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http://www.latimes.com/busines...storySome of the nation's biggest oil companies are looking at permanently reducing how much gasoline and diesel fuel they make, a move that analysts say would almost certainly trigger higher prices for drivers.
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 begun and will accelerate as corporations strive for profits.
Major refiners have been circumspect about their plans, saying that they are considering options that could include closing refineries, selling parts of their operations, laying off workers and 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 was 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 conference.
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 CEO for oil giant BP, said during a recent earnings teleconference.
For motorists, talk of refinery cuts promises to be anything but cheap. It's feared that leaner supplies will translate into higher pump prices punctuated by expensive spikes when operations are disrupted by weather or other events.Avid travelers Peter and Kathie Woelper of Squaw Valley, Calif., find that a sobering prospect.
The Woelpers -- he's 71, she's 70 -- live on a fixed income. The couple just returned from a drive to the Vancouver Olympic Games in their 1997 Toyota RAV4, which gets 27 miles per gallon. Trips like that will become rare should gas prices soar.
"There's no reason why gasoline should be as expensive as it is right now, and we are down to a panic situation, money-wise," Peter Woelper said.
Consumer advocates want regulators to probe refinery closures and consolidations that slash supply.
"We know from internal documents from the last time we had a situation like this, in the 1990s, that there was an intentional strategy on the part of some companies to drive up profit margins by shuttering or closing refineries," said Tyson Slocum, director of Public Citizen's energy program.
"Consumer prices will be acutely sensitive to any significant change in refining capacity."
Judy Dugan, research director for Santa Monica-based advocacy group Consumer Watchdog, said that "closing or selling refineries to others who would limit production would be a serious case of corporate irresponsibility."
Refiners say they're merely trying to improve profits so they can keep making gasoline.
"There have been dozens of investigations by state and federal agencies, including some with subpoena power, and not one has ever found evidence of any conspiracy or collusion to manipulate prices," said Tupper Hull, spokesman for the Western States Petroleum Assn., an industry trade group.
f gasoline doesn't seem particularly cheap these days, that's because operators are keeping a tight lid on production; U.S. and European refineries are running at the lowest rate in more than a decade, Gheit said.
Still, compared with demand, there are too many refineries, he said, and an estimated 3 million barrels a day of excess capacity in the U.S. and Europe must disappear to achieve sustained improvement in earnings.
That would be like eliminating 10 refineries worldwide the size of the 270,000-barrel-a-day Chevron facility in El Segundo -- and its 1,000-plus jobs. Other estimates of excess refinery capacity are even higher.
Valero Energy provides a window into the industry's changing fortunes.
Five years ago, Wall Street loved the San Antonio firm. Valero had seen a fivefold increase in share price in 2005, and fourth-quarter earnings for that year were the company's best ever.
Now Valero finds itself in a much different position. It was nearly $2 billion in the red at the end of last year, and its fourth-quarter results were among the company's worst ever, with losses of about $1.4 billion.
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.
In the wake of the twin hurricanes, the average U.S. price of regular gasoline jumped nearly 18% to $3.07 a gallon -- a high for the year. In 2008, Hurricane Ike's disruption of refinery operations briefly took prices above $5 a gallon in some parts of the nation.
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, with the addition of equipment and with improved 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."
Some people worry that refiners may cut so much that price surges will become inevitable.
"The question is whether they are going to over-adjust," said Phil Flynn, an energy analyst for PFGBest Research. "Probably, they will."
ron.white@latimes.com
"One thing I’ve noticed over the years is that if you drive into London at 6am, half of the cars on the roads are Porsches and Astons. Whereas if you go in at ten to nine, they’re all Renaults. Simple solution, then. You want a nice car? Get up earlier and do more work."
-- Jeremy Clarkson
Speculator spikes in five... four... three... two...
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Press vehicle this week: 2011 Ford Fiesta SE HatchbackOriginally Posted by 1SICKLEX
God I love price fixing and monopolies. Dirty mother F*******How about we let free market take care of the price point - oh but there's no way we'll make hundreds of billons each quarter that way
Their profits are measured in Billions ….. yet it isn’t enough.
how do I read or even respond to this without my blood boiling??
Quote, originally posted by mack73 » God I love price fixing and monopolies. Dirty mother F******* How about we let free market take care of the price point - oh but there's no way we'll make hundreds of billons each quarter that way
Ah but this is the free market. You are free to build your own refinery, sell its output at a loss and PROFIT!!
