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Why ‘Drill, Baby, Drill!’ won’t work … yet

“Drill, baby drill!”

It’s been the mantra of proponents for expanding America’s use of domestic petroleum to counter the increasing volatility that comes from our dependence upon foreign oil. And, I’m strongly in that camp.

I believe using our own oil resources is vital not only to our national security interests, but also to our economy. And, I’m not alone in that sentiment.

But, as it stands right now, “Drill, baby, drill” won’t help. Not yet.

We have to address the issue of refining capacity first. And it’s no small task to tackle.

According to the Energy Information Administration, the number of operable refineries in the United States has been reduced by more than 50 percent (there were 302 refineries in 1982, today there are 143). Granted, improvements in efficiency have resulted in almost no reduction in refining capacity (17.9 million barrels per day in 1982, compared to 17.4 million bpd), but oil demand in the U.S. has risen to nearly 21 million bpd.

Refining facilities in the U.S. have been operating at or very nearly full capacity for more than a decade. But, the last refinery build in the U.S. was started up in 1976. Why? Because refineries are: 1) difficult to get approved, 2) difficult to get built, 3) expensive to build, and 4) not very profitable.

Case in point: Arizona Clean Fuels, which was approved for a new refining facility in 1998. Getting a permit to build the refinery took seven years. Since then, the company has had to move the proposed location of the refinery twice because of environmental restrictions and land disputes.

The projected price tag for the company’s refinery is $3.7 billion. The average per-barrel profit for a refinery was $3.20 last year (the six-year average is about $6.25 per barrel). At 150,000 barrels per day, the refinery would need to operate for more than 21 years just to pay off its construction costs.

Of course, those aren’t the only factors contributing to the lack of new refineries in the U.S. It’s a tad more complicated, largely because we were operating at a refining surplus — we refined more oil than we consumed — until the past 10-15 years, during which almost all of our refinery closures occurred.

Some have argued these closures were calculated by oil interests who wanted to drive up the price of petroleum.

Mind you, refining capacity doesn’t have the biggest impact on the price of gasoline, but it is a contributor. But, if we hope to flood the market with millions of barrels of American oil, we need to have the refining capacity to convert that oil into gasoline.

Combined, expanded oil harvesting and expanded oil refining would dramatically improve the price of gasoline. That impact would trickle through almost every facet of the U.S. economy alone, but also consider the high-paying jobs that would be created by both moves.

Comprehensive domestic energy policy” is a tired phrase these days, but that’s exactly what the U.S. needs right now. It should include provisions for the expansion of “green” energies, such as hydroelectric, wind, and biofuels, but it also needs to include provisions for expanded nuclear, clean-coal, and domestic oil use.