Editor: Economic ‘experts’ are reported to fear a looming gasoline crisis in the wake of hurricane Katrina, and its impact on U.S. oil production and refinery capabilities. Big surprise, given that the devastation caused by the storm included putting Gulf Coast region refineries out of commission for an undetermined time due to damage, flooding, and/or preventative measures.
Prior to the hurricane, U.S oil inventory levels were on the rise. Given the economics of supply and demand, the increase in inventory of raw materials (crude oil) would presumably result in lower prices at the pump if demand were steady and supply increased.
However, due to the collusion prevalent among the energy industry businesses that purposely keep refining capacity just above demand levels, the supply increase is limited to raw material, and not useable, refined products such as gasoline and heating oil. Thus, end product supply remains low, inflating prices – or at least prohibiting price declines, and ultimately increasing bottom line company profits, not to mention the increasing the burden on the consumer and the economy as a whole.
With this market manipulation in place, the effects of a disaster such as hurricane Katrina, which further reduces both production and refining capacity as well as port operations, and accounts in this case for nearly half of all oil imported into the country, are greatly exacerbated. If the energy industry did not keep supply levels so closely aligned to demand, the impact of the disaster on energy supply/prices, and the domino effect it will have on the rest of the economy would not be so drastic.
A primary argument used by the energy industry to justify the inadequate refining capacity within this country is lame. The industry will point to the NIMBY effect (Not in my back yard) as a primary deterrent to increasing refining capacity. NIMBY arises because of the industry’s motivation to have refineries in or near population and production centers, thereby reducing transportation and distribution costs.
However, when looking out the window of the aircraft while flying cross-country one can see vast open lands that are unpopulated and undeveloped – and not even designated as national wildlife refuges. Were it not for the higher transportation and distribution costs that would be incurred, such open spaces would be ideal for the placement of additional refineries, as pollution impacts on residential areas would be greatly reduced.
If government officials were thinking outside the box, they would propose tax incentives to offset higher transportation/distribution costs for businesses that located new refineries away from ‘the back yards’. It’s not as if the government is reluctant to grant tax breaks to the energy industry. The Energy Policy Act of 2005 signed by President Bush earlier this month provides billions of dollars in tax breaks and loan guarantees to energy industry businesses. Since the federal government is already handing out billions to energy companies, why not do so in a way that benefits the consumer as well as businesses.
Instead, the push to drill for more oil in the Arctic National Wildlife Refuge continues. We would be far better off if we concentrated on increasing the capability and efficiency of processing the oil already available rather than drilling for more oil that we will be hard-pressed to refine any more quickly.
Daniel Wells, Tracy