More on Full Capacity
- From: "js" <jonathansmith99@xxxxxxxxx>
- Date: 29 Sep 2005 14:04:46 -0700
Alan - this is just for you.
You proposed a conspiracy theory to explain the rise in gasoline
prices. As part of this theory you used a WSJ article as supporting
evidence.
You said, and I quote directly:
"FYI, in today's Wall Street Journal it was reported that refineries
had been operating at 95% of capacity immediately prior to the two
storms striking. So if we are to believe uour 'experts' who claim, as
you assert that 90% of capacity is really FULL capacity, then 95%
should be impossible. of course, unless your experts are wrong, which
is quite likely. Regardless of what historical operating levels have
been, the issue here is that the US had NOT been operating at full
capacity; that
oil companies are responsible for running those refineries at those
levels, and use that 'excuse' to create artificial supply 'shortages.'
My position was (and still is) that production at 95% maximum is
possible in the short run but is unsustainable in the long run. I
cited experts who suggest that long term full production is about 90%
of the rated maximum. I cited that the reason for this discrepancy is
that there is a need to halt production periodically for scheduled
maintenance, that regulatory requirements result in less than 100%
efficiency, and that over the course of years as opposed to weeks, 90%
is a consistent level and has remained relatively unchanged year over
year in the US for the past 14 or so years.
You argued that plants can run at greater than 90% in the long term and
this was proved by the WSJ article. You argued that this willful under
production was intended to increase price.
In yesterday's WSJ a second article was published addressing this.
The article clearly and firmly without question supports my position.
The title is: "Refiners' Tough Call: Do Fall Maintenance or Pump Flat
Out?"
Pumping flat out - that's what they did prior to the storm according to
the previous article.
The article goes on to explain the dilemma. Short term peak production
would result in a profit opportunity because of current high prices for
the individual firm. However, the risk of accidents due to a
mechanical malfunction goes up as maintenance is postponed and this
creates a large risk of further supply interruptions.
The article goes on to provide three examples of decisions being made
by individual refiners. Valero Energy intendes to keep the pumps
running and put off maintenance. Tesoro is doing the same though they
said they had made this decision earlier. ConocoPhillips will continue
their maintenance schedule.
The article also cited what can happen when maintenance is delayed
referencing the BP incident earlier. They also cited a string of
accidents and interruptions which occured prior to Rita and Katrina -
the time frame which is consistent with the pushed production referred
to in the previous article.
It would seem that some individual firms are taking a risk and
maximizing production while others are retaining a more prudent course
and keeping maintenance schedules on track.
Clearly, there is no collusion. Clearly, production over the long run
has bveen at full capacity in the US for a number of years and price
fluctuations are uncorrelated. Again, no purposeful exploitation of
the market through artificial means or collusive behavior.
And that, Alan, is the rest of the story.
js
.
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