Wednesday, September 28, 2005

"Give us the customers and we will pump more oil"

Recently I posted a mini-rant on demagoguery over the oil industry. In it, I stated the problem we have with gasoline prices is not a shortage of crude oil, but limited refining capacity. Today, the Saudi Arabia oil minister, Ali al-Naimi, announced his country has indeed found more oil, but could not pump more, since customers lack enough refining capacity to use it.

Got that? Plenty of oil, not enough refining capacity to turn it into gasoline. Plenty of demand for gasoline however, so high gas prices. Economics 101, in action.

We keep hearing from environmentalists how oil is a finite energy source. Which is true, but so is the Sun. I just don't lie awake at night wondering if the Sun will rise the next morning. And with oil, our known, proven reserves have grown continuously since we switched from whale oil nearly 200 years ago, when the chubby critters got too expensive. When something cheaper comes along, we will switch from crude oil. Until then, we need more crude oil refining capacity.

The first producing oil fields were in Romania, in the early 1800's. We had a few years supply, it was first thought. Then the very commodity itself became an energy source to power yet more oil exploration, and pretty soon we had 10 or 15 years supply. Not so many decades ago, it was thought the world had only 50 years of oil left, but-- to the consternation of the Left-- we keep finding more oil. Now the "event horizon" is well over 100 years away.

Canada alone has enough oil and gas to cover their needs and ours for the next 100 years, based on projected demand. Add to that the Saudi announcement, which adds some 200 billion barrels to the proven reserve. Billion, with a "b". Also consider Iraq, which has not been surveyed in about 30 years. We may find more oil there, too. Likely we will, considering how geological survey technology has improved in the past 30 years.

The Saudi oil minister said this, at an oil industry conference in South Africa on Tuesday:
Mr. Naimi also said that there were "no takers" for more oil right now, as a result of constrained refining capacity.
And...
"Give us the customers and we will pump more oil," the Saudi oil minister told reporters at the 18th World Petroleum Congress, adding that more refineries needed to be built. He said that enough global output would be added in the next three to four years to restore "some margin of safety" to oil markets.

In the United States, in 1981 we had refinery capacity of 18+ million barrels a day. Today, we have a capacity of about 17 million barrels.

That is more than 1 million barrels less capacity today, than 1981, according to today's Wall Street Journal (link probably requires subscription).

Over the same period, consumption of oil rose 20%. Of course, 24 years ago we were not running those refineries at full capacity, so many were shut down. Today, we have fewer than half the number of refineries of 24 years ago. And all our refineries-- those not shut down by hurricanes-- run at full capacity.

If we build them, the oil will come. And prices will go back down.

2 Comments:

Blogger gastips said...

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3:13 AM  
Blogger Noons said...

and the amazing thing is that one of the largest refining facilities in Europe is sitting idly in Sines,Portugal.

It was built during the Suez blockade to allow for easier processing for tankers coming around the horn of Africa and it has been idle since the cannal was re-opened.

One wonders...

12:39 AM  

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