Thursday, December 24, 2009

Oil refiners

Another reason why government attempts to pick winners in the energy sector doesn't make much sense:
Only a few years ago, a cry went up that the United States needed more oil refineries. The perceived shortage was so acute that George W. Bush, president at the time, even offered disused military bases as sites for building them.

Not only did that never come to pass, but the reverse is now happening. The business of oil refining is mired in a deep crisis, with five refineries having shut down this year, including plants in Delaware, New Jersey, California and New Mexico.
Granted, part of the reason refineries are suffering is because of other misguided government interventions such as the promotion of ethanol (a payoff to agriculture interests) and fuel efficiency standards which make American cars less competitive. But oil refining has always been a tough business, and the government's attempt to predict the future is equally futile whether those making such prognostications are Republicans or Democrats.

Update: And more energy policy nonsense from Thomas Friedman here.


Ben said...

I think the bigger problem is not ethanol and the government picking winners and losers, as you say, but the larger decline in gasoline demand (from less driving) and diesel demand. My guess is that with economic recovery will come increased diesel consumption. The EIA has started reporting ethanol production/importation/and consumption. But their 2009 annual report (the first to record those numbers) won't be out until June 2010 or so.

Colin said...

Yes, the biggest problem is absolutely a decline in demand. But this illustrates my central point about the futility of picking winners and losers. A few years ago Bush decided that refiners were in danger and required government assistance. It is obvious now that this was a bad bet. Bush, like Obama, has been granted no particular insights into the working of the energy industry.