Refinery Backlogs Push Up Gas Prices

May 15, 2007 — -- Drivers across the nation now pay the highest prices ever for gas: on average $3.10 a gallon for regular unleaded gasoline, according to the latest survey by the U.S. government's Energy Information Administration.

So who's to blame?

The problem this year is what's in between crude oil and the consumer: the refineries -- 149 of them across the country turning oil into gasoline.

Already in 2007, a fifth of them have suffered serious breakdowns. Everything from fires to equipment failures to, in one case, a squirrel that sabotaged a refinery control room.

To make things worse, the breakdowns coincided with the time-consuming switch over from government-mandated winter to summer fuel, creating a perfect storm according to refinery companies including the Tesoro Corp.

"We're refining more every year. We simply can't keep up with demand growth," said Lynn Westfall, a senior vice president at Tesoro. "Even one refining incident is felt in the marketplace."

Consumer advocate Mark Cooper says refinery executives should have been prepared.

"They are guilty of mismanaging this business," said Cooper, director of research at the Consumer Federation of America. "Predicting demand? Hey that's their job, and it's pretty constant. Having spare capacity so you don't run out? That's their job."

The average refinery shutdown this year was 40 days, according to a report by economic consulting firm PKVerleger LLC.

Why so long when so much is at stake?

"Before you can even get into the units to figure out what's going on, they have to spend several days cooling down, depressurizing, but once you get inside there may be some damage that requires long lead time equipment," Tesoro's Westfall said.

One solution is to make refineries bigger or build new ones, but there are numerous restrictions on oil companies and no one wants a new refinery in their own backyard.

"Most people say we need new refineries, or we could use that extra capacity," said Red Cavaney, president of the American Petroleum Institute. "But then when you go to a specific locale or a specific community and you start to talk about trying to bring that in, people say, 'No, no, no. I don't really want that. I would rather have that produced somewhere else and brought here.'"