yet this past winter, when that wasn’t a factor AND the commodity price was much lower, the cost had not fallen to reflect either.
In Wyoming right now there are thousands of tapped natural gas wells in a grid that are just sitting there year after year. The owners of those wells went through the trouble of tapping them (meaning about a ton of toxic water in each was extracted and deposited somewhere…into the earth is my guess since residents living near the wells have had undrinkable water for a couple years now), but do not extract it, even during the winter when people are unable to afford to heat their homes due to the price of fuel.
Having gone unchecked for so long now, the profits are staggering at this point…with the utilities and energy sectors continuously providing gains in the market.
I’m actually inclined to agree with you on this one, Al. I’ve heard that lumber companies were actually hiring people to go out and find spotted owls, to put thousands of acres of forest off-limits. The result? Less lumber Cut Down = Higher Prices + Fewer Employees = More Profit. Let’s face it: the government is mainly interested in cheating people and increasing its own power, and companies are in business to make as much money as possible. When the government cheats husinesses, they are more inclined to cheat the consumer.
it would be an interesting study, i do know that refinery explosions down on our coast here in Texas hurt alot. I know what you are saying about the natural gas futures. Could it be an influx of artificial demand and speculation by big money players out there? Similar when Amaranth lost God knows how much money on the oil market? I see the same thing with the Uranium spot price. I do not know for sure, but I dont think Uranium is much more in demand that say 5 years ago but its price has soared in the hopes of countries going nuclear (in a good way). Ultimately it will lead to a correction. One thing of note, prices have not hurt me since I moved into my house (which was built in 1993) then when I lived in a multi-level apartment with roommates. My electric bill with a Co-op in my house is usually 60-90 dollars a month. My gas bill peaked at $130 this past winter. In my apartment, gas probably hit $250 and during the summer A/C drove electricity to $500. Good insulation and efficient designing can go a long way.
more on artificial demand:
http://www.csmonitor.com/2007/0521/p09s02-coop.html
This is impacting the margins of livestock operations, companies using corn syrup, etc…it runs deep. I was telling Van Helsing (posts here on occasion) last year sometime that corn futures were going to blow up, and I think they’ve just about doubled since that time.
Very bad situation.
We have to be the dumbest country in the world right now. Here is Brazil…a country that shouldn’t be out-innovating us in any way, turning 50% of their automobiles to run on sugar ethanol, where the cost of energy that goes into it is much lower than with corn, and the world supply is in much better shape.
But no…a senator from Georgia (Chambliss) figures it’s his turn at the trough, so he leads the charge, apparently not consulting a single free-market economy expert along the way to gauge what would happen with a mandated and subsidized corn ethanol program.
It’s disgraceful! And it’s the statist mentality of the Republican Party run amok…the sugar lobby can’t be touched, and there’s FREE MONEY to be had, so someone’s got to take it, right? If they took that money they’re spending on corn ethanol and put it into research and development instead, we’d be a hell of a lot better five years down the road…
I cringe to think what’s in the $99 meat at McDonalds as it is, but when the cattle feed starts causing pain, God only knows what they’ll make the so-called beef patties out of then!
They should have removed the price fixing on sugar a long time ago, and have gotten away from the government action coming before the science…just doing “something” results in what we’ve got right now.
I’d be a happy guy of course, if I had a client list and their money to invest a year ago in corn contracts…that one was juicy and plump. And with that in mind…I do have to say one positive thing about Republicans being in charge…they do telegraph their moves in a way that smacks me right in the forehead every time.
I’ve just got to get out of this STEM stock by the end of the week, win or lose, so I can pump that 12% into energy before the first hurricane hits.
I’m staying completely out of retail, food, drinks and anything else that could get hit by this GOP disaster on corn. All energy-tech-banking-resources-insurance – – – I want to go in on telecom, but can never seem to get it right. Not yet at least.
if we dropped the brazil tariff it would at least promote a little ethanol competition, but regardless, each country’s ethanol industry is heavily heavily subsizdized. I don’t agree with the federal mandated ethanol charge by Bush, but I don’t see this as something cause directly by the gop. I think any politician right now would have done something similar regardless of party. people dont want to face the reality that while alternative/renewable energy sources are somewhat promising, they are still years and years away from being economically feasible (keep in mind that the both state and federal govt collects roughly .50/gallon in taxes). To me the best solution is for private enterprises to develop energy saving appliances, design more efficient homes and cars.
This just isn’t true. There are so many Democrats that I have heard on CSPAN and read over the last couple years, Al Gore being the most prominent of course, who have argued in terms of fuel:
1. US automobiles’ fuel efficiency is worse than cars built anywhere else in the world, and therefore US products are inferior.
2. Research and development must be the focus of government investment, and not subsidies to the growers of raw materials.
When the discovery is made and proven repeatable, it will generate its own capital from the private sector. MAKING THE DISCOVERY is the important thing! To divert hundreds of millions over years to refineries whose purpose is likely to be unnecessary in 20 years in lieu of dedicating the funds in research grants only does the following:
1. Disrupt the market (as we can see right now)
2. Create a new sector that only exists because of the subsidies.
3. Lose time to the research being done in other countries
4. Lose valuable tax revenue when instead of one of our own companies profiting from the discovery, it is a company that we must pay tribute to in order to leverage the science they have discovered.
It is the same mulish stance that the GOP has taken regarding stem cell research. The desire for a wedge issue, bringing with it the promise of increased relevance in the political discourse…but for what? Does the right-wing actually think that once a discovery is made in (picking at random) Sweeden, that doctors and patients at Mass General aren’t going to be implementing the therapy?
I can’t get around the fact that by going down this road…what I perceive to be an anti-science mindset, is not only reducing our long-term competitiveness in the global economy, but by ignoring the need for research and development for so long, eventually the pressure grows to the point where a knee-jerk reaction takes place and all of a sudden the commodities market is out of whack.
I know you disagree with what I’m saying here…but the “free market” talk mostly comes from the right, and the right appears to not know much about business. It’s as if R&D were some kind of evil magic…
I can guarantee to you that if Al Gore is elected President, you’ll see R&D reborn in this country, and the success we’ll gain from that alone, will do more to solve these problems we’re facing than anything else. CREATE INDUSTRIES THE RIGHT WAY!!!
That’s my message in regards to all of this.
your points are taken, however, ethanol subsidies began with the 1978 Energy Tax Act, was further influenced by the 1980 Windfall Tax, and the Brazilian ethanol tarif began in 1980 as well, all passed by the Carter administration. Republicans did not control Congress until 1994. Bottom line: both parties are responsible.
I thought we were talking about the disruption in the corn market and its ripple effects.
could be, sometimes i see Al Gore and GOP and certain triggers get set off. but your right, we need more innovation in the energy sector.