High oil prices are here to say....Amtrak offers relief
Business Week has an interview with the chief economist of a gas distributor who sees nothing but high gas prices ahead.
There are two main reasons why gas prices are high and will likely remain high. One: crude oil is in demand and not in supply, especially as China and India consume more and more. Two: refineries are at full capacity and they are so expensive to build it isn't likely we'll get any more.
Here's part of the interview.
What's been behind the recent runup in gas prices?
First of all, you have to remember that 60% to 70% of the cost of gasoline is the cost of crude. When that doubles from $30 a barrel to $70, prices go up. This spring we had a number of refineries not running well. In the past, the industry had spare capacity. If a refinery was down we'd run the rest at a higher utilization. Gasoline demand has grown at a rate of 2.5 refineries every couple of years. We can't expand existing capacity at that rate. The industry is running at full capacity.
Sounds like someone should build a new plant. Hint, hint.
You're looking at seven to eight years and costs in the billions. Kuwait was looking at building a refinery. It was originally projected to cost $6 billion. Last November the price had run up to $10 billion. By February, it was $16 billion and the project was canceled. In the U.S. we're looking at twice the cost because of pollution controls. Now are you going to go to your board of directors and argue for an investment like that?