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Little being done about weak link in fuel supply

When there were isolated instances, in the wake of Hurricane Katrina, of gas stations posting $4, $5, and $6 per gallon prices, it was decried as unconscionable price gouging.

When the oil companies raised prices nationally by 40 cents to 50 cents per gallon in a two-day period during the height of the disaster, well hey, that was just supply and demand at work. The free market, don'tcha know.

While there was a monumental outpouring of donations from the people of America for hurricane relief, Big Oil was merrily jacking up prices and raking millions more dollars into their already-overflowing coffers.

It is not likely to get any better.

Some industry analysts are predicting that $4 per gallon gasoline is not that far down the pike, and the diesel farmers rely on will follow suit.

The Federal Energy Information Administration has forecast that natural gas prices this winter could be a whopping 70 percent higher than last year, so farmers shivering through the winter can look forward to even more astronomical nitrogen fertilizer prices next spring. As of last week, almost 40 percent of the natural gas production in the Gulf of Mexico was still shut down. Stiff increases can also be expected for propane and butane, pushing up the costs for heating poultry, hog, and nursery operations.

For Katrina, as with other events that have an impact on the U.S. petroleum industry, refineries were the key weak link in the supply picture.

It has been almost 40 years since the last refinery was built in the United States. For decades, the oil companies have complained that refining is the least profitable of their operations, and so they mothballed many smaller operations (in 1981, there were nearly 325 refineries; now, 149). Capacity of U.S. refineries has declined nearly 10 percent during the period, while oil consumption has jumped 33 percent.

The past couple of years have seen enormous increases in profits from refining operations, but no new facilities.

Industry critics contend that the oil companies have deliberately kept a tight rein on refining capacity in order to artificially reduce supplies and boost prices. Refineries are said to currently be running at 95 percent of capacity or higher, and any hiccup — accident, fire, weather disaster — causes an immediate price spike at the pump.

When Crown Prince Abdullah of Saudi Arabia visited President Bush last year, he pointed out that even though his country has the capability to provide more oil to the United States, there isn't sufficient refining capacity here to process it.

One — count it, one — new refinery is on the drawing board. Located near Phoenix, Ariz., it would have a capacity of 150,000 barrels per day.

If, that is, the facility's ever built. It's now six years and $30 million into the paperwork phases, and only recently got a vital emissions permit from the state. Even if everything went without a hitch from here on out, and investors could be found to pony up the $2.5 billion or more for construction, the plant wouldn't come online until 2010 or later.

Bottom line: Look for supply to remain iffy, prices high.

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