Not a single oil refinery has been built in the U.S. since 1976. The number of U.S. refineries has dropped to 149, less than half the count in 1981. Because of operating improvements and expansions at the surviving refineries, shrinkage in capacity has been held to only 10%. Meanwhile, however, gasoline consumption has risen 45%.
As new sources of easy-to-refine light oil become harder to find, the world will become more dependent on its abundant sources of difficult-to-handle heavy crude. One-third of Saudi Arabia's 260-billion-barrel reserves are heavy crude. Worldwide, about 40% of oil resources are heavy or extra-heavy crude, and another 30% are in oil sands and bitumen, which are even more difficult to refine.
The U.S. isn't ready for heavy crude. Only 30% of U.S. refineries can process it. And the U.S. isn't doing anything to get ready. It won't invest in anything that doesn't look like a sick bank. Refinery capacity is already a bottleneck, and the bottle's neck is narrowing.
The human element of the energy infrastructure is also in decline. Matt Simmons, the author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, warns that the best-qualified petroleum geologists and engineers are now retiring, with no one to take their place.
Factor # 4: Growing Demand for Oil
The world's population will continue to grow, and developing countries will continue to grow more prosperous. Both trends will add to the demand for fossil fuels.
China and India are sucking up oil at an ever-increasing rate. China has seen oil consumption grow by 8% per year since 2002; it now exceeds 8 million barrels per day. China's middle-class population is nearing 300 million people. While U.S. auto sales were plummeting in 2008, China's auto sales rose 6.7%, to 9.38 million units. Sales in the first five months of 2009 are 14% above a year earlier.
India's automobile sales are on pace to exceed 10 million in 2009. By 2020, the country's oil imports are expected to more than triple from 2005 levels, rising to 5million barrels per day.
It isn't just China and India that are adding to demand for oil. Others, notably Russian and Brazil, are doing the same. The non-OECD countries now have surpassed the OECD countries in energy usage. This trend will accelerate as the citizens of these countries grow wealthier and buy cars, TVs, and refrigerators.
Get ready for some loud but useless noise. When oil reaches $200 a barrel in the next few years, Congressmen will yell, posture, expound, skewer oil executives on TV, and get red in the face. They will do everything but admit the truth. We will be paying for decades of underinvestment in commodity infrastructure, malinvestment in ethanol, and lack of realism in answering the complaints of Green extremism.
The Department of Energy was created by President Carter in 1977 for the stated purpose of advancing the energy security of the United States. The Department now employs 109,000 people and spends $24 billion of taxpayer funds every year. The accomplishments of those well-funded 109,000 people have been few. We are about to learn in a way that no one will be able to overlook just how few.
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