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May 25, 2007
SouthAmerica: Today when I saw this cover story on The New York Times I started laughing.
Since the big oil companies have not built a single refinery in the US in over 20 years â and during that time the oil companies have merged and merged and they have reduced the number of refineries that the US had 20 years ago. They did that as a matter of their strategy to be able to create a shortage of gasoline at the right time almost year after year.
I remember a program that I saw on PBS a few years ago about that subject â if I remember correctly the program was made by Frontline.
The American system is in shambles and it does not have a prayer to get better because the way the free market works â the oil companies donât want to give up their monopoly position and they try to undermine every way they can the possible competition.
Brazil did not fix its energy problem based on free market solutions. If Brazil depended on the free market to fix its dependence on imported oil Brazil still be a slave to that market as the United States is today.
Who had the balls to fix that problem in Brazil?
The generals did â in the mid 1970âs when we had that major oil crisis â Brazil had a dictatorship at that time and the generals decided that Brazil was going to fix that problem and they put in place all the rules to develop ethanol production on a large scale.
As a matter of fact in the Sustainable Development Forum 2007 - Ethanol and Biofuels that I attended 3 weeks ago in New York City - one of the most interesting presentations on that forum it was given by the president of Fiat.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=93388
The Fiat president presented a very interesting slide show â basically he described the development of the car industry in Brazil in the last 30 years caused by the use of ethanol and all the breakthroughs and improvements that they had to make on their car engines because of ethanol â and today they have a flex fuel system that it is extraordinary and the state-of-the-art in modern technology.
Brazil was able to develop the ethanol industry and its distribution system based on sugar cane because of government planning and implementation of the plan.
The US is supposed to be a free market economy â but is the free market smart?
I donât think so â and you donât have to look any further than the ethanol production capabilities that the United States is developing from corn.
Dumb. Really dumb.
The Brazilian ethanol system it is hard to be replicated for many reasons â first, you need all the elements necessary to create such a system â second, it require a dictatorship as we had in Brazil for them to require the implementation of such energy development system.
Without the dictatorship in Brazil and the generals imposing the rules to develop such a system â without it Brazil would be in the same type of energy mess that the United States is going through today.
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âOil Industry Says Biofuel Push May Hurt at Pumpâ
By JAD MOUAWAD
Published: May 24, 2007
The New York Times
Gas prices are spiking again â to an average of $3.22 a gallon, and close to $4 a gallon in many areas.
And some oil executives are now warning that the current shortages of fuel could become a long-term problem, leading to stubbornly higher prices at the pump.
They point to a surprising culprit: uncertainty created by the governmentâs push to increase the supply of biofuels like ethanol in coming years.
In his State of the Union address in January, President Bush called for a sharp increase in the use of biofuels, along with some improvement in automobile fuel efficiency to reduce Americaâs use of gasoline by 20 percent within 10 years. Congress is considering legislation calling for a nearly fivefold increase in the use of ethanol.
That has forced many oil companies to reconsider or scale back their plans for constructing new refinery capacity.
In hearings before Congress last year, oil executives outlined plans to increase fuel production by expanding existing refineries. Those plans would add capacity of 1.6 million to 1.8 million barrels a day over the next five years, for an increase of 10 percent, according to the National Petrochemical and Refiners Association.
But those plans have since been scaled back to more than one million barrels a day, according to the Energy Information Administration, an arm of the federal government.
âIf the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining,â said John D. Hofmeister, the president of the Shell Oil Company. âIndustrywide, this will have an impact.â
The concerns were echoed in a recent report by Barclays Capital, which said the uncertainty about the ethanol growth âwill do little to accelerate desperately needed investment in complex United States refining units.â
âIndeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely.â
Even so, the current cost of gas â which in real terms is approaching the old peak of $1.42 a gallon in March 1981, or $3.31 adjusted for inflation â has renewed suspicions that the oil industry is looking for ways to keep profits high by delaying much-needed investments. Senator Charles E. Schumer, Democrat of New York, began hearings yesterday on the topic âIs Market Concentration in the U.S. Petroleum Industry Harming Consumers?â
And the House voted yesterday by a narrow margin to penalize any oil companies, traders or retailers found to be charging âunconscionably excessiveâ prices for gasoline and other fuels. President Bush will probably veto the measure because the White House has said such legislation would amount to price controls.
Experts point to many short-term reasons the United States is running low on gasoline, causing prices to rise: many oil companies are doing maintenance work on refineries; new federal rules make fuels cleaner but costlier; and a string of delays, fires and accidents in the industry have reduced supplies just when drivers are starting to hit the road for summer vacations. Many analysts predict prices will keep rising, then soften later in the summer as demand trails off.
Energy executives dismissed any suggestions that they were intentionally keeping gasoline off the market.
The oil companies say their views on the longer-term prospects for fuel reflect simple economics. Because of the enormous investments required to expand refineries, they say they have no other choice but to re-examine their plans in light of the calls for more ethanol fuel, regardless of how realistic they may be.
â¦Refineries are a choke point in the nationâs supply of fuel. Because they have not invested enough in refineries to increase gasoline supplies, oil companies have been unable to meet the countryâs growing demand in recent years. That has forced them to rely on imports, which are more expensive than fuel refined domestically.
â¦But oil companies rejected the idea of constructing new refineries in the United States, saying it would be impractical and too expensive.
As a result of the push for biofuels, and encouraged by federal subsidies and grants, dozens of ethanol distilleries are being planned. These investments should double the annual production of ethanol from corn to 15 billion gallons by 2012 from about 6 billion gallons today.
But given farmland constraints and the need to use corn for food, that is as much ethanol as can possibly be produced from corn, according to the ethanol industryâs own calculations.
â¦Lawrence Goldstein, an energy analyst at the Energy Policy Research Foundation, an industry-financed group, has been warning for nearly a year that the governmentâs twin goals of encouraging refiners to increase production and promoting increased supplies of biofuels work against each other.
âThese two policies are not complementary,â Mr. Goldstein said. âThese policies are in conflict.â
In addition, Mr. Goldstein said, an emphasis on ethanol might lead to increased volatility in fuel prices.
âIf we get a bad corn crop, we will end up paying for it at the pump and on the food shelves,â he said. âWe are not buying security. We are increasing volatility.â
Clay Sell, the deputy secretary of energy, acknowledged the concern, but said that rising energy consumption meant both biofuels and additional refining capacity would be needed in the long term.
âOne can think that these goals are potentially in conflict,â Mr. Sell said. âBut demand growth supports the need for investments in biofuels and growth in refining capacity. Are we concerned about it? Yes. But do we believe these concerns are well founded? No.â
Until the mid-1990s, the United States had significant spare refining capacity.
But because of consolidation in the industry, the number of refineries declined while unprofitable operations were shut. As demand grew, however, and capacity remained flat, the picture changed. In recent years, refineries in the United States have been running at or close to full capacityâ¦.
Source:
http://www.nytimes.com/2007/05/24/business/24refinery.html?_r=1&oref=slogin
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