I wrote about this stunning statistic last week and the possible reasons for this drastic drop. The higher gas prices that we are all experiencing does not seem to be the total reason for the longer term trend. The chart below shows the decline in gasoline sales since July, 2007.
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| Total U.S Gasoline Sales by Refiners (Millions/Gallons per Day) Source:U.S. Energy Information Administration |
A further question to ponder is if demand has dropped this dramatically since last year, how can prices continue to be climbing? Is demand in the developing world (China, India etc) making our drop in consumption irrelevant? Is it the uncertainty in Iran and the Middle East? Is it the speculators? Is it the declining price of the dollar vs. gold? Is it all of the above?
Whatever it is, it is hurting Americans in the pocketbook. It is also another reminder of why we should be doing everything we can to take advantage of our domestic energy resources. We need all of them-oil, gas, coal, hydro, nuclear and alternative sources. Our economy does not go-or grow-without accessible and affordable energy.
One thing to consider is that refining is a low-margin business. There were a few East Coast refineries that closed last year due to bad economics. When demand is down (as you've mentioned), refiners have trouble passing increased costs onto their customers because no one wants to pay more at the pump. When refineries are not making much money (or losing money in some cases), energy companies would rather allocate their money elsewhere than continue to operate assets that hurt their bottom line.
ReplyDeleteFrom the LA Times...
"On January 18, Hess announced the closure of its HOVENSA joint venture refinery in the U.S. Virgin Islands, a major source of product supply to the East Coast," the Energy Department said. "That planned closure follows on the heels of the idling of two refineries in the Delaware Valley by Sunoco and ConocoPhillips and announced plans by Sunoco to idle another refinery in the region by mid-2012."
The Energy Department added, "The complete idling of the three refineries would collectively cut as much as 50% of current East Coast refining capacity."
http://articles.latimes.com/2012/jan/30/business/la-fi-mo-gas-prices-20120130
Anonymous,
ReplyDeleteGreat information. This makes a lot of sense. As gasoline consumption has dropped it has caused refining capacity to be taken off line to keep supply and demand in better balance. We always hear about the fact that the U.S. has not built a new refinery in decades. You never hear that we are actually closing them down because lagging demand and bad economics. I am sure the regulatory burden and associated costs are not helping the economics of these facilities.