Understanding a Real Oil/Gas Problem – Look at Refinery Closings

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Summary:

  • Large numbers of refineries have closed
  • Policy-driven Global Warming have forced refineries out of business
  • No one is going to build a new refinery
  • We need a better policy-plan for the future
  • The US should be the world leader in energy of all types, including fossil fuels

Let’s look at a critical component of the overall US Oil/Gas infrastructure – refineries.

Most of you know, the price of oil, natural gas, gasoline and diesel is set by the global futures market …. NOT BY OIL COMPANIES

The futures markets have 2 types of traders, speculators and hedging. Hedging is when a chemical plant agrees to take delivery of 100,000 barrels of oil at the 1st of every month so they can keep making plastics. Hedging is a pre-purchase at guaranteed price. Nothing wrong with that!

Refineries actually buy oil too, they refine it into all the petroleum products we need, then resell it. The problem here in the US is that refiners have been closing down for years. Those that are still in existence, as private companies, what to make what is most profitable for them. Why have refiners been closing plants in the last several years? Much of it is because of pressure imposed by “Global Warming” and reducing CO2 emissions.  This is not a political statement, this is just a fact!

For example, in November 2017 Shell adopted its “scope 3” emissions targets, under pressure from both world leaders and shareholders. This resulted Shell reducing it’s carbon footprint from 54 refineries in 2004 to 8 in 2021 to a planned 5 by 2025!

Of course Shell is not alone, BP also adopted its “scope 3” emissions targets, to reduce refining by 20%, Total, the giant European oil company did the same etc. Others made additional changes, Phillips plans to convert its Rodeo refinery to biofuel, but that also reduced total output by ½, the Marathon converted its Martinez refinery, cutting capacity by more than 70%, Holly Oil converted Cheyenne reducing it by 90% and CVR did the same at their Wynnewood facility.

Now let’s look at the really big guys, Exxon and Chevron. They suffered shareholder rebellions from climate activists and disgruntled institutional investors over a strategy for a low-carbon future. BlackRock, the world’s biggest asset manager, owns a 6.7% stake in Exxon and sided with the climate guys.

Oh, and back to Shell again, in the Netherlands the green campaigners won a court battle in The Hague to force Shell to cut its carbon emissions by 45% in the next 10 years. That’s easy, just shut down capacity!

The Bottom Line

…. policy-driven refinery closures have been dramatic in recent years; but the price impacts have been masked by reduced demand from the pandemic slowdown. Furthermore, banks just don’t want to lend money to the fossil fuel industry like before. Why, because their “carbon footprint” is measured not just by the energy their building consume, but also by the CUSTOMERS FOOTPRINTS! Investors, led by Wall Street are now pushing the latest investment trend ESG (anti- fossil fuel). The banks that are heavily promoting fossil fuel … are Chinese Banks!

Solution

We need a better plan, led by the US to do both manage climate change and protect the next 50 years of fossil fuel requirements. This should be a middle of the road, bi-partisan program. The US should become the world leader in all types of Energy, including fossil fuels.

Next up – how about pipelines?

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