Annual pump price rise is fast, furious this year

Higher gasoline prices are supposed to discourage demand and encourage more production. But so far, there is little evidence that higher pump prices have prompted significant changes in driving habits or a shift to higher efficiency vehicles — despite loud complaints from drivers. Gasoline demand is running 2.4 percent above this time last year, according to the Energy Department. Typically, demand peaks in July or August.

Refinery profit margins have been rising along with demand and pump prices. Refiners made an average of $15.75 for every 42-gallon barrel in the first quarter, more than 30 percent higher than last year, according to Eitan Bernstein, an analyst at Friedman, Billings, Ramsey.

That higher profit will keep refiners focused on getting production back up to full speed as soon as possible, said Kloza.

“There is so much profit to be made running refineries, there is tremendous motive to run those refineries full out,” he said. “So these (outages) will give way to higher production.”

Refiners also plan to expand production capacity. While no new refineries have been built in the United States in 30 years, producers have been steadily expanding their existing operations to keep up with demand.

In recent years, much of the industry’s capital investment was devoted to upgrading fuel  quality to meet clean-air standards, including tougher requirements for low-sulfur diesel and the elimination of an additive to make fuel burn more cleanly.

With those upgrades out of the way, there are billions of dollars worth of ongoing and planned expansion that will add as much as 1 million barrels a day of refining capacity over the next few years. Among the key projects:

• Motiva, a joint venture of Shell and Saudi Refining, is in the midst of an expansion that would add 325,000 barrels per day of capacity to its refinery complex in Port Arthur, Texas. That’s  the equivalent of building a new refinery, according to company officials.
• Marathon Oil is spending $3.2 billion to expand production of diesel fuel by 180,000 barrels per day at its Garyville, La., refinery.
• Chevron shut down its Pascagoula, Miss., plant late last year for more than two months to boost production capacity by roughly 10 percent to about 5.5 million gallons per day. Chevron says that, over the past few years, it has boosted its U.S. refining capacity by 6 percent, or 1 million gallons per day.

But efforts to expand capacity may face additional hurdles as refiners scramble to find contractors and skilled crews to build out the planned expansions.

“Many of these expansion plans will very likely be delayed and take longer than expected,” said Halff. “Because the cost will be much higher than initially estimated or because we’ll simple have problems finding the workers and getting it done."

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