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Oil And Refineries

The debate is raging in full swing: the dearth of new refineries within the US. Many are surprised to see the continued increase in oil prices despite the surge in home oil manufacturing. Might refineries be the missing chemical engineering petrochemical industry factor in the equation, they marvel. ‘Why not just construct new refineries and scale down the value of oil,’ our readers proceed to ask us. Sure, it is a fact- no new refinery has been constructed within the US prior to now three many years. The final refinery constructed within the US at Garyville, Louisiana was means again in 1976. So, the question is reiterated as the point is so apparent: new refineries. But then, there are no easy three reasons, nor is the dimension solely 4.

First although, let’s take a look on the prevailing price of oil. In line with a AAA fuel gauge report, the national common for a gallon of gasoline is $3.Sixty two – more than thirteen cents from the earlier week and 24 cents more than a month in the past. After the fall in Could and June, gasoline prices have increased gradually for the last seven weeks, adding ache to the already pained shopper. Is this due to dwindling oil reserves Properly, of late domestic oil manufacturing has elevated by fourteen percent within the last 12 months. In keeping with government sources, the oil production within the country hit the very best ‘quarterly degree’ in nearly a decade (for the first three months of this 12 months). And, US produces fifty five p.c of the oil consumed within the country, primarily as a result of manufacturing spikes in Texas and North Dakota.

Clearly there may be oil, so should not the oil price decrease In any case, the more the commodity, often, lesser is the costs. Put it that approach, the present oil prices do sound ominous. It’s not as if higher demand has hiked the oil costs. On the contrary, demand for oil has been decreasing with fuel environment friendly automobiles and ethanol blended gasoline. This July, crude oil demand in the U.S. dipped to its lowest in four years on the again of common economic progress in the country, in line with the American Petroleum Institute. The demand for gasoline fell three.Eight percent this July with consumption down 1.1 p.c. After the peak in 2007, demand for gasoline has been sluggish. That is, regardless of enhance in the price of crude, demand for gasoline is at record low. So, the hypothesis does achieve force – are lack of refineries hampering the fall in the price of oil North Dakota produces more than 600,000 barrel/month but has just one refinery in Mandan. A component of bafflement does linger to see the nation producing substantial oil and yet importing refined merchandise.

There’s colossal hole within the realm of production and refining capability in the nation. The refineries are churning at full capacity which makes them profitable, however on the draw back there is no room for mistake. They must deal with variable demand on one hand and better prices of inputs on the opposite. Just lately, Sunoco Inc. announced closure of its largest refinery leading to fears of fuel shortage and higher oil prices within the US. Thankfully, a deal with the Carlyle Group saved the day for Sunoco Inc. and the oil business. But, the problems within the refining sector are removed from over. Two refineries owned by Sunoco Inc. did shut within the final eight months, which implies a loss of almost half the gasoline and different refined merchandise within the East coast.

True, new technologies have increased the domestic oil production. For as soon as, although, the infrastructure in the US has did not catch up with the surging home oil production. Barges, rails and trucks, consider it or not, still transport crude. Naturally, the oil barely reaches the refineries and this mode of transport additionally makes oil costlier for the patron. How about pipelines We know that imported oil is expensive. Nonetheless, the Marcus Hook refinery continued to import oil at $114 a barrel in 2011, even when the West Texas Intermediate crude traded decrease. Why Lack of pipelines, once more. And with this paucity in pipelines, crude produced within the country isn’t reaching the refineries. In fact, the a lot hyped Keystone XL pipeline would join Canada’s oil with refineries in the Gulf of Mexico and Houston, however that will take years.

Staying with refineries, the necessity for pipelines is more pronounced within the Gulf coast. The refineries in the Gulf coast contribute about 45 p.c of the refining capability, and 30 p.c whole crude oil manufacturing within the US. Of late, the imports have declined within the Gulf coast, due to drilling within the Eagle Ford Shale in Texas and Bakken shale in ND. Unsurprisingly, import of the more expensive gentle sweet Nigerian crude stood at one hundred fifty,000 b/d in January, the lowest since 1996. (For the corresponding interval, there’s decline in the import of Nigerian crude to the East coast too.) But, imagine the determine with extra pipelines in the area. Yes, the crude from Eagle Ford from Texas has started to arrive within the Gulf coast. Nonetheless, the crude is candy gentle. A lot of the refineries in the Gulf Coast are more subtle, designed to process heavy and extra bitter crude. As investment to refine the lighter candy crude is costly, the only possibility for the refineries is to blend the different crudes. The irony.

In the meantime, woes of the refineries in the East coast continue. Two have already closed, and the remainder of them are barely managing to scrap by way of. These refineries are dependent on imported crude as they haven’t got easier access to cheaper West Texas Intermediate crude. Therefore, they proceed to import the expensive Brent crude. There are plans to transport oil from North Dakota to the East coast by rail, however when

Although a continuation of the import story, the scene is slightly different within the Midwest. The refineries here are enjoying increased income, credit to generous supplies from Canada and home oil. Imports from Canada reached 1.76 million barrels a day in the first quarter of 2012, a rise of nearly 22 % from final 12 months (Source: EIA). Unsurprisingly, Canada is the most important provider of crude to the US adopted by Saudi Arabia.

Recently the Port Arthur refinery underwent growth to nearly double its every day capability. So, why do refineries broaden somewhat than construct new ones It is easier due to the environmental regulations. The obvious lack of logic in not having refineries does get answered when you’re taking the setting underneath consideration. Refineries gobble up water, not to say huge tracts of land, and contribute a great deal of CO2 to the air, as effectively. So, environmental regulation tends to be laborious for anybody curious about refineries. The EPA laws are additionally strict on the sulfur content material Mild crude is less complicated to course of, has decrease sulfur content so it’s easier to get the environmental nod. Heavy bitter crude, on the opposite side, has more sulfur and is harder to process. Sunoco Inc. is said to have misplaced $ 1 billion in the last three years, attempting to upgrade in accordance with the stricter EPA regulation.

Will the picture change Everyone needs refineries, just is another person’s yard. The brand new EPA regulation for brand new refineries scheduled to be released this November has been deferred due to the Presidential elections. How is it going to pan out Mitt Romney is all for extra drilling. He needs to drill “nearly every part of U.S. lands and waters” however is silent on his take on refineries. For his half, Obama is for ‘power independence’ but along with his strict environmental legal guidelines, no refinery is going to come back up anytime quickly. The scenario is precarious. The demand is not expected to rise anytime soon. EIA has lowered the forecast of oil consumption in 2012 and 2013.

Any destruction resulting from accidents (just like the recent fires), weather circumstances, and upkeep would affect the provision with quick effect. As an example, the recent hearth in the Chevron refinery at Richmond, California disrupted almost sixteen% of the supply chemical engineering petrochemical industry within the region. Ample reserves, but vulnerable to import fluctuations- which country would need to continue on this place

If the refineries aren’t taken care of, the dream of cheaper crude would continue to be a dream. That can be sad with the current home sources.

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