With So Many Refineries Closing, Is This an Energy Crisis?

If there is truly an energy crisis, why have so many of the nation’s refineries been shut down in recent years?

Since 1985, a total of 98 refineries have been taken off line. Fifty of these, with a crude capacity of 1,360,614 B/SD (barrels per stream day) were closed in the last decade.

The closures are just one more mystery in a muddled energy picture. Meanwhile, President Bush’s clumsy efforts to take care of his oil industry buddies while fashioning what he hopes will pass for a national energy policy looks like an early disaster for the new Administration.

The Bush-Cheney so-called solution to the nation’s energy problems is weighted heavily on the side of more production with conservation and greater efficiencies tossed in as little more than afterthoughts.

But the heated debate over production versus conservation and efficiency obscures a lot of other steps that could be taken to give consumers a better break on energy.

The President should have the Department of Energy use its influence with the oil companies to get closed refineries back in production. In many, if not most cases these refineries can be back in production without lengthy delay. For one thing, these refinery sites have been previously certified including compliance with environmental standards. Reactivating these idle facilities should be a priority.

The Administration also needs to take action to prevent refiners from spiking prices by withholding supplies of gasoline. As reported in the Wall Street Journal, Marathon-Ashland Petroleum LLC intentionally withheld supplies of gasoline for the Chicago and Milwaukee markets last summer tokeep prices high. This is what happens when refinery capacity is deliberately tight when it is does not need to be.

Based on findings by the Federal Trade Commission, the Journal said that despite an excess supply, the company limited the gasoline it sold to keep prices high at the pump. FTC said the company, thus, found itself with “considerable market power in the short term.”

The Portland Oregonian reported earlier this year that BP Amoco “systematically jacked up West Coast oil prices by exporting Alaskan crude to Asia for less than it could have sold it to U. S. refiners.”

“There is no doubt whatsoever that they were in the business of shorting the West Coast market,” an University of Texas economist hired by the FTC said in an interview published in the Oregonian. The newspaper obtained an e-mail exchange in which BP trading managers discuss the benefits of “shorting the West Coast market” to “leverage up” prices there. Motorists pay many dollars because of this corporate manipulation.

High on the must list of the Administration should be a crash effort to investigate so as to determine the degree to which unnecessary refinery closures, the withholding of oil and gasoline supplies and collusion among the refiners may have contributed to this year’s skyrocketing prices. Congress, too, has a very important role in getting to the facts behind the price increases and presumed shortages. Senator Carl Levin of Michigan is in a good position to investigate since he has recently assumed the chairmanship of the Senate Permanent Subcommittee on Investigations.

Certainly, these fact-finding missions should be carried out before the Administration tries to get through a defiant Congress its ill-conceived plan to drill for oil in the Arctic National Wildlife Refuge in Alaska.

And on the question of Alaskan oil, the Administration needs to take immediate steps to once again place a flat prohibition on the export of Alaskan oil — something that would take the pressure off of plans to
proceed with additional environmentally-risky oil development.

In 1995, the Congress with the enthusiastic support of the Clinton Administration and the oil industry passed legislation which wiped out the prohibition on exports of Alaskan oil to Japan and other Asian
countries. The ban had originally been imposed in 1973 to guard against oil shortages on the West Coast, but with an excess of oil on hand in 1995, British Petroleum, ARCO and Chevron lobbied to sell the surplus in Asia. And President Clinton and the Congress acquiesced.

When the merger of BP-Amoco with ARCO was pending before the Federal Trade Commission, the companies agreed voluntarily to stop the exports of Alaskan oil to the Asian nations. The agreement apparently has been kept. But it is a voluntary agreement that the companies could drop at any time. It has no force of law. Energy policies should not rest on such a thin reed solely on the good faith of profit-hungry corporations.

As long as his Administration claims there is an energy shortage, President Bush should ask the Congress to reenact the export controls on an emergency basis.

Not only is it important to consumers and the nation’s economy that a rational, fair and environmentally-sound energy policy be adopted, but it also critical to the credibility of an Administration whose top officials have deep roots and recent deep pockets in the oil industry.