Thursday, September 29, 2005

Choices, Choices For Petroleum Refiners: More Profit Or More Safety?

With eight refineries still shut down as a result of Hurricane Rita and four still down as a result of Katrina, translating into about 20% of U.S. refining capacity, American refiners are facing some tough decisions, according to the Wall St. Journal:
With profit margins soaring and political pressure building to increase gasoline output, the nation's refiners face a dilemma as their fall maintenance season nears.

Going ahead with the maintenance schedule would mean shutting down refinery production, adding to the shortfalls caused by hurricanes Rita and Katrina, and keeping gasoline supplies tight and prices high. But postponing maintenance, needed to keep their refineries in top running condition, could increase the chance of accidents, potentially disrupting even more production.
...disrupting production and, um, also possibly killing a few workers.

But there are bigger things to worry about than disrupted production and dead workers:
There is ample incentive for refiners to get their plants going again as quickly as possible, and to keep them going. In a report Tuesday, Morgan Stanley predicted that Gulf Coast refining profit margins -- the gross difference between what a refiner pays for a barrel of oil and the amount it fetches for refined products -- would hit $10.50 in 2006, up 13.5% over this year and more than double 2003 margins.

Meanwhile, soaring gasoline prices are fueling rumors that refiners are somehow manipulating the market. Tuesday, Democratic senators called on the Senate Commerce Committee to investigate allegations of price gouging in what they said was an effort to "hold oil companies accountable for rising gas prices." The average price for a gallon of unleaded gasoline is $2.80, according to the Energy Information Administration, up nearly 89 cents from this time last year.
But after last week's record fine against BP Amoco for an explosion that killed 15 workers, the cost of these incidents can't even escape the Journal's notice:
Last week, BP PLC agreed to pay workplace-safety regulators $21.4 million in fines for safety violations tied to a deadly March 23 explosion at an octane-boosting processing unit at its Texas City, Texas, plant. Investigators said BP officials were aware that repairs were necessary but had opted to delay them until after the unit's start-up. BP agreed to pay the fines without admitting to the alleged violations.

"You've got to weigh the economic benefits and the pressure to produce against what's prudent and safe," said Doug MacIntyre, an analyst with the EIA.
BP Texas City, however, seems to have learned its lesson:
Officials with BP said Tuesday that the refinery would take advantage of a total refinery shutdown prompted by the Hurricane Rita evacuation to make some needed repairs and retooling of units within the facility. In all, BP’s Texas City refinery has 29 units, five of which were already down following a series of incidents including the March 23 blasts that killed 15 people and injured more than 170.
BP's Texas City refinery produces 3 percent of U.S. gasoline.