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Refinery fire pushes nation closer to gas shortage

By Seth Borenstein Knight Ridder Newspapers

Problem lies with turning oil into gasoline at nation's refineries.

WASHINGTON -- Experts say the country is just one refinery glitch away from a gasoline shortage that would make already soaring prices seem like a half-price sale.

For a few hours, it looked as if that glitch might have been a fire at a refinery in Carson, Calif. Luckily, Monday night's blaze wasn't as bad as feared, and prices only spiked a couple of cents initially Tuesday on the futures market in New York.

But it illustrates a crucial problem that has America's refined gasoline supply dancing on a "razor's edge," said Larry Goldstein, president of the Petroleum Industry Research Foundation, an industry-funded research group in New York.

The problem is not just short supplies of oil, but turning it into gasoline in America's refineries. The U.S. refinery industry is maxed out with no reserves to tap, and no relief in sight.

"Any blip or any disruption or unforeseen equipment outage will certainly have an effect," said Betty Anthony, strategic planning director for the National Petrochemical and Refiners Association in Washington. "The whole refining and distribution infrastructure is really stretched to its limits."

And this problem means prices "could get as bad as $3 a gallon in California and in parts of the upper Midwest" with the rest of the nation peaking at about $2 a gallon, said John Kilduff, an energy analyst for the investment firm Fimat USA in New York.

Just two weeks ago, the U.S. Energy Information Administration predicted gas prices would peak in June at a nationwide average of $1.52, just under last year's 10-year high price of $1.53. Last week, the same agency reported the national average already had reached $1.62 and analysts there expect it to keep going up.

U.S. gasoline inventories this month are at 192.8 million barrels, a record low level for this time of year, when oil companies ramp up for the summer driving season, according to the EIA.

"When you have low inventories, there just isn't any cushion when things go wrong," said Joanne Shore, a senior analyst at the EIA.

No U.S. refineries have been built for more than 20 years and the number of refineries here has fallen from 231 to 152 since 1983, Anthony said.

The Midwest is highly vulnerable this summer because Premcor's Blue Island refinery outside Chicago closed last month because of environmental concerns. It supplied 8 percent of the region's gas, she said.

Every year since 1996, there have been breakdowns at refineries that caused prices to soar regionally, Goldstein said.

"You're on such a razor's edge without a cushion that when something goes wrong it's reflected instantly in price," he said.

It costs hundreds of millions of dollars to build a new refinery and since they make only about a 5 percent return on investment, no one is building new ones, Anthony said.

-- Martin Thompson (, April 26, 2001


This reporter must have been reading GICC this past year.

-- Martin Thompson (, April 26, 2001.

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