August 14, 2007 at 6:16 pm #3972
With maintenance put off and systems taxed to their limit, breakdowns are at record levels
Jad Mouawad, The New York Times, Jul 23, 2007
Oil refineries across America have been plagued by a record number of fires, power failures, leaks, spills and breakdowns this year, causing dozens of them to shut down temporarily or trim production. The disruptions are helping to drive gasoline prices to highs not seen since last summer’s records.
These mechanical breakdowns, which one analyst likened to an “invisible hurricane,” have created a bottleneck in domestic energy supplies, helping to push up gasoline prices 50 cents this year to well above $3 a gallon. A third of the country’s 150 refineries have reported disruptions to their operations since the beginning of the year, a record, according to analysts.
There have been blazes at refineries in Louisiana, Texas, Indiana and California, some of them caused by lightning strikes. Plants have suffered power losses that disrupted operations; a mid-size refinery in Kansas was flooded by torrential rains last month.
American refiners are running roughly 5 percent below their normal levels at this time of the year.
“You have a system that is taxed to the limit,” said Adam Robinson, an energy research analyst at Lehman Brothers. “This is what happens when spare capacity is eroded.”
After Hurricanes Katrina and Rita disrupted the nation’s energy lifeline almost two years ago, oil companies delayed maintenance on many of their plants to make up for lost supplies and take advantage of the high prices. But, analysts say, they are now paying a price for deferring repairs.
As a whole, refining disruptions have been considerably higher than in previous years: They averaged 1.5 million barrels a day in the first quarter, compared with 700,000 to 900,000 barrels a day from 2001 to 2005. In 2006, when refiners were still reeling from the impact of the hurricanes, disruptions in the first quarter averaged 1.35 million barrels a day.
Many factors have led to the rise in gas prices, including disruptions in oil supplies from places such as Nigeria. But analysts say the refining bottleneck in North America has been one of the main drivers of higher energy prices this year.
The refining crunch has pushed wholesale gasoline prices up 35 percent this year and contributed to a 23 percent gain for crude oil prices in the same period.
Some critics of the industry have theorized that the squeeze on gasoline points to a deliberate effort among oil companies to bolster profits by keeping supplies tight. But experts point out that the companies have little incentive right now to hold back on fuel supplies.
“Every refinery would like to run as much crude as possible, but they simply can’t,” said David Greely, senior energy economist at Goldman Sachs, who recently compared the drop in domestic refining to an “invisible hurricane.”
Meanwhile, refiners have been scrambling to meet a raft of environmental regulations, phase out toxic additives, add ethanol to the fuel mix and introduce new ultra-low sulfur standards for gasoline and diesel. Industry insiders attribute much of the fragility of refining operations to the difficulty of making these cleaner fuels, which the refineries were not originally designed to do.
Refiners spent $9 billion from 2002 to 2006 to make low-sulfur diesel. But producing these cleaner fuels means processing crude oil more intensely, at higher pressures and temperatures. This, in turn, leads to more chances for breakdowns, refiners say.
“It’s a marvel we can continue to run refineries the way we do these days, given the many requirements and specification changes we have,” said Charles T. Drevna, executive vice president of the refining industry’s main trade group, the National Petrochemical and Refiners Association. “There comes a time when the piper has got to be paid.”
August 14, 2007 at 6:21 pm #7328
Pretty sad and one reason why action to promote new refineries and reverse the “Just in time” inventory low cost profiles that do not work when US and Global refinery system has no spare capacity or enough inventory levels to prevent immediate price impacts from supply disruptions. Enviornmentalist & Outsourcing supply are clearly to blame for both the lack of new capacity & inventory – which is also a byproduct of NIMBY legislation that has dropped the number of US Refinery levels from 350 down to today’s 136 -which mainly killed off the small independent regional refiner. Since they wont make the connection – it also eliminated the storage inventory of crude and products.
As a confirmation you only have to look at reports on earnings for Big Oil in 3Q 07 – Companies with better on-stream time like ConocoPhillips and Hess were up while ones with several refineries offline like ExxonMobil and ChevronTexaco. Shells results were veiled by asset sales.
Independent Coker & Carbon consultant
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