the residents do have a point. i spent everyday sampling ground wells at Citgo, and the water underneath the facility had very bad levels of ethyl benzene. i only imagined what got into our aquifer after decades of operation. they also had to relocate the nearest town, reimbursing every resident because of unsafe water.

all this is not to say the subsidy-corporate handout tradeoff is great, or that a refinery is From the Devil. but reality from my perspective is that refineries are not the picture of health in the eyes of local residents, other than good, real jobs. personally i’ll take the jobs. and that’s how the vast majority around here take it too.

There is no question that refineries can make money; they;d just sell less gas at a higher price.

Ok, so we — assuming your response matches his intention — agree that the subsidies aren’t necessary. Are you suggesting they’re a good thing? I’d much rather pay the higher price at the pump than pay for it through some backdoor tax.

I think he’s saying that the subsidies are allowing them to operate at a loss and we’d be seeing $5.00+ gasoline without them.

There is no question that refineries can make money; they;d just sell less gas at a higher price.

in fact the only reason refiners like Citgo on the gulf coast even make a margin at all is due to special govt subsudies directly to their industry.

Are you really suggesting that if we took away the subsidies, those refineries would no longer be profitable? Unless their global competitors are benefiting from extravagant subsidies (in which case an import tariff would be a more appropriate approach to leveling the playing field), they should have no trouble charging a fair price for a service that’s in such great demand.

http://www.cato.org/research/articles/taylor-050603.html

http://www.bloggingstocks.com/2008/05/16/kiplinger-oil-refiners-not-as-profitable-as-we-might-think/

-NIMBY is another very important factor here in the US as to why refiners don’t try harder to establish new capacity http://en.wikipedia.org/wiki/Nimby

-the EPA, both state and fed counterparts, raises the costs of establishing new facilities or expansion of existing facilities by the 100s of millions by imposing New Source Performance Standards (NSPS) technology on all emission points under the Clean Air Act. the Clean Water Act adds to the bill for the plant’s waterway usage. much of these costs are also renewed periodically and requires the company to staff a highly paid environmental regulation team in house.

-South Dakota seems to be on the right track:

http://gas2.org/2008/06/04/new-south-dakota-oil-refinery-one-step-closer-to-reality/

-what CATO had to say about govt subsidies to refiners (back when gas was 2.22/gallon, those were the days…)

whose hands do subsidies go into though, actual operations, or “other” people… i couldnt say.

As to the price of gasoline, I was wondering how much of an effect another factor might have.

In January 1998, gold was $289.15 per ounce and gas was $1.13 per gallon. In January 2008, gold was $889.60 per ounce and gas was $3.13 per gallon.

This shows a 208% increase in the price of gold in dollars, and a 177% increase in the price of gas in dollars.

In an attempt to remove the effect of dollar inflation, I figured the cost of a gallon of gas in gold. In 1998, a gallon of gas cost 0.003908 ounces. In 2008 a gallon of gas cost 0.003524 ounces. This means – when we take inflatable dollars out of the equation – that the cost of gasoline in a stable medium of exchange has actually dropped 10% in the last 10 years.

Could the reason that gas is so expensive in dollars compared to 10 years ago be more about the decline in the value of dollars, and less about an increase in the value of gas?

Perhaps if Senator Warner – from the alleged party of smaller government – wants to address the problem of soaring energy costs he should look at methods to curb inflation, rather than to resurrect arbitrary, failed, and unconstitutional federal controls on citizens.

Of course that would undoubtedly require spending less Fed Monopoly money on empires and entitlements.

so the obvious answer, besides prohibitory environmental regulation process to establish new refineries or increase capacity, and the NIMBY (not in my backyard) principal, is that the industries will not increase capacity in an unprofitable enterprise.

also i do know what i’m talking about here, having family knowledge, academic knowledge, work experience, and investment research of this industry.

The websites I linked to disagree significantly concerning the role bottlenecks in refining capacity are playing in the run up of prices. Like you, I strongly suspect that the refiners are having a difficult time. Otherwise they would be willing to take on more regulatory risk and build additional capacity in spite of the political uncertainty.

Are the refiners actually making big profits? With the cost of oil, producers are making enormous profits, but that oil is an input cost to the refinery. They’re undoubtedly making record revenues, but I’m not sure their profit margin has gone up commensurate with those increases in price.