Down with the evil Gas lords II: Kaak's Revenge!

[KrazyHorse]

Originally posted by Flubber



Err kid are you arguing that the oil companies with refineries are more profitable now than they would be with an additional refiney??

It's possible for that situation to arise in a market economy. My feeling is the effect of a single additional refinery on market prices would not be enough to make that happen. It's more likely to be true for large refiners than for small refiners (since small refiners have less market presence which is harmed by the drop in prices)

Kid, that's a very serious charge. How do you know it's true?

[Kidlicious]

Originally posted by Flubber
Err kid are you arguing that the oil companies with refineries are more profitable now than they would be with an additional refiney??

I'm saying that if they would have built new refineries that the margins of their existing refineries would not be as high. Therefore it's possible that their total profit would be less.

[KrazyHorse]

OF COURSE IT'S POSSIBLE

HOW DO YOU KNOW IT'S TRUE?

[Kidlicious]

I don't know, but it's reasonable to be suspicious when you look at the increase in their profits.

[Flubber]

Originally posted by Kidicious

Probably not, but the point is that it's a good time to have one go up.

really? What if a cursory analysis showed that the current refining margins ( that generated 18% for the old plants) would get you a 2% ROR on a new plant . .. Still a good idea ??

Originally posted by Kidicious



Well isn't the life over 15 years? So why use 15 years. The fact is that I could use 5 years or 20 years and the numbers would be different. But it doesn't take a rocket scientist to realize that no one else is building refineries and demand is increasing so building JUST ONE refinery might be a good idea.

I used 15 years since that was the time frame of the cite I had. In reality we would probably look at the 1, 5 , 10 ,20, 30, 40 and 50 year historical and projected rates of return. You learn a lot from these and if the past 50 year return rate averages 5%, you would have to have a compelling ananlysis why the future returns would be higher.

Originally posted by Kidicious

I don't question that Flubber, but not one company built even one refinery. You think the increase in demand is really that shocking. Come on!

But increased demand for gasoline at a retail level does not translate necessarily to adequate profit levels. Its quite possible that most oil companies are projecting consistent returns higher than 18% in their non-refinery business units. Since business units COMPETE for capital, I'm assuming theu had better opportunities.


Although there are several companies with a capability, NONE of them undertook a specific type of project. Did it ever occurr to you that said project might just be a BAD IDEA. Sorry if big business doesn't take your theories and a handful of googled stats as the basis for a multi-billion dollar decision

[Adam Smith]

The oil companies did not build new refineries, but they DID expand capacity at existing refineries and import more gasoline.

CAPACITY DATA

GASOLINE IMPORT DATA

edit: added links

[Flubber]

Originally posted by KrazyHorse


It's possible for that situation to arise in a market economy. My feeling is the effect of a single additional refinery on market prices would not be enough to make that happen. It's more likely to be true for large refiners than for small refiners (since small refiners have less market presence which is harmed by the drop in prices)

Kid, that's a very serious charge. How do you know it's true?

Krazyhorse . . . my personal assessment was essentially the same as yours but my question to kid was whether he was arguing this.

[Flubber]

Originally posted by Kidicious
I don't know, but it's reasonable to be suspicious when you look at the increase in their profits.

of course that one year with an 18% ROR.


shh hate to break it to you but 18% on a project is not that great -- good but not great

[KrazyHorse]

Originally posted by Adam Smith
The oil companies did not build new refineries, but they DID expand capacity at existing refineries and import more gasoline.

Hey, Adam:

Can you tell me why, in the aftermath of Katrina (when refineries went down) oil prices spiked?

The increase in the prices of refined products is an obvious consequence, but if refineries go down then wouldn't demand for their raw material also go down? Or was this just an example of commodities traders being lemmings?

I've never been able to grasp that one.

[Flubber]

Originally posted by Adam Smith
The oil companies did not build new refineries, but they DID expand capacity at existing refineries and import more gasoline.

Yup

I believe many of the expansions were part of upgrading facilities to meet new emission standards. Its often the case that your choices are invest in the upgrade or close down. At that stage the refinery cost is considered "sunk" for the purposes of THIS decision . It is no surprise that an upgrade/expansion has a good business case when a relatively small incremental cost can keep a refinery operating for years and years more

[Flubber]

Originally posted by KrazyHorse


Hey, Adam:

Can you tell me why, in the aftermath of Katrina (when refineries went down) oil prices spiked?

The increase in the prices of refined products is an obvious consequence, but if refineries go down then wouldn't demand for their raw material also go down? Or was this just an example of commodities traders being lemmings?

I've never been able to grasp that one.

Ahh the part you probably are forgetting is that a very large chunk of US Gulf of mexico crude production was disrupted as well. IIRC most platforms were shut in for the duration of the storm and evacuated. Several took minor/moderate damage and some were heavily damaged and out of commission for months.

I know you asked Adam but thats my understanding

[Adam Smith]

KH:

Oil prices spiked because Hurricane Katrina also shut down oil production facilities and handling facilities. IIRC some offshore platforms are still not up and fully running.

[Kaak]

Originally posted by KrazyHorse


Hey, Adam:

Can you tell me why, in the aftermath of Katrina (when refineries went down) oil prices spiked?

The increase in the prices of refined products is an obvious consequence, but if refineries go down then wouldn't demand for their raw material also go down? Or was this just an example of commodities traders being lemmings?

I've never been able to grasp that one.

Offshore oil platforms and ships being abandoned = Less domestic oil production.

[Arrian]

There's a Discovery Channel program on all about the repair work on the Gulf platforms. Man, some of those were messed up!

-Arrian

[KrazyHorse]

Originally posted by Adam Smith
KH:

Oil prices spiked because Hurricane Katrina also shut down oil production facilities and handling facilities. IIRC some offshore platforms are still not up and fully running.

That occurred to me, but the media seemed to hype the refinery closings and completely disregard the upstream production closing. For that reason I'd assumed that the platforms managed to keep drilling.