Gas Prices Could Soar When the Economy Rebounds
A Reuters news story says the U.S. could be poised for a serious fuel-supply shortfall once the economy rebounds.
Why? Because U.S. refineries, responding to collapsing short-term demand, are postponing or cancelling more than $10 billion worth of scheduled upgrades and capital spending.
Valero Energy Corp., the largest U.S. refiner, as well as ConocoPhillips, Sunoco, Chevron and Marathon Oil, are all delaying projects. No new refineries have been built in the U.S. since 1976. Because refinery expansions take years to complete, short-term delays could spell trouble ahead.
If the economy rebounds too quickly, the imbalance could cause fuel prices to skyrocket. The greater the mismatch between production and demand, the rockier price changes could be.
“I think it’s fair to say we’re probably going to end up with higher-priced fuel because of these delays and postponements and deferrals, but that day of reckoning is at least two or three years away,” said Joseph Arsenio, managing director at Arsenio Capital Management in Larkspur, California.
There are multiple forces at work that all point to higher fossil fuel costs in the future — OPEC’s determination to get crude oil prices back in the $80- to $100-a-barrel range, surging demand for oil in China and India, and the arrival of peak oil production in many oil-producing nations. My feeling is that we’re going to need more than a few years to develop a viable alternative wind and solar energy infrastructure.
