Oil companies look at permanent refinery cutbacks
03-11-10, 11:34 AM
#1
Guest
Posts: n/a
Oil companies look at permanent refinery cutbacks
http://www.latimes.com/business/la-f...,5317635.story
Some 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
Some 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
03-11-10, 11:40 AM
#2
Lexus Test Driver
they are pretty much packing their bags lol 
of course there is going to be a period when there will be high gas prices but that's just to help us move to electric cars and build the infrastructure.
the Earth doesn't have endless supplies of crude oil.
of course there is going to be a period when there will be high gas prices but that's just to help us move to electric cars and build the infrastructure.
the Earth doesn't have endless supplies of crude oil.
03-11-10, 11:52 AM
#3
Dear oil companies,
I'm so sorry you aren't as profitable...that really sucks. It's a shame that your execs haven't been able to buy that 16th vacation home that they were eyeing, or that they had to drop the deal on the One-77 they probably ordered. I'm sure this loss is difficult for them.
I would like to point out that what also sucks is dropping $50-$70 bucks every time I need to fill up my car, rethinking trips for errands, not taking road trips, delaying buying books for school, spending more time at WalMart, and cutting expenses in other areas so that I can put gas in my car. While your concessions have been noted, I feel like I am still getting the short end of the stick. How odd.
If you haven't noticed, this relationship is cyclical and very tightly knit. If you decide to spike up your prices, I will do everything in my power to use less of your gas- not because I want to, but because it will be essential for my wallet. If you feel that taking production permanently offline is the solution to your problems, and it causes a significant increase in what I pay at the pump, then I will be forced to permanently make lifestyle choices that lessen or eliminate the need for gasoline.
If you want to rape me, I will rape you.
Regards,
Michael
I'm so sorry you aren't as profitable...that really sucks. It's a shame that your execs haven't been able to buy that 16th vacation home that they were eyeing, or that they had to drop the deal on the One-77 they probably ordered. I'm sure this loss is difficult for them.
I would like to point out that what also sucks is dropping $50-$70 bucks every time I need to fill up my car, rethinking trips for errands, not taking road trips, delaying buying books for school, spending more time at WalMart, and cutting expenses in other areas so that I can put gas in my car. While your concessions have been noted, I feel like I am still getting the short end of the stick. How odd.
If you haven't noticed, this relationship is cyclical and very tightly knit. If you decide to spike up your prices, I will do everything in my power to use less of your gas- not because I want to, but because it will be essential for my wallet. If you feel that taking production permanently offline is the solution to your problems, and it causes a significant increase in what I pay at the pump, then I will be forced to permanently make lifestyle choices that lessen or eliminate the need for gasoline.
If you want to rape me, I will rape you.
Regards,
Michael
03-11-10, 12:17 PM
#4
many plants and production facilities were profitable and banking on oil prices to stay high. Now that its been low for the past 2 years, they are losing money on those projects. Oil companies aren't the reason why oil is $80+ barrel. Thank the inflation we occurred in the last decade, when you saw all commodities go up not just oil. Oil companies make a 10-15% profit margin, not as evil as people think. They just sell a LOT of oil and chemicals.
03-11-10, 01:53 PM
#7
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Interesting. Does this in any way relate to the Oil-producing countries also trying to limit production to increase profits?
It must be nice when you can artificially control market prices. I wish I could.
It must be nice when you can artificially control market prices. I wish I could.
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03-12-10, 06:21 AM
#8
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Posts: n/a
Dear oil companies,
I'm so sorry you aren't as profitable...that really sucks. It's a shame that your execs haven't been able to buy that 16th vacation home that they were eyeing, or that they had to drop the deal on the One-77 they probably ordered. I'm sure this loss is difficult for them.
I would like to point out that what also sucks is dropping $50-$70 bucks every time I need to fill up my car, rethinking trips for errands, not taking road trips, delaying buying books for school, spending more time at WalMart, and cutting expenses in other areas so that I can put gas in my car. While your concessions have been noted, I feel like I am still getting the short end of the stick. How odd.
