The extremely popular and useful Refineries Myth, in which an alleged shortfall of oil refineries within the United States becomes a major contributor to rising fuel costs, appears in two common varieties. The two varieties are distinguished by their objects of ultimate blame, to satisfy the widest possible range of ignorant consumers.

First of all, the wingnuttery section of the country has been devouring the Refineries Myth, and of course the environmentalist is assigned the role of villain in this version. The poor companies would love to help us out by building more refineries, but those dang enviro-fascists are always getting in the way. Regulation. Stifling communist regulation. Until we can burn the environmentalists themselves for fuel we need more durn refineries! God I love driving my Durango and I deserve for it to be much cheaper than it is.

On the other side of the Refineries Myth coin, the intellectually lazy brand of liberal pins the blame on the oil companies. Big Oil, you know. Big Oil operates in collusion to fix gas prices at unnaturally high levels. They don't want to build any new refineries because they want to make it as expensive as possible for me to drive my Prius. And because they're evil. God I love driving my Prius and I deserve for it to be much cheaper than it is.

As with all successful myths, there is a kernel of truth in each version of this one. There are regulatory hurdles to building refineries, and companies do the best they can to make money. However, those on the right or the left who swallow the Refineries Myth accept two basic premises which are flatly false: That no new domestic refining capacity has been created in decades, and that adding more refining capacity would exert significant downward pressure on fuel prices.

Imagine a run-up in the price of wooden chairs because the product's raw material (wood) has become much more expensive. Maybe lumber has become more scarce or there is suddenly a lot of speculation in old growth forests. Importantly, there is no shortage of chairs on the market. Demand for finished chairs stays constant, or even declines, but the cost of making the things has skyrocketed. Would building more chair factories lower the price of wood? I don't think so. But for some reason people are eager to grant a hypothetical new oil refinery the mysterious power to reduce the price of the raw material that is fed into it. I think that's just a simple yet common mistake in reasoning, aggressively exploited by the myth traffickers. The mistaken reasoning of the Refineries Myth is made ever more powerful by its ability to remove any responsibility from the individual who buys into the myth, placing it instead onto hated faceless enemies-of-the-moment. Like other energy myths this one takes toxic responsibility and moves it off the balance sheet. It doesn't matter which side of the political spectrum you're on, pointing the blame out and away is always an attractive option.

Okay, you say, but we have to import finished gasoline, doesn't that prove there aren't enough refineries in the US? Indeed we've been importing a small percentage of our gasoline fix for a good long time. Would importing the entirety of our daily oil consumption and refining it all here somehow cost less and provide more energy security than importing most of the oil and a little bit of the finished product? You have to import the same volume of petroleum either way, Killer. Building new American refineries won't conjure more American oil or make us more independent. (It would however conjure more American industrial pollution and some jobs.)

Domestic refining capacity has increased by a few million barrels per day since 1976, contrary to the Refineries Myth. Data in British Petroleum's Statistical Review of World Energy 2009 shows US refinery capacity ramping up about 1.4 mbd from 1998 to 2008:

 

 

Over the same period, refinery 'throughput' -- the total amount of feedstock actually processed in refineries in the US -- increased lethargically until 2004, then fell back a bit until '07, then dropped off sharply in crazy 2008, leaving refiners with that unused capacity. Refiners operated at about 92% capacity in 1998, and roughly 83% in 2008 (BP data again). US refiners actually processed less crude in '08 than they did in '98, after adding 1.4 mbd of capacity over the decade. Not a good business plan.

It's important to realize that the refiners and the Exxons and Conoco-Phillipses of the world are not the same entities anymore. When Exxon is making a killing producing crude from their ever-dwindling patch as prices slide over 100 per barrel, the refiners are getting killed. They can't pass all of the spike in their feedstock costs on to you, because you would have a royal cow, so they end up eating a lot of it. In the meantime, regardless of whether or not they're getting killed by high oil prices, the refineries churn out plenty of petroleum distillates, not only to keep the country's vital organ systems humming along but also enough for every American to burn as much as they darn well please in the most frivolous pursuits imagineable. Excepting certain post-hurricane supply fiascos, gasoline shortages have not been a feature of American life for 30 years. As a chorus of nutbags continues to blame a lack of new refineries for the cost of fuel, gasoline stocks hover at historically high levels. It's time to look for alternate explanations, nutbags.

There is a lot of noise being made lately that oil and refining company execs suspect that the all-time peak in demand for their products has already been passed. Peak Demand -- it could be just a kinder and gentler way of calling the peak in production, which may cause similar practical effects but a nastier psychological shockwave. If they believe any such thing, building new facilities at this point would be pretty silly from a business perspective. Whether the country should hold more gasoline in reserve to guard against acute shortages (like that which occurred in the southern states after hurricanes Ike and Gustav in '08) is another matter.

 

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