[pup55]

$this->bbcode_second_pass_quote('', 'O')ct. 25 (Bloomberg) -- Murphy Oil Corp., the U.S. oil producer and refiner that operates filling stations outside Wal- Mart stores, said its Meraux, Louisiana, refinery is operating at a loss after crude costs climbed to a record

[shortonoil]

pup55 said:

$this->bbcode_second_pass_quote('', 'E')ventually, the price of unleaded will rise to the point at which the refiners will make money. Alternately, the crude price will drift downward some. Either way, the current situation will not last for long.

[yesplease]

$this->bbcode_second_pass_quote('pup55', 'p').s. at a crude price of 91, the wholesale unleaded price should be about $2.47, to make refinery margins in line with the 5-year average. The current NYMEX price is $2.24, so this situation will persist for a little while longer.

[pup55]

$this->bbcode_second_pass_quote('', 'I')s this linear wrt to crude oil prices?

[frankthetank]

Pup-

Is there government pressure on the oil companies to "deflate" the price of unleaded? This whole situation smells like a big stinky fish.

[yesplease]

$this->bbcode_second_pass_quote('pup55', 'B')e sure to add 65-75 cents to the wholesale price to get the retail price in your area, to allow for taxes and distribution costs.

[pup55]

$this->bbcode_second_pass_quote('', 'I')s there government pressure on the oil companies to "deflate" the price of unleaded?

[Gazzatrone]

Nice post Pup55.

This is exactly the stuff that I've believed will be a far more dangerous and insidious threat than price rise due to geo-political instability and OPEC murmurings etc.

Is this the true beginning of EROEI?

[Doly]

Pup55, I'm afraid I don't get it.

Why are refinery margins so low? Because oil prices rise faster than they can put the price up? Or what else?

[pup55]

$this->bbcode_second_pass_quote('', 'o')il prices rise faster than they can put the price up

[Rabbit]

Here is a graph that shows the how the price of finished fuel and oil have been slowing diverging over the past 3 years. The difference seems to have started happing around December of 2005. The most dramatic changes have happened in just the past 6 months.

[Chuckmak]

$this->bbcode_second_pass_quote('Rabbit', 'H')ere is a graph that shows the how the price of finished fuel and oil have been slowing diverging over the past 3 years. The difference seems to have started happing around December of 2005. The most dramatic changes have happened in just the past 6 months.

[pup55]

Far be it from me, some guy on the internet, to nitpick, but a slightly better way to draw the graph might be to equalize the units at some point, so as to make the scale on both Y axes the same.



It sort of illustrates the same point, the divergence between the oil price and the unleaded price, but everything is on the same scale and the axes are calibrated the same.

This graph might be even better:



which is the difference between WTI and unleaded for the same period. If you were to do this graph for the period between 1996 and 2000, the margin might be 10 cents or less for most of it.

Anything less than about 10 cents/gallon, the refiner is just about losing money on the variable manufacturing cost, which is the labor and utilities it takes to run the reactor. At about 20 cents, maybe they break even economically, when you consider capital costs and interest expense, and enough profit to justify being in the business. Obviously, different refiners have different break even points, so the cost structure at Murphy Meraux might be about 20 cents, per the above article, and some of the big, well run, efficient refiners, if any exist, might be less than that.

What you can see for sure is that since early in 2004, this business has been really variable. They fatten up for awhile, and for some short periods, they have even gone negative.

But, what we are saying is that at some point, evidently starting about now, if the margins are not high enough, the refiners will shut down for awhile and do maintenance until the pricing gets better.

Another point is that the refinery margins need to be high enough, for long enough, to justify reinvestment and capacity expansion. We hear all the time that the last greenfield refinery in the US was built in 1976 or something. The reason is: the refinery economics need to be consistently strong enough to justify risking multiple billions of dollars to construct the unit. As it is, even in this regime of higher prices, the pricing is still not consistent enough to do this, rather than much safer investments that can return more money, such as high-tech companies, or some factory in China.

So, you get no new refineries. People might expand existing plants if the economics justify it, but in general it puts us in the terrible situation we are now in, with little or no spare capacity, and a collection of 40-plus year old refineries which fall apart every spring, trying to provide the nation with the unleaded it needs.

