U.S. looks elsewhere for gasoline
WASHINGTON — Everyone knows the United States relies heavily on foreign oil. But most people don’t realize the nation also increasingly needs imported gasoline — a trend that’s contributing to the recent spike in prices at the pump.
The creeping dependence on imports leaves the country more vulnerable to international supply disruptions and exposes the growing inability of domestic refiners to provide relief when markets get tight.
This growing market constraint, amplified lately by the trouble foreign refiners have had meeting new Environmental Protection Agency standards for cleaner-burning gasoline, did not develop overnight.
More than half the nation’s refineries have shut down since 1981, no new ones have been built and none are planned. Moreover, the industry has kept capacity growth at remaining facilities to a minimum, despite rising demand.
“Refiners are spending all of their money just meeting all the new (environmental) regulations,” Bill Greehey, the chairman and chief executive of refiner Valero Energy Corp., said in an interview Friday. “They don’t have the money for strategic projects to add to their capacity, so it’s not surprising that we’re short capacity.”
At the same time, Greehey acknowledged that this dearth has allowed the industry to enjoy phenomenal profits these days.
“The thing that’s been more surprising than anything else is the strong demand for gasoline,” even with pump prices averaging more than $2 a gallon nationwide, Greehey said.
L. Bruce Lanni, a senior oil analyst at A.G. Edwards in San Francisco, estimates that refining margins are more than double what they were a year ago. That has sent the stock prices of independent refiners Sunoco Inc., Tesoro Petroleum Corp. and Valero, among others, soaring.
U.S. refiners don’t hide from the fact that profits are at near-record levels these days. Instead, they use this fact to dispute claims that they are withholding product from the market, arguing that there is every incentive to produce as much gasoline as possible.
Often left unsaid, however, is the fact that domestic refiners no longer have the wherewithal to produce enough gasoline to meet peak summer demand. With just over a week until Memorial Day, the traditional start of the summer driving season, U.S. gasoline inventories are nearly 8 million barrels below the five-year average at this time.
The U.S. refining industry is “producing record supplies, but it’s still not enough to meet the current demand,” said Aaron Brady, an associate director at Cambridge Energy Research Associates in Cambridge, Mass. “That puts the spotlight on imports.”