His topic is why fuel prices in general, and diesel prices in particular, are rising to record levels. Contrary to allegations from Mr. Biden, Senator Warren and others, it's not because oil companies are too greedy. It's because, Geraghty tells us, six U.S. oil refineries have shut down and a seventh is slated to close. Meanwhile, there are no new refineries on the horizon.
The lack of refining capacity has exerted upward pressure on all fuel costs, but the soaring cost of diesel is particularly alarming. Geraghty writes:
As of this morning, the national average cost of a gallon of diesel fuel is $5.57 — which is the record high, according to the American Automobile Association. A year ago, it was $3.17 per gallon. (The national average cost of a gallon of regular gasoline this morning is $4.52; one year ago, the cost was $3.04.)Why is there a dearth of refineries? Geraghty explains:
We are now reaching the point where the cost of diesel fuel is making some goods too expensive to transport. One trucker told the Orlando Fox affiliate yesterday that, “The cost of diesel is single-handedly taking us out of the game one by one no matter how big you are. . . . If you’re getting paid $2 per mile you’re not taking that load no matter if it is baby formula or orange juice because the cost of diesel is $5 plus. You just can’t take that load.”
Back in 2020, U.S. oil-refinery capacity peaked at 19 million barrels per day, according to the EIA. But because of the pandemic, and the delayed decision to permanently shut down the Philadelphia Energy Solutions (PES) refinery after a major accident in 2019, U.S. refinery capacity declined significantly during that year. (PES was the largest oil refinery on the East Coast and refined 335,000 barrels per day.)Nor can those closed refineries simply be reopened:
In addition to the PES refinery, five more shut down over the course of 2020: the Shell refinery in Convent, La., the Tesoro Marathon refinery in Martinez, Calif., the HollyFrontier refinery in Cheyenne, Wyo., the Western Refining refinery in Gallup, N.M., and the Dakota Prairie refinery in Dickinson, N.D. Those six collectively refined more than 1 million barrels of oil per day.
Thus, the U.S. started 2021 with its lowest annual refining capacity in six years, and that capacity did not expand significantly over the rest of the year. And as the pandemic’s effects on American life faded, month by month, demand for fuel increased — not just from drivers but from trucking and shipping companies, construction companies — remember, 98 percent of all energy use in the construction sector comes from diesel — and from airlines and other consumers of jet fuel.
Why are we experiencing these stunning fuel prices? Because we’re getting back to pre-pandemic levels of demand, while our refineries are pumping out about a million fewer gallons of fuel per day than they did before the pandemic. And you know what happens when you mix lower supply with higher demand.
The former PES refinery complex in Philadelphia is being demolished. The Shell refinery is slated to become an “alternative fuels complex,” and it’s a similar transition for the Tesoro refinery.The petroleum industry read the handwriting on the political wall, saw that there's no future in fossil fuels given the current hostility toward them, and begun the process of transitioning out of them.
The HollyFrontier refinery is already converted to processing biofuels, as is the Dakota Prairie refinery. (Certain environmentalists will denounce the greedy oil companies and praise the companies producing environmentally friendly biofuels, never stopping to check and realize that many of them are the same companies.)
Wait, I haven’t even gotten to the bad news: Chemical maker Lyondell Basell Industries announced in April that the company will permanently close its Houston crude-oil refinery by the end of 2023. That plant refines about 263,000 barrels of gasoline, diesel, and jet fuel per day.
But when diesel gets prohibitively expensive, industries that rely on it will begin to cut back or shut down. Farming, construction, airlines, and, of course, trucking will all find it financially impossible to stay in business at the level necessary to keep our economy humming.
Most of the products in our homes are petroleum-based so they'll all become more costly.
A declining refining capacity and the concommitant rise in the cost of diesel and jet fuel will ultimately lead to higher unemployment, empty store shelves, more difficult and frustrating air travel and almost surely a recession, if not another Great Depression.
Read Geraghty's column for more insight into this very troubling predicament.