Oil, the Created Crisis: Oil Firms Sell Abroad, U.S. Pays (Part 1)

July 22, 1973

« |1|2|3| »

That there is a shortage of refining capacity in the United States is one of the few areas in which there is agreement among oil company officials and industry critics.

The United States used 15,980,000 barrels of crude oil last year, according to data compiled by the British Petroleum Co. Ltd., which publishes an annual, worldwide review of the oil industry.

At the same time, refineries in the United States were capable of processing only 13,450,000 barrels a day, according to the British Petroleum Co. study.

The difference of 2,530,000 barrels a day between demand and refinery capacity was covered by imports of finished petroleum products – largely from Canada, Venezuela and the Caribbean.

From the mid-1960s until now, fewer than a half-dozen new refineries with capacities exceeding 50,000 barrels a day each were constructed in the United States.

A Different Story

Overseas, it was a different story. The annual reports of the oil companies read like a catalog of refinery construction projects:

Standard Oil Co. of Calif. – "In the Eastern Hemisphere, the new 130,000-barrels-a-day refinery at Feluy, Belgium, began operations, materially increasing the company’s ability to supply its expanding markets in Northwestern Europe . . . In the Far East, jointly owned Caltex and its Japanese affiliates placed a new 76,000-barrels-a-day refinery on stream at Osaka."

Exxon Corp. – "In Singapore, which has become an important refining center, a 100 percent-affiliate owned refinery went on stream with a capacity of 81,000 barrels a day. . .The company concluded arrangements to build a 72,000-barrel-a-day refinery in Okinawa, the first such facility in the Ryukyu Islands."

Texaco, Inc. – "Texaco’s equity in refinery runs in the Eastern Hemisphere increased 18.8 percent to 918,000 barrels a day. Contributing to this gain were the . . .completion of the 80,000-barrel-a-day Vexin refinery in France, now 15 percent owned, and the start up of the wholly owned, 100,000-barrel-a-day Ghent refinery in Belgium."

Mobil Oil Corp. – "Projects completed in 1968 include the wholly owned 80,000-barrel-a-day refinery at Amsterdam. . . In southwest Germany, our wholly owned 70,000-barrel-a-day refinery at Woerth went on stream early in 1970. . .Construction is scheduled to begin in 1973 on a 160,000-barrel-a-day refinery at Wilhelmshaven, Germany – the largest single refinery-building project Mobil has ever undertaken overseas."

Gulf Oil Corp. – "Three new refineries were completed during the year adding 160,000 barrels a day of refining to the Gulf system. The refinery completed near Milan, Italy, is wholly owned and the refineries at Bilbao, Spain, and on Heianza Island, Okinawa, are partially owned. . . The year also was one in which the new refinery at Milford Haven in Wales completed its first full year of operation."

Throughout this period of rapid refinery expansion around the world by American oil companies, there was very little new construction in the United States.

This was due largely to the fact that –line missing – excess of refinery capacity, so that American companies were in the position of being able to turn out more gasoline and fuel oil than they could sell.

Aware of Shortage

But by 1970, oil industry officials were clearly aware of an impending shortage in refinery capacity. The Oil & Gas Journal, the authoritative trade magazine for the petroleum industry, sounded the warning more than two years ago.

In an editorial headlined "U.S. refineries are heading into a period of trouble," published March 22, 1971, the magazine stated:

"During the Seventies, domestic refiners will be forced to take on a heavier share of a burgeoning demand for energy. Those refiners who do not look beyond the new residual needs of the East Coast and arrange their plant capacity accordingly are missing the mark. Failure to expand will invite an industry crisis of the first rank.

"Total of new plant construction is not high today. Jobs on the books are for the most part ‘tail-end’ projects with completions due this year or early next. After that, there is nothing – not a single major construction project committed against the needs of 1973.

If refiners generally do not cut through their many problems and close some new construction projects this summer, they will face difficulties they haven’t dreamed of. Since it takes two to three years to complete any modern refinery, a crunch on domestic petroleum products appears almost inevitable by the mid-1970s."

As everyone now well knows, all the predictions made in 1971 by the Oil & Gas Journal have come true. But perhaps even more revealing than the magazine’s accurate forecasts was a story it published a year later on March 27, 1972.

In that issue, the magazine again warned of the coming crisis: "The U.S. is rapidly running out of time to avert a refining-capacity crunch for clean products – notably gasoline."

This time, the magazine put forth a theory as to why American oil companies had failed to expand existing refineries or build new ones:

"The conviction of many refiners – who point to widespread price-warring and distress gasoline – is that a lull in construction is needed to let demand catch up a bit. That sounds reasonable – if the lull doesn’t last too long. At this point, it appears there’s a definite danger of this."

False Claims

What all this means, is that: The claims of oil industry spokesmen that environmentalists are to blame for the current gasoline and fuel oil shortage because they blocked refinery construction are without foundation.

The general industry tone has been set in a series of advertisements published in recent months by Mobil Oil Corp. One advertisement, which appeared in the New York Times on April 12, 1973, asked:

"Why haven’t oil companies built more refineries here?" The company then offered the following answer:

"Mainly environmental and financial constraints. While the vast majority of consumers are unaware of it, legislation and litigation arising from exaggerated environmental fears have effectively prevented oil companies from obtaining satisfactory sites for new refineries. And the wholesale prices we get for gasoline and other products do not recover the increased cost of building refineries."

True, environmentalists have aggravated the current energy shortage. They have so far blocked construction of the Alaskan pipeline. They blocked construction of a proposed refinery in Delaware. But they did not create the oil shortage. The oil companies and the Federal government did that.

In the last three months, for example, several major oil companies have announced plans to substantially expand existing refineries – a step that could have been taken at any time in the past and one that involved no controversy over sites.

Proposals Killed

As for environmentalists halting the planned Delaware refinery, the major oil companies themselves – aided by the Federal government – killed proposals in the late 1960s to build two new refineries, one at Machiasport, Maine, the other at Savannah, Ga.

The Machiasport refinery, with a projected capacity of 300,000 barrels a day, was proposed in 1968 by Occidental Petroleum Corp. It would have been one of the largest refineries ever constructed in the United States.

The refinery was designed to alleviate expected home heating oil shortages in New England. At the time, Gulf Oil Corp., like other companies, argued that there had been "no real shortages" of home heating oil.

Now the oil industry generally acknowledges that there is a shortage of petroleum products, including fuel oil.

Oil industry opposition to the Machiasport refinery was so intense and so bitter that the large oil companies, headed by Exxon Corp. and the industry trade organization, finally took their case to President Nixon.

The Machiasport refinery was never built.

« |1|2|3| »