Saturday, August 13, 2005

refined nonsense

Oil tops $67 as US demand soars
"The petrol and gasoline situation in the US is probably the most worrying factor at the moment," said Simon Wardell, at Global Insight. "It looks like it could be an ongoing problem, because a shortage of refining capacity is not something that can be resolved quickly."

In the world of energy psuedo-experts, the foolish idea that we are desperately short in refinery capacity has become entrenched. This idea makes little sense and is a good way to identify snake oil salesmen.

First, as SW points out,
All of those calling for a build out in refining capacity are bat shit crazy. You don't make an investment to process a raw material that will not exist by the time the project is completed. The world does not need to have the ability to refine 90 million barrels of crude oil per day because we will never produce 90 million barrels of crude oil per day. What does make sense is the conversion of some of our refining capacity to deal with the increasingly poor quality of the remaining crude oil.

However, further, if there really were a huge surplus of of oil, which COULD NOT BE SERVICED by refineries, than the price of a barrel of oil would likely drop. We'd be drowning in the stuff, natch. Millions of barrels of oil, morosely waiting to be refined into something useful.

This implied surplus is a myth.

The bean counters at the oil companies have built the exact refinery capacity that is needed. Sure, things get squeaky tight from time to time, but demand for oil (not gasoline; OIL) has not dropped and will not drop...

...but production sure will.

7 Comments:

At 5:08 AM, August 14, 2005, Blogger ben said...

"However, further, if there really were a huge surplus of of oil, which COULD NOT BE SERVICED by refineries, than the price of a barrel of oil would likely drop. We'd be drowning in the stuff, natch. Millions of barrels of oil, morosely waiting to be refined into something useful."

We do have a surplus of oil at the moment, it's called stockpiles. Stockpiles in the US are at the highest since 1999. We need to build up our stockpiles because in quarter 4 of 2005 and quarter 1 of 2006 demand will outstrip supply and we draw on stockpiles. I think the problem though is that the stockpiles we're building up right now are heavy and sulfurous, which means that this winter we'll have barrels of crude, just not barrels of crude we can use.

 
At 6:46 PM, August 14, 2005, Blogger monkeygrinder said...

Interesting that you say the stockpiles are heavy oil - makes sense - do you have a reference?

To call stockpiles "surplus" doesn't quite work for me. This a supply of oil specifically bought and set aside for emergencies, ie, a lack of importable oil.

So while it is an important resource, it doesn't affect the discussion on refineries.

 
At 8:54 PM, August 15, 2005, Anonymous Mr. Opti-Mouse-Tastic said...

Refineries - the majority are along the shorelines....ya know where the ships come in.

Some 50% of the refineries could go underwater if there is a 10 foot sea-level rise.

Roos shelf collapse anyone?

 
At 7:16 PM, August 16, 2005, Blogger WHT said...

optical mouse fantastic:

10 ft rise due to long term global warming? A bit far off, perhaps?

 
At 8:57 PM, August 19, 2005, Blogger patrick said...

"However, further, if there really were a huge surplus of of oil, which COULD NOT BE SERVICED by refineries, than the price of a barrel of oil would likely drop."

I would agree that's normal supply and demand, but crude oil inventories are at 5-year highs *and* prices are at all-time highs. Go figure.


Crude oil inventory chart is here:
http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html

It doesnt add up ... unless you factor in terrorist fears, speculation about 'peak oil', and other extraneous factors.

 
At 9:05 PM, August 19, 2005, Blogger patrick said...

"Some 50% of the refineries could go underwater if there is a 10 foot sea-level rise."

What a hilarious statement, there are 10 foot sea-level rises at every tide. We manage not to lose our industrial base from it.

Global warming one century estimate of sea level rise is more like 10 inches (20-30cm) not 10 feet.

Any billion dollar refinery even close to being in danger of getting swamped from rising tides would get protected with a surge wall.

Refineries may be near coasts and shipping channels for transport cost reasons, but that doesnt mean they are built on beachs or at sea level.
See:

http://www.valero.com/Visit+Our+Refineries/

 
At 10:55 PM, August 19, 2005, Blogger monkeygrinder said...

Patrick:

Interesting charts. Can you relate demand to inventory?

implicit in peak oil is that the year it peaks, more oil will be produced than was ever produced on earth in the history of the universe.

Some might get stars in their eyes, surrounded by such riches.

 

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