NCPA - National Center for Policy Analysis

THE OIL REFINERY BOTTLENECK

July 9, 2004

Before drivers vent all of their anger over high gas prices at foreign-oil exporters, they might consider one homegrown factor behind the higher prices: a shortage of domestic refineries, says USA Today.

Not one new refinery has been built since 1976. And refiners have shut more than 150 inefficient plants in the past two decades, leaving 149 operating at full throttle. Now, the nation is paying a price for this inaction. Among the problems:

  • With refineries pressed to their limits, imports of gasoline refined abroad have grown from 3.5 percent of gasoline supplies in 1995 to 6 percent last year, according to the U.S. Energy Department; each imported gallon costs approximately two cents more than domestically refined fuel.
  • The refinery bottle neck means that an accident at a single plant can have a major effect on price; for example, a 2001 fire at a Citgo refinery in Lemont, Ill., caused prices in the Midwest to spike up as much as 50 cents a gallon for several weeks, and refining capacity at the time was not as tight as it is now.
  • Oil companies are using supply problems and high gas prices as excuses to relax air-pollution standards; on Wednesday, the heads of two industry trade groups, the American Petroleum Institute and the National Petrochemical and Refiners Association, urged a Senate panel to ease provisions of the 1990 Clean Air Act as an inducement for companies to expand capacity at decades-old refineries.

In the long run, the development of an alternative to the gas-guzzling internal-combustion engine could help break the nation's addiction to oil. Meanwhile, replacing older refineries with state-of-the art facilities could ensure a more stable supply of domestic gasoline and less pollution, says USA Today.

Source: Editorial, "Help for high gas prices," USA Today, July 9, 2004.

 

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