Who's really to blame

In the aftermath of Hurricane Katrina, there are few things that we really need to occupy our minds beyond the huge scope of devastation and human loss that Katrina and its (her?) resultant floods caused. Look at the New Orleans Convention center, for example. (link for the lazy)

But one thing that everyone around the nation will undoubtedly rally around is the increase in gas prices. In Saint Louis, Missouri, gas prices rose sixty cents between Monday evening and Tuesday evening, when the scope of the damage became clear to gas stations and fuel distributors.

Frequently, and throughout the summer, those on the right have blamed environmentalists and liberals in general for the increase in prices. Nevermind that environmentalists are far less likely to drive 12 mile-per-gallon Ford Excursions than, say, a Toyota Prius, or even a sensible Civic. Increased demand increases prices, we should all know that by now.

In reality, however, the real root cause of the gas crunch is refinery operation. Most refineries are now operating at nearly 95% capacity in the US, meaning that there's not a lot of wiggle room if, say, one refinery were to be shut down for one reason or another.

There are currently 149 refineries that are theoretically operating in the US, including on the coast of the Gulf of Mexico - most of those are offline right now while oil companies figure out how to turn them back on. So, 149 refineries operating at 95% capacity...we should just build more refineries, right?

Not exactly. The last refinery built in the US was built in 1976, nearly 30 years ago.

Alone, that fact might put a lot of weight behind the idea that environmental regulations are to blame for the dearth of refineries in the US. Alone, I'd certainly agree, especially as my wallet takes a beating.

BUT....

In 1981, there were 324 refineries operating in the US. Doing the math means that 175 refineries have been closed just in the last 24 years. Part of that was natural slack in the system that came from low demand, and therefore low prices. But there's no reason that some of the refineries couldn't have been kept open, or at least been kept intact, in the event of a demand crunch.

Well, there is one reason: it would have been good for profits of oil companies to create a demand crunch as they merged together to form superlarge conglomerates. They had excess refining capacity when they existed as independent companies, and they closed some refineries when they merged.

And that's what has happened: oil company profits are higher than they've ever been, and we're paying more at the pump than we ever have before, and it's because refineries have been closed, not because there's been no construction. It's not environmentalists' fault that gas is over three bucks a gallon.

It's the oil companies' policies. Profit is the name of the game. And while that's not a bad thing by any stretch of the imagination, the unwillingness of these companies to cut into profits a little bit and make things easier for consumers here in the US does make you ask a lot of questions as to what's more important: the long-term health of the American economy, or the short-term price of your own shares.