If you haven't noticed, this relationship is cyclical and very tightly knit. If you decide to spike up your prices, I will do everything in my power to use less of your gas- not because I want to, but because it will be essential for my wallet. If you feel that taking production permanently offline is the solution to your problems, and it causes a significant increase in what I pay at the pump, then I will be forced to permanently make lifestyle choices that lessen or eliminate the need for gasoline.
If you want to rape me, I will rape you.
Regards,
Michael
I'm so sorry you aren't as profitable...that really sucks. It's a shame that your execs haven't been able to buy that 16th vacation home that they were eyeing, or that they had to drop the deal on the One-77 they probably ordered. I'm sure this loss is difficult for them.
I would like to point out that what also sucks is dropping $50-$70 bucks every time I need to fill up my car, rethinking trips for errands, not taking road trips, delaying buying books for school, spending more time at WalMart, and cutting expenses in other areas so that I can put gas in my car. While your concessions have been noted, I feel like I am still getting the short end of the stick. How odd.
If you haven't noticed, this relationship is cyclical and very tightly knit. If you decide to spike up your prices, I will do everything in my power to use less of your gas- not because I want to, but because it will be essential for my wallet. If you feel that taking production permanently offline is the solution to your problems, and it causes a significant increase in what I pay at the pump, then I will be forced to permanently make lifestyle choices that lessen or eliminate the need for gasoline.
If you want to rape me, I will rape you.
Regards,
Michael
03-12-10, 03:24 PM
#10
Oil demand in China jumped a massive 28% in January over the same period a year ago. This can only mean one thing for us, higher prices, and more profits for the oil companies.
03-12-10, 06:34 PM
#11
Lexus Fanatic
iTrader: (20)
you guys should be more mad at banks, the govt, and wall st. than oil companies. 
03-12-10, 07:48 PM
#13
Lexus Fanatic
iTrader: (20)
03-12-10, 10:50 PM
#14
"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.
Finally, someone speaks sense.
03-12-10, 11:24 PM
#15
Lexus Test Driver
Ever notice as the years have gone by, they raise the price of gas for the "summer formula" earlier and earlier? Like five/ten years ago it would spike in June, as summer began. Then a few years ago it got bumped to April. Now, this year, it spiked two weeks ago because of "summer formula." IT'S FREAKIN MARCH!!!!!!! SINCE WHEN IS MARCH SUMMER TIME? Does it take three months to change over a formula all of a sudden? Why so early now compared to before? And why hasn't anyone pointed this out in the media? Every year, they raise things more and more and earlier and earlier.
Another thing they claim is, "...in anticipation of the summertime demand..." Wait a minute right there. The demand for summer fuel does NOT strike until SUMMER- when people actually do the extra driving. So, for three full months, WHILE DEMAND IS STILL LOW BEFORE SUMMER HITS, they are gouging us with higher prices with no actual ramification of supply and demand taking place yet. That's three months of freebies for them and less money for us. And if their "in anticipation of" pitch was really true and honest, then they would lower prices in June, "IN ANTICIPATION OF LESS DEMAND FOR WINTER," which they obviously do not do. Got to charge less three months ahead of time when demand is less just like you gotta charge more three months ahead when demand is high, right? Yeah, suuuuure. It's all take, and no give.
Now, why isn't this ever brought up? Just ONE TIME, I'd like the oil companies, insurancance companies, and Congress to actually be held accountable for their dishonest practices.
Another thing they claim is, "...in anticipation of the summertime demand..." Wait a minute right there. The demand for summer fuel does NOT strike until SUMMER- when people actually do the extra driving. So, for three full months, WHILE DEMAND IS STILL LOW BEFORE SUMMER HITS, they are gouging us with higher prices with no actual ramification of supply and demand taking place yet. That's three months of freebies for them and less money for us. And if their "in anticipation of" pitch was really true and honest, then they would lower prices in June, "IN ANTICIPATION OF LESS DEMAND FOR WINTER," which they obviously do not do. Got to charge less three months ahead of time when demand is less just like you gotta charge more three months ahead when demand is high, right? Yeah, suuuuure. It's all take, and no give.
Now, why isn't this ever brought up? Just ONE TIME, I'd like the oil companies, insurancance companies, and Congress to actually be held accountable for their dishonest practices.