Refineries’ capacity can’t keep up with regulatory requirements

Under the Defense Department’s Base Realignment and Closure process, military bases have been closed or scaled down or consolidated for almost 15 years. Some bases have been merely mothballed while others have been transferred to state or local control.

Today President Bush said that some of those bases should be used to build new oil refineries.

Speaking at a Small Business Administration conference here [Washington, D.C. - DS], the president recommended this and other initiatives to address the country’s energy needs and reduce dependence on foreign energy sources.

Bush said expanding refinery capacity will help address the shortage that’s partly blamed for skyrocketing gasoline prices. The last oil refinery built in the United States was completed in 1976, he said.

During a White House press briefing today, spokesman Scott McClellan said the federal agencies would work with states and local communities to transfer closed military sites and make them available to refiners.

McClellan said many closed military bases are already being redeveloped or used for new purposes to help create jobs. Building oil refineries on some of them will “address a pressing problem that we face, and it will also address an economic need in these communities,” he said.

According to a cable news report I heard today (sorry, no link), shortage of oil supply well capacity - is not the culprit for the sharp increase in gasoline prices in recent weeks. The problem is increasing demand without commensurate increase is supply, for the bottleneck is the capacity to refine petroleum, according to the report. In fact, American refineries are approaching total effective capacity. According to the API said. March’s utilization rate, at 92.2 percent, was also the highest for that month in seven years, API reported.

Gasoline production, which rose 1.2 percent over year-ago levels, set a record first-quarter high of 8.45 million barrels per day, as did output of distillate fuel oil, up nearly 7 percent to 3.79 million barrels per day, API said.

It might seem that there is still eight percent increased capacity that could be used, but the margin costs for achieving incremental raises in production get higher and higher in refinery operations, maintenance and payroll, one reason why increased deliveries of gasoline don’t result in lower prices. Also, every part of a refinery must be taken off line periodically for repairs and maintenance, so actual 100 percent capacity can’t be achieved; I’d guess that 92-plus percent is getting close to what is attainable in practice and even that level will probably be difficult to maintain over the long term.

As Adel al-Jubeir, foreign affairs adviser to Saudi Arabia’s Crown Prince Abdullah, said Monday,

“There is no shortage of crude oil in the world today. What we see is a shortage of refining capacity, as well as shortages in infrastructures and so forth that drive the price of product up,” he said. “It will not make a difference if Saudi Arabia ships an extra million or 2 million barrels of crude oil to the United States. If you cannot refine it, it will not turn into gasoline and that will not turn into lower prices.”

But refinery capacity is not the only reason gas prices have risen so high, and perhaps not even the main reason. Turn we now to economist Brian Simpson, writing in the San Francisco Chronicle this month.

Though other factors cause high gas prices, such as high taxes and increasing world demand, environmental regulation is among the primary reasons. For example, environmental regulation has significantly restricted drilling for oil in Alaska and on the continental shelf. More drilling will increase the supply and thus lower prices.

Furthermore, 18 different gasoline formulations are in use across the United States, making it much more costly to produce and distribute gasoline. These blends aren’t needed due to requirements of automobile engines, nor are they required by oil companies. The blends, including different ones used at different times of the year and in different geographic areas, are imposed by environmental regulations. Among other things, the regulations force refiners to incur greater costs in switching from the production of one blend to another. They also force refiners to produce a more costly “summer blend,” which is partially responsible for the rise in price.

The requirement for 18 different gasolines directly relates to refinery capacity because when the last refinery was built 29 years ago, there were only a few kinds of gas being produced. Today, environmental regulations have “salami sliced” refining capacity so that economies of scale are lower than ever and demand for some kinds of gasoline can indeed strain the supply. Says Simpson,

California also imposes the harshest emissions requirements in the country, necessitating the use of a more costly, special blend of gasoline not produced anywhere else. It’s no accident that gas in California is generally 30 to 40 cents above the national average.

There’s no question that the country needs a lot more refinery capacity, but it will take many years to bring one more refinery online. Heck, it’ll probably take the rest of Bush’s term just to get the enabling legislation through Congress. In the meantime, the environmental lobby has such strength, especially over Congress’ minority party, that the prospect of easing regulations to help increase effective capacity is very dim. Hold on to your wallet, folks, because fueling your car is going to empty it more rapidly than ever.

BTW, the greedy oil companies’ profit margins are among the lowest of American industries.

Update: Steve Verdon at OTB explores the issue from other angles.

What’s the difference between electioneering in the Anglosphere and the Eurosphere? The UPI’s Martin Walker says,

[The] British general election is taking place within the Anglosphere, which is more than just the English-speaking world. It is a place where election campaigns are very similar, where voters respond to similar signals and similar appeals, where the emotional and subliminal languages are almost interchangeable. Countries in the Anglosphere have similar concepts of law, of trial by jury and private property and share some preconceptions about a citizen’s home being his castle and keeping the state in its place. They also share robust attitudes toward the use of military force in the modern world. The Brits, Yanks and Aussies of the Anglosphere were also the only countries whose troops attacked Iraq from day one of the war.

