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<blockquote data-quote="Campground Cattle" data-source="post: 119787" data-attributes="member: 195"><p>US refining capacity bottleneck boosts oil prices</p><p>By Finfacts Team</p><p>Aug 29, 2005, 12:15</p><p></p><p> </p><p> </p><p>Valero Energy Corporation is a Fortune 500 company based in San Antonio with approximately 20,000 employees and annual revenues of $55 billion. One of the top U.S. refining companies, Valero has an extensive refining system with a throughput capacity of approximately 2.5 million barrels per day. The company's geographically diverse refining network stretches from Canada to the U.S. Gulf Coast and West Coast to the Caribbean. </p><p><strong>There hasn't been a new oil refinery built in America since 1976 and with existing plants working close to capacity, even a minor outage in a plant can impact the price of oil</strong>. </p><p></p><p><strong>A combination of tight environmental restrictions, not-in-my-back-yard community opposition, and the high cost of new construction has been an impediment to additional capacity.</strong></p><p></p><p><strong>A new refinery would cost about $3 billion and refining margins have traditionally been much tighter than on the crude production side.</strong></p><p>The recently passed Energy Bill omits limited liability protection for MTBE, a petrol additive that pollutes groundwater. Valero, the largest American oil refining group, has announced that it plans to stop producing the additive in 2006 when the new law goes into effect. The loss of 60,000 barrels of petrol per day, will be coumpounded, if other refiners follow suit. </p><p></p><p>The combination of limited spare crude production capacity and oil refining capacity will continue to bolster prices.</p><p></p><p>US Energy Information Administration detail on Oil Refining:</p><p></p><p>U.S. refining capacity, as measured by daily processing capacity of crude oil distillation units alone, has appeared relatively stable in recent years, at about 16 million barrels per day of operable capacity (graph). While the level is a reduction from the capacity of twenty years ago, the first refineries that were shut down as demand fell in the early 1980's were those that had little downstream processing capability. Limited to simple distillation, these small facilities were only economically viable while receiving subsidies under the Federal price control system that ended in 1981. Some additional refineries were shut down in the late 1980's and during the 1990's, always, of course, those at the least profitable end of a company's asset portfolio. At the same time, refiners improved the efficiency of the crude oil distillation units that remained in service by "debottlenecking" to improve the flow and to match capacity among different units and by turning more and more to computer control of the processing. </p><p></p><p></p><p>Furthermore, following government mandates for environmentally more benign products as well as commercial economics, refiners enhanced their upgrading (downstream processing) capacity. As a result, the capacity of the downstream units ceased to be the constraining factor on the amount of crude oil processed (or "run") through the crude oil distillation system. Thus crude oil inputs to refineries ("runs") have continued to rise, and along with them -- given the stability of crude oil distillation capacity -- capacity "utilization" rose throughout much of the 1990's (again, see graph). Utilization -- the share of capacity filled with crude oil -- reached truly record levels in the last half of the decade, nominally exceeding 100 percent for brief periods. </p><p></p><p>Top World Oil Consumers, 2004*</p><p> </p><p> </p><p> Country</p><p> Total Oil Consumption</p><p>(million barrels per day)</p><p> </p><p>1) United States 20.7</p><p> </p><p>2) China 6.5</p><p> </p><p>3) Japan 5.4</p><p> </p><p>4) Germany 2.6</p><p> </p><p>5) Russia 2.6</p><p> </p><p>6) India 2.3</p><p> </p><p>7) Canada 2.3</p><p> </p><p>8) Brazil 2.2</p><p> </p><p>9) South Korea 2.1</p><p> </p><p>10) France 2.0</p><p> </p><p>11) Mexico 2.0</p><p> </p><p>*Table includes all countries that consumed more</p><p> than 2 million bbl/d in 2004. </p><p> </p><p></p><p>As with most aspects of the U.S. oil industry, the Gulf Coast is by far the leader in refinery capacity, with more than twice the crude oil distillation capacity as any other United States region. (The difference is even greater for downstream processing capacity, because the Gulf Coast has the highest concentration of sophisticated facilities in the world.) As discussed in the section on Trade, the Gulf Coast is the nation's leading supplier in refined products as in crude oil. It ships refined product to both the East Coast (supplying more than half of that region's needs for light products like gasoline, heating oil, diesel, and jet fuel) and to the Midwest (supplying more than 20 percent of the region's light product consumption.) </p><p></p><p>There are seasonal patterns in refinery input. In the United States, refinery runs mirror the overall demand for products -- lower in the colder months and higher in the warmer months. In addition, as they move out of the gasoline season in the early autumn and then as they move into the next gasoline season in the late winter, refiners routinely perform maintenance. The duration and depth of the cutback in refining activity during each maintenance season is affected by a variety of factors, including the relative strength of the market for refined products. Therefore, when stocks are high and demand slack, the refinery maintenance season is likely to be longer and deeper. Refinery activity will also respond to the market's need (and hence relative prices) for product, with changes in the level of crude oil throughput as well as emphasis on one product over another. </p><p></p><p>World Refining Capacity</p><p></p><p>Broadly speaking, refining developed in consuming areas, because it was cheaper to move crude oil than to move product. Furthermore, the proximity to consuming markets made it easier to respond to weather-induced spikes in demand or to gauge seasonal shifts. Thus, while the Mideast is the largest producing region, the bulk of refining takes place in the United States, Europe or Asia.</p></blockquote><p></p>
