A grim future looks to be in store for refineries like this one, owned by Valero. (image: roamsecure.net)

As the global recession made deep cuts in oil demand, the refining sector was hit especially hard. For major oil companies, refining has sucked away profits made in exploration and production. Refiners without such a diversified business have simply struggled, squeezed between low consumer demand for refined oil products and the rising price of the crude oil refiners have to buy.

What can refiners do to get back on their feet? The Financial Times’ Energy Source blog examines the argument from a pair of analysts at the investment bank Barclays Capital who say they have the answer: close more refineries.

According to the Barclays Capital analysts, only closing refineries—not selling them or waiting for oil demand to recover—can eliminate the refining industry’s overcapacity that is dragging down profit margins. Not that refineries haven’t been shut down; Sunoco closed a refinery in New Jersey, Valero did the same in Delaware, and the French oil company Total set off a strike that led to fuel shortages in France when it closed the doors to its refinery in Flanders. Yet Barclays’ analysts think refiners would need to make more drastic cuts to revive profit margins, and to make those cuts they will have to overcome the political opposition to refinery shutdowns that comes from consumer groups, workers, and communities. In their logic, the French oil company Total erred when it promised to close only one refinery, after workers at all of its other refineries went on strike to protect their jobs.

Political opposition in the US comes from consumer groups that have accused refiners of keeping prices artificially high by reducing operating capacity, as an editorial in Monday’s Los Angeles Times noted. Yet refiners are in a difficult position. Higher crude oil prices don’t necessarily mean that refiners profit. At all times their operating costs are dependent upon the price of crude; they make money on the difference between crude prices and the price of refined petroleum products. In 2008 they were criticized for not increasing capacity as oil prices hit record highs in response to spiking demand; now that demand has fallen, they are under fire for closing capacity. Like any business, refiners made cuts when faced with reduced demand for its products.

Even if refiners cut capacity further, closed more refineries, and alienated consumers in the process, their troubles could still continue. As the Barclays analysts note, capacity cuts in North American or European refineries will have little affect on prices of refined oil products (and therefore on refiners’ profits) if capacity is added in China.

It’s hard to see many bright spots in the refining industry’s future. Depending on your point of view, oil demand in the developed nations that make up the OECD will either stay flat or has peaked and is set to decline, but neither prospect is encouraging for refiners. Crude oil production is likely to move to unconventional sources, raising the price of crude for refiners.

For consumers of refined products like heating oil and gasoline, it might be beneficial to have Chinese refiners step in and add oil products to the market, which helps keep prices down. But it seems unrealistic to expect refiners to continue to produce when it only cuts into their profits; no business that did so would survive for very long. Refiners may begin to see the same things the analysts at Barclays see, and slash capacity to swell profits, at the expense of consumers buying heating oil and gasoline.

Building more nuclear reactors may take too much time and do too little to reduce emissions. (image: amitojgautam.wordpress.com)

A new report has concluded that more nuclear power is not going to help reduce global warming, reports Tiffany Hsu in the Los Angeles Times. A citizen-based environmental advocacy organization, the Environment California Research & Policy Center, says that launching a nuclear power industry nearly from the ground up will take too long and cost too much. Researchers say energy efficiency standards and renewable energy options are better solutions.

The last time a nuclear power plant was built in the US was 1978 and there are no new nuclear reactors on the horizon. All orders for nuclear facilities after fall 1973 were eventually canceled, according to the report.

The study suggested that building a new reactor would take about a decade; it could be completed by 2016 at the earliest. Plus, due to the lack of trained personnel, it would be difficult to manufacture parts for the reactor.

Even if the nuclear industry managed to build 100 reactors by 2030, the power they produced would only reduce total US emissions by 12 percent over the next 20 years. For Environment California, that is “far too little, too late.”

This report comes on the heels of recent reports that nuclear energy is the key to winning bipartisan support for the climate bill in the Senate. So although nuclear energy might be the politically expedient choice, it may not be the wise one.