[DantesPeak]

$this->bbcode_second_pass_quote('', 'B')reaking News: Explosion, Fire Reported at Valero
November 8, 2007 - 8:05AM

Port Arthur police and fire are reporting an explosion and fire at the Valero Refinery.

Authorities say the fire and explosion occured at about 7:30 a.m. Thursday in a unit at the center of the plant. A witness reports seeing one unit engulfed in flames.

Port Arthur police chief Mark Blanton tells KFDM News he's been told there are no injuries reported.

Police are blocking an area near Highway 82 and Highway 73.

We have crews at the scene. Stay with KFDM News for the very latest.

[stu]

Some background info.


http://en.wikipedia.org/wiki/Port_Arthur%2C_Texas

$this->bbcode_second_pass_quote('', 'A')fter decades of stagnation and neglect in the area economy, Port Arthur is in the early stages of an economic boom. Several large projects involving the energy infrastructure are underway or proposed, the two largest being the Golden Pass and Sabine Pass LNG terminals. These separate projects under construction in neighboring Sabine Pass have brought cumulative initial investments of $2 billion, and will employ thousands at peak construction.

Home to a large chunk of United States refining capacity, Port Arthur is now seeing renewed investment in several key installations. Motiva Enterprises is undertaking a major addition to its western Port Arthur refinery, expanding capacity to 600,000 barrels per day [2]. This $3.6 billion project is the largest US refinery expansion to occur in 30 years [3]. Premcor Refining recently completed a $775 million expansion of its petrochemical plant, and BASF/Fina commenced operations of a new $1.75 billion gasification and cogeneration unit on premises of it's current installation, which had just completed its own $1 billion upgrade.

port activity

Long past its heyday in the early 1900's, successive waves of economic recession have delivered a nearly vacant, boarded up, and sometimes dangerous central business district. The Hotel Sabine, the tallest building in Port Arthur, was abandoned and purchased by the city. An attempt to sell the building failed in 2005, with no interested buyers. Hurricane Rita struck a direct hit on the Proctor Street Seawall, and damaged many downtown businesses and homes. As economic activity picks up in the region, calls for downtown revitalization have been advanced [4][5]. The true center of commercial activity has gravitated towards the junction of US 69 and Texas 365, with larger white-collar businesses moving to downtown Beaumont. As of 2008, the last downtown banking establishment, Capital One will relocate to Texas 365, which coincides with the closing of the last pharmacy, Walgreens, and the last grocery store, Lucky 7. Several municipal and county offices have moved in to fill the void.

[pup55]

Ugh.

This is at least the seventh or eighth Valero-related refinery screwup since we started keeping track. I will have to go back and look at my records from the spring and summer for an accurate count.

At some point, it is a conscious management decision to run their plant in a certain way (cheap) and not do maintenance, and accept the consequences. BP is on this same program, if I am not mistaken.

They do not necessarily make up for it by having a lower refining margin, as we learned from the other thread.

I think they did inherit some older refineries, and perhaps this is an artifact of the industry in that with really erratic refining margins they cannot justify certain retrofits that might improve their reliability.

Some days, you just have to shake your head.

[Eli]

I don't think that is it Pup the problem is they now do not ever have a chance to do what needs to be done to keep these plants safe.

The Chinese just came out yesterday and said that they would run more oil through their refineries and delay maintenance, all in an effort to keep up with supply. And of course there is higher price to be paid when working with heavy sulfur crude.

These plants just never can slow down now, we need the fuel.

[DantesPeak]

$this->bbcode_second_pass_quote('Eli', '
')The Chinese just came out yesterday and said that they would run more oil through their refineries and delay maintenance, all in an effort to keep up with supply. And of course there is higher price to be paid when working with heavy sulfur crude.

These plants just never can slow down now, we need the fuel.

[DantesPeak]

CNBC reports that the explosion was in the diesel cracker unit, and it appears to be confined to that area.

[Eli]

Good I am glad we don't need any diesel fuel or heating oil.

Yeah, valid points and I would have phrased my statement because I know Pup knows exactly what is going on and was only making a different point.


And right on about China going through what we are now, it will be magnified however because of their growth rates.