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Monday, June 20, 2005

$60 oil but altering refineries still too sour for petrol industry

Crude oil is at a record high of $60 per barrel right now. I've seen serious speculation that $70 may not be that far away. When that happens it might not be that bad an idea to start studying those wonderful "Mad Max" movies for important tips like how to wage war for a tank of juice and how to go out into the wasteland to learn to live again...

Here's what I can't figure out: some credible analysts are saying that we are fast approaching (if not already reached) the point of "Peak Oil", when demand will vastly outstrip supply. But Peak Oil is a position based on current production, with what is available now to keep supplies constant. For the most part that's dealing only with "sweet" crude oil: meaning the oil has a low (less than 5%) sulfur content. That's what most of the refineries operated by oil companies are set up to crack. In contrast, so-called "sour" crude - which has a much higher percentage of sulfur - isn't being refined that much at all, and by most indications there's plenty of the stuff that can be readily tapped and pumped.

The problem is, refineries that process sweet crude can't handle the sour crude. At least not without a lot of upgrading and modifications. It can be done, but it's a step that major oil companies have been loath to take as yet. And when you think about it they've got a vested interest NOT to upgrade the sweet refineries: increasing the supply means cheaper oil. Which means they stand to make less profit than they are now. It would also be expensive in the short term to make the modifications.

But with the price of oil skyrocketing, what choice do they have but to start tapping and processing the sour crude, if they are going to still make a profit at all?

There is still oil to be pumped, although sooner or later (and better it be sooner) we're gonna have to switch over to something more plentiful, like corn oil or propane or hydrogen cells. Such energy alternatives would be a lot cleaner too. Not to mention more energy-efficient. The only reason petroleum-based products are still used now is because crude oil has bragging rights on being the fuel that was first most abundantly available. Now we know there are other options to choose from. Between here and there we're looking at a transitional period that, if we are approaching Peak Oil, we've got no choice but to start refining the sour crude, regardless of immediate cost concerns.


Anonymous said...

That's a really good assessment of the oil situation. What kind of background do you have in economics?

Chris Knight said...

No formal economics training. I've got a history degree and whatever the school of life has taught me :-) Thanks for the kind words!