[QUOTE="Campground Cattle, post: 119787, member: 195"] US refining capacity bottleneck boosts oil prices By Finfacts Team Aug 29, 2005, 12:15 Valero Energy Corporation is a Fortune 500 company based in San Antonio with approximately 20,000 employees and annual revenues of $55 billion. One of the top U.S. refining companies, Valero has an extensive refining system with a throughput capacity of approximately 2.5 million barrels per day. The company's geographically diverse refining network stretches from Canada to the U.S. Gulf Coast and West Coast to the Caribbean. [b]There hasn't been a new oil refinery built in America since 1976 and with existing plants working close to capacity, even a minor outage in a plant can impact the price of oil[/b]. [b]A combination of tight environmental restrictions, not-in-my-back-yard community opposition, and the high cost of new construction has been an impediment to additional capacity.[/b] [b]A new refinery would cost about $3 billion and refining margins have traditionally been much tighter than on the crude production side.[/b] The recently passed Energy Bill omits limited liability protection for MTBE, a petrol additive that pollutes groundwater. Valero, the largest American oil refining group, has announced that it plans to stop producing the additive in 2006 when the new law goes into effect. The loss of 60,000 barrels of petrol per day, will be coumpounded, if other refiners follow suit. The combination of limited spare crude production capacity and oil refining capacity will continue to bolster prices. US Energy Information Administration detail on Oil Refining: U.S. refining capacity, as measured by daily processing capacity of crude oil distillation units alone, has appeared relatively stable in recent years, at about 16 million barrels per day of operable capacity (graph). While the level is a reduction from the capacity of twenty years ago, the first refineries that were shut down as demand fell in the early 1980's were those that had little downstream processing capability. Limited to simple distillation, these small facilities were only economically viable while receiving subsidies under the Federal price control system that ended in 1981. Some additional refineries were shut down in the late 1980's and during the 1990's, always, of course, those at the least profitable end of a company's asset portfolio. At the same time, refiners improved the efficiency of the crude oil distillation units that remained in service by "debottlenecking" to improve the flow and to match capacity among different units and by turning more and more to computer control of the processing. Furthermore, following government mandates for environmentally more benign products as well as commercial economics, refiners enhanced their upgrading (downstream processing) capacity. As a result, the capacity of the downstream units ceased to be the constraining factor on the amount of crude oil processed (or "run") through the crude oil distillation system. Thus crude oil inputs to refineries ("runs") have continued to rise, and along with them -- given the stability of crude oil distillation capacity -- capacity "utilization" rose throughout much of the 1990's (again, see graph). Utilization -- the share of capacity filled with crude oil -- reached truly record levels in the last half of the decade, nominally exceeding 100 percent for brief periods. Top World Oil Consumers, 2004* Country Total Oil Consumption (million barrels per day) 1) United States 20.7 2) China 6.5 3) Japan 5.4 4) Germany 2.6 5) Russia 2.6 6) India 2.3 7) Canada 2.3 8) Brazil 2.2 9) South Korea 2.1 10) France 2.0 11) Mexico 2.0 *Table includes all countries that consumed more than 2 million bbl/d in 2004. As with most aspects of the U.S. oil industry, the Gulf Coast is by far the leader in refinery capacity, with more than twice the crude oil distillation capacity as any other United States region. (The difference is even greater for downstream processing capacity, because the Gulf Coast has the highest concentration of sophisticated facilities in the world.) As discussed in the section on Trade, the Gulf Coast is the nation's leading supplier in refined products as in crude oil. It ships refined product to both the East Coast (supplying more than half of that region's needs for light products like gasoline, heating oil, diesel, and jet fuel) and to the Midwest (supplying more than 20 percent of the region's light product consumption.) There are seasonal patterns in refinery input. In the United States, refinery runs mirror the overall demand for products -- lower in the colder months and higher in the warmer months. In addition, as they move out of the gasoline season in the early autumn and then as they move into the next gasoline season in the late winter, refiners routinely perform maintenance. The duration and depth of the cutback in refining activity during each maintenance season is affected by a variety of factors, including the relative strength of the market for refined products. Therefore, when stocks are high and demand slack, the refinery maintenance season is likely to be longer and deeper. Refinery activity will also respond to the market's need (and hence relative prices) for product, with changes in the level of crude oil throughput as well as emphasis on one product over another. World Refining Capacity Broadly speaking, refining developed in consuming areas, because it was cheaper to move crude oil than to move product. Furthermore, the proximity to consuming markets made it easier to respond to weather-induced spikes in demand or to gauge seasonal shifts. Thus, while the Mideast is the largest producing region, the bulk of refining takes place in the United States, Europe or Asia. [/QUOTE]
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