Oil Companies Looking At Permanent Refinery Cutbacks
Posted By thestatedtruth.com on March 10, 2010
The response to slumping gasoline use would likely mean higher prices for drivers. Â
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Energy companies are suffering huge losses from refining because of slumping gasoline use — a product of the economic downturn and changing consumer habits and preferences. Energy experts say refining cutbacks have already begun and will accelerate as corporations strive for profits.
Major refiners have been circumspect about their plans, saying they are considering options that could include closing refineries, selling parts of their operations, laying off workers or slashing spending.
“Refineries will have to be closed,” said Fadel Gheit, senior energy analyst with Oppenheimer & Co. “Unless this excess capacity is permanently shuttered, a recovery in refining margins is unsustainable.”
This week, Chevron Corp. launched an overhaul of its fuel-making and retailing business with a plan to cut at least 2,000 jobs, put a refinery in Wales up for sale and take a hard look at its Hawaii refinery.
Royal Dutch Shell said it is reviewing its refinery operations with the idea of keeping only those with the best growth potential. Sunoco Inc. has sold one plant and said last month that its previously idled Eagle Point, N.J., refinery was being shut down permanently.
Valero Energy Corp., the nation’s largest refiner, last year closed a Delaware refinery, laying off 500 workers, and mothballed a plant in Aruba.
“We’re actually assessing the entire East Coast, whether we should be there or not,” Valero Chief Executive William R. Klesse told executives at a recent energy summit.
Energy industry executives say they are facing up to what was previously inconceivable: that the nation’s appetite for petroleum products may never return to levels seen earlier in the decade, even if a strong economic recovery takes hold.
“None of us will sell more gasoline than we did in 2007,” Tony Heyward, group chief executive for oil giant BP, said during a recent earnings teleconference.
The recession contributed to declining fuel demand. But in that same period, vast — some think permanent — changes happened.
Americans drove less and switched to vehicles that got better mileage or didn’t use gasoline at all. They used mass transit in record numbers. Baby boomers began retiring and stopped commuting. And gasoline gained even more of something that didn’t have to be refined from oil — ethanol.
Few in the refining industry saw what was happening. The belief, particularly after hurricanes Katrina and Rita temporarily devastated the Gulf Coast petroleum network in 2005, was that more refineries were needed.
Critics complained that no new U.S. refinery had been built since 1976, leaving the country’s gasoline supplies vulnerable. In fact, between 1998 and 2009, U.S. refining capacity increased by 2.2 million barrels a day, to 17.67 million barrels a day, by adding equipment and improving processes at existing facilities, Energy Department data show.
Refiners raked in big profits from 2003 to 2006, but “by 2007, it was largely over,” said Tom Kloza, chief oil analyst for the Oil Price Information Service, an energy information firm in Wall, N.J. “Now, along with very weak demand numbers for gasoline, everything points to biofuels getting a larger and larger share in the future.”
Copyright © 2010, The Los Angeles Times
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