IB4StillCheaperThanEurope
Higher gas prices suck. But oil is a finite resource.Whatever accelerates the development of the alternatives. . .
F**king bourgeoisie.
Quote, originally posted by robr2 » Ah but this is the free market. You are free to build your own refinery, sell its output at a loss and PROFIT!!
BS it's a free market and you're free to build your own refinery. The Political clout that it would take to get that done at this point in time is huge and you'd be fighting the established oil companies who will be lobbying against you the whole way.
The oil market is controlled by a few massive companies who are all in agreement that serious competition is bad for business, and the react accordingly.
Two years ago they were using lack of refinery capacity as one of the excuses for the high gas prices, and now they're going to use excess refinery capacity as an excuse.
Don't use their product if you don't like it, no one's holding a gun to your head.
█ ♣ █ + ███ | Sunlight on chrome, the blur of the landscape... every nerve aware
Quote, originally posted by CruznMalibu » Their profits are measured in Billions ….. yet it isn’t enough. Did you even bother to read the article? It said Valero lost $2 billion last year, so if other companies are experiencing similar losses, it is not a surprise that some of them are looking for ways to get rid of excess capacity.
Solution: LOWER GAS PRICES
Quote, originally posted by justanotherusername » BS it's a free market and you're free to build your own refinery. The Political clout that it would take to get that done at this point in time is huge
This is true.
Quote » and you'd be fighting the established oil companies who will be lobbying against you the whole way. This is not.
Quote » The oil market is controlled by a few massive companies who are all in agreement that serious competition is bad for business, and the react accordingly. This is not true, either. Unless by "massive companies", you mean state controlled oil concerns like Lukoil, PDVSA, and Saudi Aramco. They -do- control the market. Exxon, BP, and Shell do not.
Quote » Two years ago they were using lack of refinery capacity as one of the excuses for the high gas prices, and now they're going to use excess refinery capacity as an excuse. This is merely inaccurate.
Quote, originally posted by axe » Don't use their product if you don't like it, no one's holding a gun to your head. It would be perfect timing for the Nissan Leaf to be released if fuel prices go nuts again.
Quote, originally posted by Sagaris » It would be perfect timing for the Nissan Leaf to be released if fuel prices go nuts again.
Definitely, same for the Volt et al.Looks like I picked the right time to buy my Fit
█ ♣ █ + ███ | Sunlight on chrome, the blur of the landscape... every nerve aware
Quote, originally posted by axe » Don't use their product if you don't like it, no one's holding a gun to your head. 
Are you inane enough to actually believe that some people can live their lives without cars? I sure could at this point in my life, but my dad could not (over one hour drive commute each way, public transportation is not available at all). Even if one could live without, I fail to see why blatant price gouging yields a "stop bitching" response, apathy would make more sense. Additionally, nearly everything you consume is delivered by truck at one point or another. If you start growing all of your own food and materials to provide everything you need, then your comment can be considered something other than stupid.
Modified by ElixXxeR at 12:35 PM 3-11-2010
Quote, originally posted by axe » Don't use their product if you don't like it, no one's holding a gun to your head. lolwut?
Nobody may be holding a gun to your head, but you aren't going to get far in this world (at least the North American part of it) without a vehicle. Want to eat? Drive to work to earn money; then drive to store to buy food.
Quote, originally posted by axe »
Definitely, same for the Volt et al.Looks like I picked the right time to buy my Fit
but the fit isn't really that fuel efficiant. people who buy the fit for fuel economy(alone) obviously havent done their research.
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Quote, originally posted by Entwerfer des Audis » F**king bourgeoisie. What's wrong with the middle class?
Quote, originally posted by ElixXxeR » Are you inane enough to actually believe that some people can live their lives without cars? I sure could at this point in my life, but my dad could not (over one hour drive commute each way, public transportation is not available at all). Even if one could live without, I fail to see why blatant price gouging yields a "stop bitching" response, apathy would make more sense.
This is way bigger than just automobiles. However yes, in some major cities, you do not need a car.
"One thing I’ve noticed over the years is that if you drive into London at 6am, half of the cars on the roads are Porsches and Astons. Whereas if you go in at ten to nine, they’re all Renaults. Simple solution, then. You want a nice car? Get up earlier and do more work."
