Over the past few weeks, the media has been bombarding us with all sorts of facts and figures regarding oil and gasoline prices. Out in public, many pundits are charging the oil industry with price gouging.
Unfortunately, many of these same pundits are taking advantage of some basic economic illiteracy when it comes to the market for petroleum products. But when we walk through the section on petroleum in the EIA Annual Energy Review, those basic facts and figures are clear and easy to understand.
Petroleum: Who did we get it from? What did we do with it? Where did it go? And why are gasoline prices high?
Let's begin by clicking on this Petroleum Flow diagram. U.S. crude oil supply in 2004 was more than 15 million barrels per day. Of that 15 million, we imported about 65% from other countries.
Who did we get it from?
According to EIA's Petroleum Overview table, 17% of the crude oil produced in the U.S. came from Alaska. The other 83% came from the 48 states excluding Alaska and Hawaii in 2004.
Of the 65% of the petroleum imported from other countries, the U.S. imported the most from Canada, an average of 2.1 million barrels per day. Mexico came in 2nd with 1.64, followed by Saudi Arabia with 1.56 and then Venezuela at 1.5 million barrels per day.
What did we do with it?
We gave the refineries about 16.8 million barrels each day during 2004. They then turned it into distillate fuel oil, jet fuel, gasoline, residual fuel oil and other petroleum products outputting 17.8 million barrels each day. For definitions on what each petroleum product is click on EIA's AER Glossary.
You may be wondering how refineries put out more barrels than received. As crude oil is refined there are gains in the process.
Processing Gain: The volumetric amount by which total output is greater than input for a given period of time. This difference is due to the processing of crude oil into petroleum products which, in total, have a lower specific gravity than the crude oil processed.Where did it go?
Transportation was the dominant end use sector for petroleum consumption, 66%. 25% went to the industrial sector and the rest, 9%, went to the residential, commercial and electric power sectors.
How can nuclear help in the transportation sector? For the answer check out my last post:
Over time, the plan is to move from using gasoline-powered vehicles with hydrogen vehicles. Right now the Department of Energy is in the research and development stage of this long term transition. To read about the Nuclear Hydrogen Initiative, click here.Why are gasoline prices high?
Two words: Refining capacity. In 1981, there were 324 in operation. In 2004, less than half that, 149 refineries were still operating.
Over the past 10 years, they have been running at and above 90% of capacity -- which means there isn't a lot of room to spare. Refineries are producing about as much petroleum products as they possibly can. At the same time, U.S. demand continues to rise. And with a large swath of America's refineries knocked out of action due to Hurricanes Katrina and Rita, there are practical limits to how much gasoline they can produce.
It's a simple economic equation. If demand increases and supply is constricted, prices are going to go up. And that's exactly what's happening now.
So why aren't there more refineries to keep up with demand? Check out this article from ABC News:
Analysts say just a few new big refineries could produce enough extra gasoline to make a dent in prices. But building even a small refinery in the United States is a monumental task -- just ask McGinnis.The last time a refinery was built was back in the 1970s. No one wants them in their backyards and the approval process has become unpredictable -- something that's anathema to Wall Street, the people who fund construction.
He's been trying to build a refinery on a patch of Arizona desert for a decade, and at this point hopes to be operational in early 2010. It's taken five years to get the air quality permits -- the site had to be moved from Phoenix to Yuma --— and they still won't break ground for another year.
"By the time we're completed, it will have been 15 years since the project really got started until we got product to the market," McGinnis said.
That's a situation that the nuclear energy industry can empathize with. But thanks to the Energy Policy Act of 2005, that looks to be changing.
For parts 1 and 2 of EIA's Annual Energy Review click here and here.