At first glance, it seems like a great time to buy a refinery. The price of gas is hovering around $4 and will likely stay high heading into the summer months. (Even news of Osama bin Laden’s death hasn’t moved prices much.) But a closer look shows refiners are actually trapped between two sets of players in the oil industry — providers who deliver crude oil to them for refining, and customers who buy their finished products.
Crude providers are contending with global macroeconomic forces that make the price of their raw materials high, and customers of course want to buy the finished petroleum-based products as cheaply as they can. Refiners thus find their profits squeezed from both sides. However, refining is still an essential part of the oil industry — a barrel of unrefined crude, after all, won’t fill your gas tank.
So while it’s unusual that BP (BP) wants to get rid of its top refinery in Texas City, Texas, it’s altogether strange that the company can’t seem to find a buyer. The refinery, after all, can crank out more than 430,000 barrels of refined petroleum product per day. “Texas City may be one of the most advanced refineries in the U.S.,” says Antoine Halff, head of commodities research at the Energy Information Administration (EIA). “It’s not a bad asset, it’s a good asset.”
Granted, the facility has had a checkered past. It blew up in 2005, and is currently facing a $10 billion lawsuit for a chemical incident there last spring. BP could use cash from the sale to deal with the impact of creating a $20 billion relief fund to clean up the Gulf of Mexico in the wake of the Macondo spill, which happened just over a year ago.
But Morningstar energy analyst Allen Good says major oil companies that actually have the wherewithal to run facilities like Texas City are also sellers, rather than buyers, in the refinery market. What gives?
Long-term, despite today’s high fuel prices, the demand for gasoline in the United States and Europe is slowing, Good says, “People believe that the U.S. in particular hit peak gasoline demand in 2007 and will never really reach that again.”