-- Jeremy Clarkson
Quote, originally posted by ElixXxeR » Are you inane enough to actually believe that some people can live their lives without cars? I sure could at this point in my life, but my dad could not (over one hour drive commute each way, public transportation is not available at all). Even if one could live without, I fail to see why blatant price gouging yields a "stop bitching" response, apathy would make more sense. Additionally, nearly everything you consume is delivered by truck at one point or another. If you start growing all of your own food and materials to provide everything you need, then your comment can be considered something other than stupid.
You can certainly choose to use much less, as most Americans did during the downtown. The result was a drop in prices.
Quote, originally posted by Seabird » You can certainly choose to use much less, as most Americans did during the downtown. The result was a drop in prices.
Exactly. Sure, prices will spike at first, but even TCL reactionaries can't believe that oil companies get to completely and indefinitely suspend the laws of supply and demand. IOW, reducing supply due to a decrease in demand is hardly a suspicious phenomenon.
Modified by chikubi at 3:44 PM 3-11-2010
Quote, originally posted by Seabird » You can certainly choose to use much less, as most Americans did during the downtown. ..............
Agreed. Most people though still chose the V6 over the I4 where there is a choice.
-edit- Also, I believe oil co %profits are actually quite low.
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Quote, originally posted by Merc-MarkO » Agreed. Most people though still chose the V6 over the I4 where there is a choice.
Yep. Look at some of the responses here. Cheap energy is an entitlement.
Quote » edit- Also, I believe oil co %profits are actually quite low. Depends on how you look at it. Margins are relatively thin, but in an era where other companies are having to operate at a loss, any company that is still operating with a profit, yet cuts back on its production to increase those margins, is going to be viewed with ire.
Modified by Seabird at 2:49 PM 3-11-2010
Quote, originally posted by Seabird » You can certainly choose to use much less, as most Americans did during the downtown. The result was a drop in prices.
I fail to see how my dad (and the hundreds of thousands in exactly the same situation) can choose to use much less. Unless you are suggesting he change jobs...at his age and in this job market, that should be a cinch! Or move? Yea, now is the time to sell. Or perhaps he buy a more fuel efficient car, which of course, he can absolutely afford to do.Again I don't understand why companies blatantly gouging consumers turns in to a lifestyle debate. Some choose and can afford to use a lot, others do it out of necessity. I doubt people like my dad enjoy commuting one hour to work and back, much less paying unnecessarily through the nose for it.
Modified by ElixXxeR at 12:52 PM 3-11-2010
Quote, originally posted by justanotherusername »
Two years ago they were using lack of refinery capacity as one of the excuses for the high gas prices, and now they're going to use excess refinery capacity as an excuse.Funny how that works, huh?
Quote, originally posted by Merc-MarkO »
-edit- Also, I believe oil co %profits are actually quite low.For a commodity. it's on the high side.
Modified by CP1 at 12:50 PM 3-11-2010
More reasons for biodiesel. We don't need corn syrup.
Quote, originally posted by Merc-MarkO » Agreed. Most people though still chose the V6 over the I4 where there is a choice.
to hell with that
i sold my '05 mustang GT and bought a rabbit to save monies. fuel, insurance, payment. win-win-win.
granted it's not a hybrid or anything, but not everyone was making poor choices.
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Quote, originally posted by ElixXxeR » companies blatantly gouging consumers Where? Did you read the article? Did you read the part about Valero finishing 2009 $2 billion in the red?
Now, I'm not gonna be that guy that tries to garner sympathy for big oil's smaller profit margins relative to other companies in other industries, but if you owned a company and you had more inventory than people were buying, wouldn't you look into maybe reducing production until that pile of merchandise you had overflowing your warehouse got a little smaller?
You keep using the phrase "blatant gouging". I don't think you understand what it means.As for your dad, I have no idea what his habits are. But I guess in deference to him, for-profit organizations (along with all the people employed within), should shelve their own interests and concerns so that his lifestyle isn't hindered or disrupted in any way.
See? This is the entitlement mentality that I was talking about.
But since you think this is gouging and "unnecessary", what is your solution? Should refiners continue to operate at a loss? Do you find the concept of a positive revenue stream "unnecessary"?
Modified by Seabird at 2:55 PM 3-11-2010
Hah, I'm quicker than big oil! ^^^^
Quote, originally posted by axe » Don't use their product if you don't like it, no one's holding a gun to your head. Sure that will work. You go ahead and try to not use their product. And while you are at it, don't use any products that are shipped using petrol fuel. Or use products that contain petrol, like plastics and so on.
The range and scope of higher prices and lower production is much farther reaching than the price you feel at the pump.
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