Repercussions for people outside New Orleans

Jonathan Goodish wrote:
In article .com,
ckingsbury wrote:
The only twig of truth you have to stand on here is OPEC, and they're
not really a factor at this point. No one's witholding significant


Right now, as I understand it, there are two big problems with supply:
refinery capacity and delivery. Refinery capacity has been a growing
problem for some time, and the environmental laws requiring special
blends for certain parts of the country compound this capacity problem.


As I understand it, refining is actually a pretty low-margin business,
which tends to discourage investing in one iota more capacity than you
can sell tomorrow. The issue of blends is an interesting one and I have
heard people with no dog in the fight take both sides. Broadly speaking
it is nowhere near as profound as the lead/no-lead aspect which affects
100LL production. Surely doesn't help, but I'm not convinced it's
anywhere near a primary cause.

Delivery is a largely new problem spawned by the destruction of the
hurricane.

It's also part of a wider dependence on highly-tuned supply chains.
Holding inventory costs money and these days most businesses are trying
to do Just-in-Time processes as much as possible. This is like filling
your car with just enough gas to make the specific trip- it saves the
weight of hauling around gas, but if the gas station at the other end
is closed, you'll run out of gas before you get to the next one.

The bottom line is that environmental laws have a fairly substantial
financial impact on all industry, and the petroleum industry in
particular. New refineries could be built, but it would be so expensive
to build and operate them in compliance with environmental laws that it
would not be worth it.

Tightness of refinery capacity leads to short-term price volatility but
is not the main reason. Gas prices had been relatively stable from the
early 80s until last year, despite (1) no new refineries being built
and (2) major growth in consumer demand for gasoline. In the short term
the loss of a pipeline or refinery can cause regional spikes but these
disappear the minute the production comes back.

However, refining capacity has absolutely zilch to do with crude prices
and they are the primary determinant of pump prices, 85% according to
this FTC study:

http://www.ftc.gov/opa/2005/07/gaspricefactor.htm

The root cause here is a major secular increase in demand for oil,
especially from China which has exploded in the past 2 years. We could
build ten more refineries next week and that would do nothing to
extract more crude
or reduce Chinese demand for it. There's little threat of running out
of oil anytime soon (at $80 extracting from shale/tar sands becomes
profitable, and reserves of those are enormous) but unless we find
major new easily-accessible reserves (unlikely, it's not as though
we're not looking) or the Chinese decide they don't ll want to drive
cars and have electric lights after all, prices aren't going back to
$1.50 in our lifetime.

On top of all of the other costs, most areas pay AT LEAST 50 cents per
gallon in state and federal consumer taxes. Suspension of these taxes
would help to ease gas prices, but those crafty politicians know that if

You know, I could care less about "the environment" (I mean, a 10-day
forecast fore one city is as good as a ouija board, but these guys
think they can forecast global weather patterns 100 years into the
future?) but reliance on imported oil is starting to scare me. All we
need is Iran to light the fuse on a nuke and some 10-cent Castro
impersonator in Venezuela to yell "f--k you Yanqui!" and our entire
economy skids off the cliff in a few months.

Compared to the 1970s we use about half as much oil per dollar of GDP,
which is why this run-up has not wrecked the economy. To the extent
that we reduce our dependence on oil or other foreign energy sources,
we increase our economic and ultimately military security. Every dollar
the price of crude goes down means millions less to finance Iranian
nukes and Saudi terrorists.

So, in my mind the high price of gas is the best way to spur
conservation. The government could mandate things but all of us as
individuals will figure out better and cheaper ways on our own. I would
not support a tax increase however, because I don't support increasing
the size of government, period.

On another note, anyone who lives near the ocean in a city that's 18
feet below sea level is living on borrowed time until the next disaster.

New Orleans developed into a metropolis long before there was insurance
for anything, not to mention the epidemics of yellow fever that killed
more than any hurricane. A much more interesting argument can be made
that the levees are the critical piece. Without them, the river would
have moved west and left New Orleans with a mud puddle instead of a
deepwater port. Without the port, the city loses a primary reason to
exist, and dries up like a midwestern town whose railway spur gets shut
down.

-cwk.