By Jad Mouawad - THE NEW YORK TIMES - Sunday, July 22, 2007
Oil refineries across America have had a record number of fires, power failures, leaks, spills and breakdowns this year, causing dozens to shut down temporarily or trim production. The disruptions are helping drive gasoline prices to highs not seen since last summer's records.
These mechanical breakdowns, which one analyst likened to an "invisible hurricane," have created a bottleneck in domestic energy supplies, helping push up gasoline prices 50 cents this year to well above $3 a gallon. A third of the country's 150 refineries have reported disruptions to their operations since the beginning of the year, a record, according to analysts.
There have been blazes at refineries in Texas, Louisiana, Indiana and California, some of them caused by lightning strikes. Plants have suffered power losses that disrupted operations; a midsize refinery in Kansas was flooded by torrential rains last month.
American refiners are running roughly 5 percent below their normal levels at this time of the year.
"You have a system that is taxed to the limit," said Adam Robinson, an energy research analyst at Lehman Brothers. "This is what happens when spare capacity is eroded."
After Hurricanes Katrina and Rita disrupted the nation's energy lifeline almost two years ago, oil companies delayed maintenance on many of their plants to make up for lost supplies and take advantage of the high prices. But, analysts say, they are now paying a price for deferring repairs.
As a whole, refining disruptions have been considerably higher than in previous years: They averaged 1.5 million barrels a day in the first quarter, compared with 700,000 to 900,000 barrels a day from 2001 to 2005. In the days after the hurricanes, refiners were forced to briefly halt as many as 5 million barrels of production.
In 2006, when refiners were still reeling from the impact of the hurricanes, disruptions in the first quarter averaged 1.35 million barrels a day.
Many factors have led to the rise in gas prices, including disruptions in oil supplies from places such as Nigeria and Norway. But analysts say the refining bottleneck in North America has been one of the main drivers of higher energy prices this year.
The refining crunch has pushed wholesale gasoline prices up 35 percent this year. It has also contributed to a 23 percent gain for crude oil prices in the same period. Oil futures in New York closed at $75.57 a barrel on Friday.
Some critics have theorized on Internet blogs that the squeeze on gasoline and other refined products points to a deliberate effort by oil companies to bolster profits by keeping supplies tight. But experts point out that the companies have little incentive right now to hold back on fuel supplies.
"Every refinery would like to run as much crude as possible, but they simply can't," said David Greely, senior energy economist at Goldman Sachs. "These are more complex systems. There are more chances for things to go wrong. And when things go wrong, they tend to back up the system."
Meanwhile, refiners have been scrambling to meet a raft of environmental regulations, phase out toxic additives, add ethanol to the fuel mix and introduce new ultra-low sulfur standards for gasoline and diesel. Industry insiders attribute much of the fragility of refining operations to the difficulty of making these cleaner fuels, which they were not originally designed to do.
This year's problems have raised alarms about the safety of refining operations, especially after an accident at a BP refinery in Texas two years ago that killed 15 workers. The A third of the country's refineries have reported fires, power failures, leaks, spills and other disruptions this year the Federal Chemical Safety Board issued a critical report blaming a broken safety culture at BP. But the board's chairwoman, Carolyn Merritt, said there was a pattern in many other refinery incidents that the board had investigated.
"There is a lack of investments in modern equipment," Merritt said. "The overwhelming preponderance is that if you have inadequate engineering and equipment, poor process safety management and poor staffing, you're set up for a catastrophe."
Merritt, who was appointed by President Bush and will retire after her five-year term ends in August, also singled out the Occupational Safety and Health Administration, which she said does not conduct enough inspections. "There is no enforcement," she said.
OSHA defended its record and said it inspected almost 500 refineries from 1994 to 2004. The agency said it would inspect all refineries under its jurisdiction in the next two years.
Meanwhile, demand has been rising relentlessly, providing little respite to the nation's aging energy infrastructure. Even as consumers complain loudly about high prices, they show no signs of scaling back. Gasoline consumption reached 9.66 million barrels a day in the first week of July, the second-highest level on record.
"The cushion that used to be available five to seven years ago for these unplanned perturbations is no longer there," said Jeet Bindra, Chevron's president of global refining. "When a refinery has a hiccup, there are consequences on supplies."
Read more in the Austin American Statesman
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