Tuesday, May 08, 2007

A Pain in the Gas

Unless you've been living in a cave in Outer Mongolia, you have no doubt noticed that gas prices have been inching (actually, more like footing) up for the last few weeks. My local Sunoco station is selling unleaded regular gas for $3.24 per gallon, and that's hardly the most expensive in the area. An article in CNNMoney.com yesterday predicted that gas prices will hit $4.00 per gallon soon, and cited "refinery problems and strong demand" as the two primary reasons for the rapid rise in prices.

Let's think about this for a minute.

The CNNMoney article quotes an oil analyst who notes that U.S. gasoline refineries are clustered around the Gulf Coast, and were badly damaged during Hurricanes Rita and Katrina in 2005.

It is now 2007. How are the repairs going?

Consider this, also: for the last few years, oil companies have posted record profits, and have scrambled to justify these as the price at the pump has shot up. A website of the Conoco-Phillips company tries to explain why profits have gone up so much, why it's justified, and why it's not their fault...you can read it here: http://www.conocophillips.com/newsroom/other_resources/energyanswers/oil_profits.htm. If you read this article, you will find that oil company profits are largely eaten up by the costs of exploring for new sources of oil and gas, increasing refining capacity, and constructing pipelines to transport natural gas from Alaska to the Lower 48 states.

What's missing from that explanation? Yes, you guessed it - there's no mention of repairing the refineries that were "badly damaged" during the hurricanes two years ago.

Think about it this way: if you own a business, and your business is damaged in a natural disaster, you have a vested interest in making repairs and getting your business operational again as quickly as possible. Unless, of course, your profits actually go up because the damage to your business allows you to charge higher prices for your product.

Now, I'm not foolish enough to underestimate the complexity of an oil refinery and the amount of work needed to repair it when it's been damaged. But it's been a year and a half since the one-two punch of hurricanes Katrina and Rita, a period during which the oil companies have made record profits in part because of the claimed effects of damage to the refineries. What percentage of those record profits has gone into a major crash program to repair and upgrade the refineries? What's the status of the repairs? When will the damaged refineries be fully operational again? Which government agency is cracking the whip to get the companies to make the necessary repairs as quickly as possible?

If you find any answers to these questions, please let me know.

And in the meantime, check out the May 6th post at the wonderful blog It Is A Numeric Life (http://numericlife2.blogspot.com/2007/05/world-is-walking-faster.html) - if gas prices keep shooting up you will, in fact, be walking more...if not faster.

Have a good day. More thoughts tomorrow.


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