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69 comments on Refining the Plateau

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apsmith on January 5, 2006 - 10:20am Permalink | Subthread | Comments top
Well, the main plateau started in about 1980, and the decline to it started with the oil shock of 1973. It looks like up to that point refining companies had a particular model of demand growth and they just kept building at a certain rate, barely keeping pace. From 1973 on for several years, from your graphs, they must have been really hurting as new capacity came on line that there was no need of.

I grew up in Newfoundland, Canada, and we were very aware of the status of the "Come By Chance" oil refinery, completed in 1974/1975, and then mothballed after about a year of unprofitable operation. It was started up again in 1987 and is fully operational now, but anybody aware of the history would be very reluctant to build a new refinery without being certain we won't get a repeat.

So the particular reason for the decline in refinery capacity additions in the last few years could be expectation of near-term oil price spikes; given that the recent flatness (2001-2004) is coincident with the Bush administration's tenure, maybe oil industry executives knew to expect something... But we wouldn't want to get into conspiracy theories...

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Jack on January 5, 2006 - 11:35am Permalink | Subthread | Parent | Comments top
In the 1970s, the US removed incentives for smaller refineries. I will find the name and date. Once these were gone some inefficient facilities were shut down, so the nation's capacity shrunk.

For many years after, it was easier an more effective to add capacity further along the process than distillation, this is called debottlenecking. For this reason there have been no greenfield projects in the US. I understand that most opportunities have been exhausted.

But there has been a lot of capital invested in refining and the current infrastructure is not the same as 30 years ago. Demand growth has been for highly refined products such as gasoline, diesel, jet fuel and heating oil. This has been met by additions of crackers and other equipment that create more of these products from the same distillation capacity.

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69 comments on Refining the Plateau

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