Tuesday, May 20, 2008

Refineries


One issue often brought up in conservative circles regarding the price of gasoline is the lack of refineries in the United States. If this is a new or unfamiliar issue to you, allow me to inform.

You don't put crude oil in your car. Well, at least you don't do that then drive it away, 'cause it won't work. The oil must be refined into its component parts--one of which is gasoline. Though we are not presently running out of gasoline, an increase in the supply of gasoline would drop the price just as an increase in M&M's would cause each bag to become cheaper. Presently our refineries are running around 85%-90% of their full capacity.

One complaint is that there have been no new oil refineries build in the U.S. since 1976. Why is this the case? Primarily, a refinery could take up to 10 years to build including 5 years to get a permit. Also, it is a huge investment for an oil company, especially if they can survive without building a new one. Therefore, if the present refineries are generating enough money for the company, then there's no need for a new one.

...And they certainly are. In an economy going through a "difficult stretch", oil companies are posting record profits quarter after quarter. Supply and demand prevail again. Why produce more oil and sell it cheaper, when you can sell less for a higher price?

So how do we deal with this? There are basically two major solutions on the table. 1) Tax the living daylights out of the oil companies to pay for alternative energy research. All three leading presidential candidates support this option. 2) Give additional tax credits to oil companies who increase their supply of oil, whether by finding new sources or increasing production. Ron Paul might like this a bit.

Sources:
CNN Money
Williston Herald

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