Mercury Rising 鳯女

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US refinery capacity and workers at risk

Posted by Charles II on April 3, 2010

The following is something that I noticed two years ago, and led me to take profits in one refiner, fortuitously just before the price of oil collapsed (taking refinery margins with it). As long as safety is so problematic, I have no interest.

Aaron Clark, Jessica Resnick-Ault and Peter Robison, Bloomberg:

A blast and fire that killed five people at Tesoro Corp.’s Anacortes, Washington, refinery today may be the worst fatal accident to strike a U.S. refinery since a 2005 explosion killed 15 people at BP Plc’s plant in Texas City, Texas.

“It appears to have the most fatalities of any accident since BP Texas City,” Daniel Horowitz, a spokesman for the U.S. Chemical Safety and Hazard Investigation Board, said in a telephone interview. “The board is extremely concerned about the pattern of safety problems in the refining sector.”…

…seven [workers] suffered burns, and five died. Two others remain in critical condition, Westfall said.

US refinery capacity is over-age [Anacortes was built in 1955], run at excessive capacity during some periods [that does not seem to have been a factor in this accident, since it was at 50% capacity], sometimes operated by under-trained staff, and otherwise a high-risk venture. In the Anacortes case, the crew was “cleaning a heat exchanger in a unit handling naphtha.” A guess might be that (a) they were in a hurry and didn’t wait for fumes to dissipate, and (b) there was improper grounding or an electrical fault in elderly equipment. But no hard information is available.

The status of refining is a danger to the US economy as well as a deadly threat to workers.

6 Responses to “US refinery capacity and workers at risk”

  1. I almost wonder if the refineries are being neglected as the companies anticipate a reduction in oil demand once the electric cars start hitting the market en masse?

    • Charles II said

      There has been some question as to whether they run their maintenance schedules in order to create shortfalls. But it’s never been proven. However, what is happening is that, in addition to US cars becoming more efficient, refinery capacity is being built up in Asia, especially India at a ferocious rate and, while I don’t think gasoline is shipped around the world with the same insouciance that crude is, it does have an effect on the market.

      • jo6pac said

        I think you both are giving them too much credit for being smart. This started about 20yrs ago when the big kids started buying all the small independent facilities around the nation and then closing them so they had a lock on the system. Shell was going to close one in Bakersfield, Calif. because profit margin wasn’t high enough and age of the plant. A large truck stop company bought it and then started a modernization of the plant to serve their facilities. Saved a lot of jobs in the area. I do believe the effect higher mileage/hybrids will start doing what you said in the near future beside Americans not having jobs.

      • Charles II said

        I think that the situation you describe (industry consolidation driven by the majors) obtained until a few years ago, Jo. Their failure to modernize is why a lot of refineries, partly a function of the collapse of gas prices in the 1990s, are so old. But look at this chart. From 1999 to the peak in ca. 2007, growth in petroleum consumption was about 10%, paralleling population growth. From 2007 to about March 2009, growth fell by 5%. Gasoline demand pretty much tracked the same pattern. (Here’s the blog link) Refiner margins are normally quite small. In the last year, with oil very roughly $80/barrel, the graph shows them to be about 1 – 4%. So, a small drop in demand drastically affects profit margins. As the article notes, many oil refiner stocks dropped by 80 – 90%. And capacity utilization remains at the low end of the profitable range. I would not think 50% cap. util. as at Anacortes is profitable at almost any oil price.

        The net upshot is that refining is a nervous business. If there’s a serious threat of fuel efficiency and/or alternative fuels and/or lower gas prices actually coming to pass, almost no one wants to spend money on new equipment, independent like the one you mention being the exception.

      • MEC said

        “There has been some question as to whether they run their maintenance schedules in order to create shortfalls.”

        Isn’t that what Enron did to California? Create an artificial supply shortfall in order to justify jacking up the price?

        I think refiners have been neglecting capacity because building new refineries would mean implementing anti-pollution measures that would cut into their profits too much.

  2. Charles II said

    MEC says, “Isn’t that what Enron did to California? Create an artificial supply shortfall in order to justify jacking up the price?”

    It’s what every oligopoly or cartel attempts to do, MEC. However, it’s much more difficult to pull off than one might think, in part because crooks, well… they tend to cheat. Now, the gasoline market is a little easier than most because transportation costs mean that competition can more easily be fixed in a given area. But if regional prices get out of line, the feds will look into it.

    Ron Wyden looked into price fixing in 2001. He found suggestive evidence–indeed, some civil lawsuits went forward–but nothing clearcut enough to get criminal prosecutions. A lot of Wyden’s evidence amounts to people in the industry saying, You know, an excess of supply causes prices to go down. This is not exactly a secret. However, there were a few instances, as in the California market (which has special requirements for gasoline), where price-fixing was clearly going on.

    MEC says, “I think refiners have been neglecting capacity because building new refineries would mean implementing anti-pollution measures that would cut into their profits too much.”

    I suspect that anti-pollution measures, by reducing vapors, would pay themselves off by reducing the number of explosions. Just a hunch, but I just don’t think that keeping gas from evaporating is that expensive. At the gas pump, they do it with an accordion adapter between the nozzle and the tank. The industry does complain about the cost of anti-pollution measures for high-sulfur petroleum.

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