It Finally Made the Paper

Monday, September 19, 2005

Just a few days ago, I bemoaned the fact that the United States, whose fuel prices have been hit with the double whammy of rising oil prices and the self-inflicted effects of environmental regulations, would probably lose out on a venture that would result in construction of its first new oil refinery in 30 years.

But today, the Houston Chronicle reports that Kuwait may be interested in saving us from ourselves. That's good news. What I found more interesting was that the article specifically mentions (though still late in the article) "lack of refining capacity" as part of our problem.

[Qatar's Oil Minister Abdullah bin Hamad] Al-Attiyah said the problems with U.S. refineries being off-line since Katrina hit were temporary, but the capacity "will take a few months to get back to full production."

"The problem today is the shortage of products, not crude oil, [italics added]" he said.

There appears to be increasing volumes of crude that the U.S. doesn't need, creating a dilemma for OPEC.

"The oil problem is clearly downstream — insufficient refinery capacity," said Johannes Benigni, president and CEO of PVM Oil Associates of Vienna. "Already OPEC members find it difficult to find a market for their crude oil, they're really struggling to place their barrels."

Because of a surplus of crude and lack of refinery capacity, "we may expect a significant increase in U.S. commercial crude oil inventories even if OPEC does nothing," he said. "Refinery tightness is going to keep prices high."

One thing about this puzzled me when I first read it: What about China's increasing consumption of crude? So what if we can't refine enough? The slumbering giant of the Orient has awakened, has it not?

Business Week hints at the possible answer, which I quote here at the risk of sounding repetitious.

Fundamentally, sources say the reluctance of China's government to allow significant increases for domestic "guidance prices" for important retail products like diesel and gasoline has pushed the country's state-owned and independent refiners to the breaking point. The disparity between high Asian benchmark crude-oil prices and closely controlled prices for the products that are refined from that crude oil have forced significant cuts in production runs at refineries and have eaten into Chinese crude demand.

Oh. You don't think I'm repeating myself here? While the details of China's folly differ from America's, it is conceptually the same thing: Government regulation of the petroleum industry is effectively reducing refinery capacity there.

Kuwait is seeking "White House assistance in gaining the necessary permits" to build its new American refinery. Nevertheless, it appears that the nation sees it as a better bet to build a refinery here than to get China past its addiction to the price controls that have led to its horrendous gas lines.

Is this naivete on Kuwait's part? I hope not. We've been asleep at the switch on both the rising power of China and our lack of refinery capacity for so long that we need all the help from the Chi-Comms we can get!

-- CAV

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