Saturday, September 10, 2005

A Question of National Security (Updated)

I know there are a number of oil biz people that drop by here. I see the traffic logs. I especially want those readers to pay attention to what I am about to say. NIMBY combined with bad government policy, and economies of scale have put us all in danger of a MASSIVE energy crisis.

When Katrina hit the LA coast, 5% of the nation's refining capacity was endangered. We were lucky, only minor damage resulted, it could have been much MUCH MUCH worse. Had Katrina hit Freeport, 25% of the nation's refining capacity would have been endangered. the entire south and east sides of town will be underwater up to the 610 loop from an expected storm surge of between 22 and 28 feet AMSL. ALL of the petro-chem complex in and around Baytown, Channelview, and the Ship Channel will be flooded. Power which has been the major stumbling block to getting the LA refineries restarted, will be out for weeks at least. Gasoline spiked to over $6.00 a gallon in parts of the country, and only 5% of the refining capacity was offline. Anybody want to guess what 25% being offline would do to the price of gas? Personally, I don't have that many fingers and toes, and I doubt other many people do either. ('course there is always at least ONE genetic freak in the crowd...)

Another, related, issue is the one of terrorism, which, while that horse has been beaten to a pulp, it bears repeating. Channelview is only about 5 minutes flight time from Hobby airport. A 737 wouldn't even hardly have time to retract the wheels and flaps before being in a position to decimate a huge percentage of our nations petro-chem capacity in one fell swoop.

What has lead to this situation? NIMBY and economies of scale, add to that a lack of coherent energy policy in this country. This country used to have a huge number of small refineries. Over time, a combination of pollution regulations, corporate consolidation, and "Not In My Back Yard" have joined forces to cause many of the smaller refineries, especially the older ones which would have needed massive investment to meet EPA regs, to close and for the larger and newer refineries to instead invest in expanding capacity in the same place instead of building new refineries in geographically separated locations.

So what is the solution? Well, we may be in a unique situation to fix this. Refining capacity is at nearly 100% utilization now, in the very near future, additional capacity will be required. As a nation, we have been given a sneak peek at the possible future impact of loss of refining capacity. We have an administration that actually "gets" the whole energy thing. The Donks are going to have a conniption, but the solution is for the government to put limits as to the size and location of new refineries, and spread them all over the country.

Generally, I don't think government intrusion into the private affairs of it's citizens is a good idea, but in this case National Security Demands it.

UPDATE 9/14/05 12:18 CDT

In today's Houston Chronicle Michael Hedges has an article about how ExxonMobil prevented an additional 5% loss of refining capacity by managing by hook and crook, to keep the Baton Rouge facility running. But here is the money Quote:

The damage to oil and gas production and refining because of the storm has focused attention on the concentration of America's refining capacity in the Gulf region.

"There needs to be a public policy debate about why everything is on the Gulf Coast," Pursell said. "The answer is, nobody else wants it. But we are making a lot of our energy capacity vulnerable to major hurricanes. If America is going to build new refineries, maybe one should be built in Boston."

Couldn't have said it better myself....


Blogger Pigilito said...

Thought provoking post, Rorschach.

Spreading the refineries around makes sense from a security standpoint, but what of the extra costs for transporting pertroleum to and from the ports to be refined?

Perhaps spreading the refineries around in a area fairly close to the ports would work.

I hope some one the oil folks can provide some insight.

September 12, 2005 1:14 AM  
Blogger Kathy Herrmann said...

Pigilito--You bring up a good point and sparked a thought in me.

We keep thinking of the need for refinery ops to be located close to the source of production. However, refined products are still pipelined across the country. For example, from the Gulf Coast to the NE.

Given that, why not use pipelines to transport crude from ports to the dispursed refinery locations, which are then placed in greater proximity to the distribution point(s)?

I'm guessing that might require some differences in pipeline construction, perhaps because of higher crude viscosity relative to gas, so a question might have to include construction costs if new pipelines are required. Also, I'm not sure what the feasibility of construction is at this point (ie, how long ago the pipelines were constructed).

September 13, 2005 9:06 AM  
Blogger Pigilito said...

Thanks for the answer, RT. I heard today on BBC radio that the last large refinery was built some 30 years ago. Can this be?

The announcer also mentioned that many smaller, less efficient refineries have been closed since then.

You and Rorschach ought to apply your expertise to the problem of increasing our refinery capacity and the security needed to protect them.

September 13, 2005 10:28 AM  
Blogger Kathy Herrmann said...

Can you believe it? Reason Foundation has a good article about the lack of refinery construction at this link...

A complement to Rorschach's article above is one I penned almost simultaneously. It includes a graphic of Katrina versus refinery locations and also comments on the Reason Foundation article.

Go here...

September 13, 2005 10:58 AM  
Blogger Pigilito said...

Re the update. How likely is this? It certainly sounds like a good option.

There must be several ports in areas not subject to damaging weather.

Even Richmond, in the SF bay, has a good sized refinery--although there the danger is earthquakes.

September 15, 2005 4:58 AM  
Blogger Rorschach said...

I sent Michael Hedges an e-mail referencing both my blog entry and a couple of RT's and asked him just how likely it was that there was going to be a public policy debate on this. I have yet to recieve a reply. Loren Steffy, another Chronicle columnist who happens to have a blog called Full Disclosure posted about how one of ExxonMobil's VP's lamented that there just was not a good financial case to be made for new refinery investments in the US, even with some of the tax incentives that are being discussed in congress, but there apparently is a case for building them in Asia. I replied, paraphrasing much of what was said here and over at RT's place. you can read it here:

September 15, 2005 12:26 PM  

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