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The Price of Gasoline

June 6, 2007

The price of gasoline has gone sky high as have the profits of both the oil companies and refineries in North America. As gasoline prices are one of the more politically sensitive issues in this country, Congress had to at least give the appearance of doing something and and give appearances they did.

About two weeks ago the Congress with its usual amount of political courage and information passed a resolution condemning OPEC for the current high prices of oil in the US. The resolution included a measure to sue the oil producing cartel. Looking at some of the discussion on the floor of the House of Representatives, I was surprised to note that among those pushing the resolution were some of the more liberal members of that body – John Conyers and Barbara Lee – both of whom got in on the party so to speak. Conyers made a stirring but vapid speech to rouse the troops. The bill has been nicknamed `NOPEC’ – clever enough and the resolution passed the House of Representatives by a vote of 345-71. I wonder how US Congresswoman Diana De Gette voted on it and will have to check.

I also wonder – don’t know, but suspect – who was behind such a resolution.

All this smacks of demagoguery plain and simple.

Interesting how there is no mention – not in Conyers’ vapid speech nor in the few news reports I googled – about the heart of the issue: weak US refining capacity. The oil is out there, but US refineries can not turn enough of the stuff into gasoline, nor do they have much intention of doing so …because, as might be suspected…it is not profitable enough to do so.

The exception to this rule – the only report that looked at the refining short fall was a local program – Channel 4 News’ report Alan Gionet – whose May 4 and 24, 2007 broadcasts on KCNC indirectly challenged the `OPEC – bad guy’ image.

The earlier (May 4) broadcast simply stated (what should be) the obvious:

“Supply is tight in summer because there is not enough refining capacity in the US to meet summer demand” mentioning how recent refinery fires in Texas and Oklahoma (caused by inconscionable company neglect in one case) could tighten oil supplies that much more

Gionet’s May 24 report delved further:

It began by pointing out that Energy Information Administration’s report that the nation’s refineries are now functioning at 91% of capacity, that no new refineries have been built in this country for 31 years (since 1976), and how the number of refineries has declined from more than 300 at that time to less than half of that number today while refining capacity remained at essentiall the same level for all of these 30 years. Some of the more pertinent comments were made by Dr. John Jechuna, Assistant Professor of Chemical Engineering at the Colorado School of Mines.

During the 1990s when global supply could keep up with demand, refining was not thought of as that profitable. There was little investment either in new facilities or in upgrading existing ones. With an eye on future profits more than the public welfare, the oil companies understood that increased global demand for oil would result in much greater profits if refining capacity was not boosted…and it wasn’t.

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