Confused about oil shortage - please help clarify
 

I was watching an interview on Bloomberg TV this morning of the CEO of Valero Energy, is the darling of the market having posted the biggest gains this year. He said that the industry spend so much money meeting the environmental regulations that there aren't funds left for building new refineries. He also said that Valero was lucky in that only the refinery in Louisiana was damaged by the hurricanes, most survived unscathed. He said that if there were tax benefits to building new refineries, Valero and the rest of the industry would shift their focus and fund those projects but, as of right now, the most profitable projects are those "upstream" (heck if I know what he meant by that but I'm assuming gouging us at the pumps).

Anyway, I always thought that it's our dependence on foreign oil that's causing the high pump prices. By the interview, I'm gathering that a shortage of crude is not the issue at all now or ever. Am I wrong about this? Do we have an abundance of crude but it's the refineries that are unable to meet demands?

Also, if Valero had no funds left after meeting enviro regs to fund new refinery projects, how could they post the biggest gains ever?

I'm sure this is elementary to you folks who keep track of this stuff, but help out a fella who wants to be more informed, will ya?

It means the cheap SOB wants someone else to pay for his refinery. He says he doesn't have enough money to pay for it himself.

Amazing.

I wonder what the exact cost to the oil company is to comply with all of the environmental regulations it would take to build a new refinery. How many years of red tape is there?

I think it only makes sense to open up the 2% of ANWAR to oil drilling. Nobody is there, and the other 98% remains as is. Kinda hard to reduce the need for forign oil when we aren't allowed to get our own.

I'd rather burn everyone else's oil first. Leave the ANWAR as is.

When theirs is gone, we will have 'cornered' that market.

I wonder what OPEC will have to sell then?

I like that thinking :)

I too, however, am mystified by the sob stories from the oil execs about how the high cost of meeting environmental standards makes new refineries not viable. With their profits can't they just buy a small Central American country & then make up whatever environmental regulations they like?

In the end they are making record profits with the refineries they have (aided by high demand) so have little or no interest in building new refineries.

I agree, ANWR needs to be left alone. This oil isn't cheap to produce and at current consumption rates there really isn't that much oil. Even if ANWR is opened to drilling there still is the contentious issue of the Alaska Native Claims Settlement Act.
Don't let the conservatives fool you, ANWR isn't a "slam dunk." The natives have a claim to this land and for the most part do not support drilling.

I'm guess I'm just appalled that the CEO would admit on TV that the reason they're not building more refineries is that there's no money in it. He wants us to fund the project under the guise that it'll be a win-win but, in reality, the savings we'll see at the pump will be diluted by the increase in taxes to pay for the new refineries. A tax benefit for Valero would mean a bigger tax burden for us all, no? The money's got to come from somewhere.

Cantdrv55

"Upstream" is between the oil well and refinery. "Downstream" is between the refinery and the gas station.

The bottom line is, Hugh, that we are all downstream when it comes to paying for the product. Every Tom, Dick, and Harry has his hand in the pot 'upstream' of us.

Don't disagree Sing, just clarifying terminology. BTW, Valero has the largest refining capacity in the US.

You know, I thought I remembered that from somewhere, being the largest refiner.

If refining capability is the 'long pole in the tent' streamwise... why WOULD they be motivated to solve the choked flow that keeps record profits close at hand.

The icing on the cake is that the oil companies get to twist the knife in the enviornmental backside by blaming EPA policies for keeping new refineries at bay, as well as driving costs thru the roof by having to comply with forced regulations.

Frankly, I think the liberals in Kahleefoorniahhh have it coming. Of course, they are so busy blaming Bush, they cannot see that it is all their own fault anyway.

WTF?

Why would a business go into business to lose money? Why would a business invest into area A, if they can invest into area B where they spend less and get more return on investment?

The reality is this: The environmental requirements to build a "new" refinery are such that it cost a lot of money which will not produce the required ROI. In my company, if we are not making 30% margin on a product, it will usually be worked on until we do, or we will probably drop the product. If I can't show a 15% per year ROI on capital sprent, my company will not invest the money.

What I don't understand is this: if the refineries are the issue, why not build the refineries at sea and bring the finished product into the US?

Gimme a break.....I wrote over a 100 tickets to XXXXXXX Corp over an eight year period..... the defendants spent 2 mill plus to fight it. Settled for a 1% of what the DA asked for.

It's perception, money and bought judges. We are a "well regulated group of sheep". Consider yourselves lucky your not paying 5 bucks a gallon......

Remember 6 months ago when you swore you were geting screwed at $2,50 a gallon?????

Now it's.....THANK YOU LORD IT'S ONLY $2.50.....Perception.....

Thank you for only screwing us for a short period of time.....

Fear your government.

Profit to oil companies is somewhere around $0.10/gallon... average tax across the country on 1 gallon of gas: $0.49.

Then why are oil companies showing record profits? I'm all for making money, but if profits are a fixed amount per gallon, shouldn't profits be the same year in year out. It's not like we can make more gasoline.

Because the the amount of crude being produced and used WORLDWIDE is way way up. Gasoline and specifically refining, is not the biggest portion of the pie for oil companies. It is just what is most visable to you, the consumer.

There was a story the other day Exon/Mobile was earning a billion dollars a day in PROFIT. I can't wait to see the FAT bonus program for the top execs.

I've been wondering about this. Aren't profits based on percentages?

i.e.

$1.00 gas and 10% profit = 10 cents
$2.00 gas and 10% profit = 20 cents

Thus explaining the 'record profits' this last year? Not that it matters, but I have no problems with oil companies making craploads of money. Its supply and demand.

I think there is also some sort of misconception about 'no new refineries'. The count may have not gone up, but capacities have.

Not to mention the costs inherent in jumping through the environmentalist inspired regulations and state-by-state regional formulation requirements...not to mention the long term effect of foreign energy reliance as constructed by the left.

The enviro lobby is quite happy with high energy prices, it decreases demand.