Refineries--the Unspoken Energy Problem

In the past few days, gasoline prices in California have gone up tremendously, and shortages have even occurred in some areas. Prices twice hit an all time high this weekend with the average price being $4.66 a gallon with some paying upwards of $6.65. There was a thirteen cent jump in prices overnight on Saturday. In August, a similar thing happened here in the Midwest. Gas prices jumped thirty cents per gallon in just one day in Springfield, Illinois. Neither of incidences occurred because of unrest in the Middle East, a hurricane in the Gulf, monetary policies, nor speculator shenanigans. What would have caused such a big jump in price?

In both of these situations, drastic price jumps occurred because problems with oil refineries and regulations applied to refineries.

In California:

 Refinery and pipeline mishaps, along with the state's strict pollution limits are all, in part, to blame. They've sent wholesale prices soaring to all-time highs this week.  

 One of the disruptions involved a power outage on Monday at the Exxon Mobil plant in Torrance, which normally produces 150 millions barrels of gas per day. 

Additionally, Chevron's Richmond plant, the largest refinery in Northern California, has been running at reduced capacity since a fire Aug. 6. 

At the same time, California refineries have dropped production in recent weeks in anticipation of switching over to a "winter blend" of gasoline, which emits more pollutants, next month. 

But California's summer-blend fuel requirements are in effect in Southern California until Oct. 31.

In the Midwest:

 The Midwest has seen a confluence of freak problems during the past few weeks that have tightened supplies and pushed prices. An Enbridge Energy Partners pipeline that transports crude from Superior, Wis., to Chicago-area refineries ruptured July 27, spraying about 50,400 gallons of crude into a southern Wisconsin field.   

It was Enbridge’s second break in the region in just more than two years — an Enbridge pipeline broke in Marshall, Mich., in July 2010, spilling 840,000 gallons — and federal officials have barred the company from re-opening the Wisconsin line until it submits a re-start plan. A company spokeswoman didn’t immediately respond to an email seeking an update on the plan Friday. 

Meanwhile, equipment problems have closed parts of refineries in Whiting, Lemont, Ill., and Wood River, Ill., said Patrick DeHaan, a petroleum analyst at GasBuddy.com.

No refineries have been built in America since 1976. While the refineries still in production have become more and more efficient in recent years, they also have become more and more scarce. Between 1981 and 2006, the number of refineries was more than cut in half from 324 to 149. Part of the reason for this drop is due the impact regulations have caused making it uneconomic for companies to keep refineries open. Refineries in Pennsylvania closed this past spring due in part to the fact that regulations made up roughly fifteen percent of their budget. A March 2011 report from the Department of Energy showed that federal regulations played a significant role in the closing of 66 refineries over the past 20 years. With fewer refineries in production, when a problem occurs with one, such as happened with fires and pipeline problems in California and the Midwest, it has a larger impact on region the refineries service.

With both California and the Midwest, specific regulatory problems occur as well. In California, the mandated use of boutique fuels (fuels for different times of the year) mean that refineries have to shift production which can cause changes to prices in the weeks leading up to that shift, as was mentioned with the cost increase this weekend. In the Midwest, ethanol reformulations mean that fuel has to be blended at the storage facility as the addition of ethanol makes the fuel too corrosive to be added at the refinery. Additionally, the EPA is fining refineries for not producing a certain blend of ethanol that doesn't exist commercially! Whether it's state or local regulations such as in California or national regulation that impact certain regions more directly, regulations have the potential to put a strain on the refineries that have withstood the burden of regulation.

Politicians on both sides of the aisle pay lip service to a "all of the above" approach to energy, but do they mean it?  Domestic energy production is at a 16 year high, in many ways in spite of the President's policies. New drilling technologies in states like North Dakota has lead to massive amounts of production on private lands, but greenies have tried to create non-existent problems with the fracking process (with the backing of oil-rich Middle Eastern countries). Meanwhile, fossil fuel development on public lands is at its lowest point since 2003, and the Obama administration has cut off access to millions of acres in the National Petroleum Reserve in Alaska. Their supposed "all of the above" approach really is a none-of-the-below (oil, natural gas, and coal) approach and certainly doesn't include above the Arctic circle. At the same time, while many Republicans are more favorable to development of oil, gas, and coal, they often back ethanol fuel mandates  and fuel standards that have burdened refineries. An all-of-the-above approach must include the entire process of development.This is what Governor Palin spoke of  in her speech in Indianola, Iowa in September of 2011 when she mentioned not only the need for energy production leading to jobs and security, but also refinement of that energy. Policies need to be put in place (or removed, as it were) to enable energy to be produced and refined so that regulations are not burdensome on producers, but also aren't subsequently burdensome on consumers and their wallets.

 Crossposted here and here.