By contrast, the French election is taking place in the Eurosphere. Schroeder’s Germans are urging the French to vote “Yes,” and so is Italy’s former Prime Minister Romano Prodi, who served as the last president of the EU Commission in Brussels. A French “No” vote, Prodi said, would mean “the fall of Europe.” The Netherlands’ former deputy premier Annemarie Jorristma says it is a question of whether “France will do honor or horror to the cause of Europe” and Spain’s prime minister, Jose Luis Zapatero, suggests “a Europe without France in the front rank is unimaginable.”

Chirac, Schroeder, Zapatero and Prodi all, of course, opposed the Iraq war, and all have visibly expressed their discomfort at living in a world dominated by the single American superpower. Similarly, they all want “Europe” to provide a bit of balance and to give them a little room to maneuver, for example, to sell arms to China if they wish, even if the Americans warn them against the idea.

But these European leaders, by definition, are members of the European elite that has consistently promoted and supported the project of European unity and of the new EU constitution. And the real question looming over the French referendum is whether the French voters themselves still feel as pro-European as their leaders, or whether their resentment of their own governing elite in Paris is going to spill over into a rejection of the EU elites in Brussels. The current opinion polls suggest they might do just that, which is why the Eurosphere leaders are all campaigning so hard in France.

Part one of a series

I posted five days ago about “drying up the insurgents’ lake” in Iraq, that is, turning the populations in which the terrorists live and operate away from support to neutrality, then away from neutrality to opposition. I remarked that Islamism has not proved to be a rallying beacon for any but the fanatical, and al Qaeda’s murderousness in Iraq, coupled with their political ineptitude, has set them at a marked disadvantage in fighting America there or, since Jan. 30’s elections, the new Iraqi government.

There is, however, more than one insurgency operating in Iraq, and the success of Iraq im gaining a stable, democratic country depends on how each are finally defeated. This series is a look at the main groups operating, starting with Baathist holdouts, Saddam loyalists and others of that ilk who fall under the general rubric of “Former Regime Elements” (FRE’s).

These are Saddam loyalists or Baathists party adherents who want Baathism returned to rule in Iraq, even though they know it will not be under Saddam again. FREs are anti-democracy and wish for the status quo antebellum in Iraq to be mostly restored. They are almost all Sunnis who do not want to live in a country where the Shia majority has a say in how things are run. Many (perhaps most) are related by blood or marriage to Saddam’s own Tikriti clan. Those kids of ties are very strong in Arab culture.

FREs are secular in orientation and by no means want to live under an Islamist government, either. This is the largest organized insurgency in Iraq and the first insurgency to “get its act together” to fight the Americans because Saddam’s regime actually planned for this eventuality. For many months after the invasion, FREs constituted the most dangerous threat to both American forces and Iraq’s future. Their strategy was not to defeat American forces in straight-up battle (impossible for them to do) but to commit terrorist acts that would finally convince America that the cost of staying would be too great to bear. (That Americans are inherently unwilling to take more than minimal casualties is a delusion FREs shared with al Qaeda.)

Recently, though, some FREs did attempt to engage Iraqi and American units in conventional battle; FREs mounted an attack against Americans at Abu Ghraib prison early this month, for example. As Strategy Page explains,

Some officers who specialized in studying the Iraqi Army believe the attack reflected pre-war Iraqi doctrine and staff work. To some students of insurgency believe this suggests that the anti-government forces have been able to establish base camps or “liberated zones,” where they can spend time and resources training troops. If this is true, then the war may have entered a more ominous phase. Other analysts, however, believe that attack may have been a desperate attempt to use the best available insurgent manpower; Iraqi Army and Republican Guard personnel, to secure a spectacular success. If this is the case, then the Sunni Arabs suffered a serious defeat and the loss of critical manpower that ought to have been used to provide cadres to help turn volunteers into more effective fighters.

There were between 40-60 terrorists known killed and their total casualty rate was probably 50 percent.

The FRE insurgency is the most numerous and receives substantial support from Syria, also ruled by Baathism. The long-term threat from FREs is not insignificant, but despite its size and financial assets, FRE’s pose the least long-term threat because they are more adaptable to changing conditions than al Qaeda. By that I means that the FREs can recognize defeat and do not seek to die rather than lose. In fact, there were credible reports months ago that a large number of FRE fighters are exploring whether the Iraqi government will give them some sort of amnesty in exchange for laying down their arms.

For these reasons I say that the FRE insurgency, while still potent, is the least long-term threat to Iraq’s success - unless . . . well, keep reading.

Coming - a look at al Qaeda in Iraq and the criminal insurgency

. . . then what is? Drudge reports that on Air America’s Randi Rhodes Show Monday evening, a skit went like this:

The announcer: “A spoiled child is telling us our Social Security isn’t safe anymore, so he is going to fix it for us. Well, here’s your answer, you ungrateful whelp: [audio sound of 4 gunshots being fired.] Just try it, you little [expletive]. [audio of gun being cocked].”

The audio production at the center of the controversy aired during opening minutes of The Randi Rhodes Show.

“What is with all the killing?” Rhodes said, laughing, after the clip aired.

The Secret Service is investigating the potential of an actual threat against the president, but my question is: isn’t this skit a clear example of hate speech?