Sunday, July 08, 2007

New refineries? It's the profits, stupid.

A recent guest column in our paper suggested environmentalists and regulatory roadblocks prevented new U.S. refineries from opening since 1976, contributing to gas shortages and higher prices. It's a widely circulated and misleading talking point. Cranky humans don’t know what’s best for them. The columnist wrote “the people who risk their own money in an uncertain world” (corporations) do? And they do what?

“While profit margins improved dramatically last year, most refiners still don't believe that the returns on investment — historically about 5 percent a year — justify plunking down $2 billion or so to build a facility,” The Houston Chronicle reported in 2005.

Shareholders like quick profits. Oil executives cannot stomach decade-long, low-return investments in new refineries when “debottlenecking” (increasing output) or expanding existing facilities pays off faster. ExxonMobil, Valero, Marathon, Motiva and Citgo invest billions doing that. Calls for conservation and alternative fuels make new refineries less attractive than boosting earnings per share with billions in stock buybacks. That’s capitalism. Is there a problem?

“While a new U.S. refinery has not opened since 1976, industry officials say they've added the equivalent of 10 refineries over the last decade with expansions at existing facilities,” the Cincinnati Enquirer reported June 17.

“No new refineries” is a long-dead red herring that stinks.

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