Stumped at the Pump? Look Deep into the Refinery

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Gene Cotten, the manager of the Valero Energy Corp. refinery in Texas City, Texas, asserts that it is difficult to know whether or not his refinery should be expanded to meet crude oil demands. Such expansions are costly, and demands rise and fall like a roller coaster. Large inventories are discouraged when short-term oil prices are high; then, when cold snaps occur, refineries must scramble to meet consumer needs. When crude oil prices rise, raw materials prices and operating costs also rise, which keeps profits to a minimum. In addition, slow-moving pipelines make it difficult for refineries to garner profits; by the time gasoline has reached its destination, prices could have risen or fallen with no warning. In addition, gasoline has a new formula these days, something that the Valero Energy Corp. hasn't fully been able to address in terms of speed of production. The new blend has forced Texas City to reconfigure some operating procedures; this, in effect, will scale back output by 7% per day, resulting in decreased profits. Mr. Cotten hopes to expand Texas City's crude oil output by 23% this year. Such an expansion could substantially increase profits, as witnessed by the Valero Corpus Christie plant, which garnered $124 million in profit last year. Texas City only witnessed $2.3 million in profit.

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-- Martin Thompson (mthom1927@aol.com), May 29, 2000