These are challenging times in the oil refining industry, as an article on the front page of the business section of today’s New York Times documents (Chilly Climate for Oil Refiners).
Five U.S. refineries have shut down in the past year.
The recent closings signal the end of a period from roughly 2004 to 2008, when demand soared, refineries operated near capacity and profits swelled. For drivers, that meant gasoline prices at $3 or $4 a gallon, especially when hurricanes knocked out refining capacity on the Gulf Coast. For refiners, this gilded period turned out to have been an anomaly.Plagued by boom-and-bust cycles of rapid expansion followed by sharp belt-tightening, refining companies have often struggled to operate at a profit. That is a contrast to the production side of the oil business, long a road to riches.
“Oil production creates wealth, but oil refining has often destroyed it,” said Costanza Jacazio, an analyst at Barclays Capital in New York.
Even so, these are unusually harsh times for oil refiners. The recent drop in gasoline demand could result in more refineries being closed in the coming year.
“We have too much capacity,” said Lynn D. Westfall, the chief economist at the Tesoro Corporation, a midsize refiner, who estimated that the industry’s capacity of 18 million barrels a day must be cut 5 to 8 percent. “We need refineries to be shut down.”
Let’s hope that Washington refineries are not among those to be shut down. We can’t afford to lose the high paying jobs or the tax revenue.
In 2008, jobs at the state’s five refineries paid an average annual wage of $114,090. That year, the state collected $104,787,514 in B&O taxes from the industry. This works out to a huge amount of taxes, nearly $55,000, for each of the refineries’ 1,921 employees, While in 2008 the industry provided 0.08 percent of the state’s private sector jobs, it paid 3.5 percent of the B&O taxes.
For more information, see our study of the industry’s economic impact in 2007.