“They don’t have to collude, they don’t have to form a cartel, they don’t have to be monopolists,” Stanford University economist Roger Noll said about oil refiners in California a few years back. “All they have to do is take advantage of the crazy rules.”
“The crazy rules” are the environmental regulations and clean fuel mandates imposed by state and federal lawmakers. [bold, links added]
The regulations crowd out smaller competitors, drive consolidation, and keep out new entrants.
If that sounds bad to you, it sounds great to the large refiners.
“Make no mistake about it,” said Thomas O’Malley, a refinery executive who lobbied for stricter clean fuel rules. “The more stringent you make specifications, those become barriers to entry. Strong companies would have an advantage.”
We are today reaping the bitter fruit of environmental regulations that have driven massive consolidation in the refining industry. President Joe Biden now claims to be upset about that.
Biden tells oil refiners: Produce more gas, fewer profits (from @AP) https://t.co/YvaG3UjntU
— Zeke Miller (@ZekeJMiller) June 15, 2022
The Biden administration scolded oil refiners. While mostly blaming Vladimir Putin for high gas prices, he said, “Historically high refinery profit margins are worsening that pain.”
Biden isn’t wrong that refineries are a bottleneck on fuel production and that refinery capacity has been higher in the past.
“Reduced refinery capacity,” notes liberal journalist David Dayen at the American Prospect, “in large part triggered by industry consolidation, has been a major factor” in high gas prices.
But what is behind that “industry consolidation”? Barriers to entry, especially regulations that drive out small players and protect the large incumbents from competition.
These are exactly the sort of barriers to entry Biden administration continues to support — that Joe Biden has spent his career erecting.
One small example is the federal ethanol mandate. Although it allows exemptions for small oil refiners, the Biden administration regularly denies applications for such exemptions — he denied 65 such petitions just this winter.
Had Biden set out explicitly to cause refinery consolidation, he probably wouldn’t have governed any differently as a senator or as president.
Now, he’s pretending to be upset that this concentrated industry is protected from competition and has high costs and high profits.
Read more at Examiner
The trouble with the Democrats is that they think Bigger Government can solves everything
Several small refineries , including 2 in California, have been converted to produce renewable diesel. Why? Subsidies. These refineries produce fewer barrels than before their changeover. The government (us) paid them to produce less. The feedstock is bio-waste, used cooking oil and animal fat and the like. We need some new refineries, located away from hurricane country. Won’t happen, though. Too many hoops to squirm through.
Why do we need refineries, when we can rely on
TAFFYHEAD Joe and CRACKHEAD Hunter to successfully
negotiate refined oil delivery to the USA?
What could possibly go wrong as long as Hunter is paid?
I think you are partially right regarding industry consolidation and market irregularities created by the ethanol blending mandates. Couple that with all the “boutique” gasoline blends required, the near impossibility of ever PERMITTING another new domestic refinery and the growing financial disincentives (i.e. ESG) and you have all the needed components to completely STIFLE the refining sector. Not much better on the upstream & mid-stream segments of the industry either…
It will soon get worse, because Biden’s EPA won’t allow ethanol exceptions for small refineries, so they are going to become unprofitable as soon as prices drop and a whole slew of them will be closing. But that is what the Greenies want with their war on oil.