NCPA - National Center for Policy Analysis


November 26, 2007

Building new oil refineries or expanding existing ones is among the most affordable, effective and reliable ways to increase supplies and lower prices of gasoline.  Yet emissions controls and mandates for specific gasoline blends have forced many refineries to close and made building new oil refineries very difficult, says H. Sterling Burnett, senior fellow at the National Center for Policy Analysis.

For some plants, compliance with ever-increasing standards was simply too costly:

  • Throughout the 1990s, the oil industry spent nearly 25 percent of capital investment -- more than $100 billion -- to comply with environmental regulations.
  • For instance, oil refiner Premcor shut two Illinois oil refineries because it could not afford required upgrades; modifications in one refinery alone would have cost $70 million.

Gas prices are also affected by the government's blender, says Burnett:

  • In order to fulfill various air pollution reduction plans, gasoline sold in the United States has been fractionated into about 17 different boutique fuels.
  • With three grades of gasoline, refiners produce more than 50 separate blends.
  • This is expensive, as each blend must be transported separately, which limits pipeline and storage capacity.
  • Moreover, it is difficult to replace supplies when there are disruptions and when refining capacity is taken off-line to clean tanks and pipelines when switching between winter and summer blends.

Unfortunately, these and other government mandates lead to a loss of $1 trillion in economic output and up to 5 million workers unemployed, says Burnett.  Absent government intervention in the market, refinery capacity would be expected to expand, reducing consumer prices.  More economical and secure energy supplies are available if government gets out of the way.

Source: H. Sterling Burnett, "New oil refineries needed," Washington Times, November 26, 2007.


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