BusinessWeek’s most recent issue featured a new “smarter” look, but some of the writing is as dumb as ever. Always striking me as prone to overbroad, partially innacurate statements, this week’s commentary on energy prices contained several sweeping generalizations that are definitely misleading at best.
Take this line about the recent runnup in gas prices. Because refiners underestimated demand, they cut back on production. Then, when summer driving came in above expectations, prices shot up, allowing refiners’ profit margins to triple or more.
True, they may have cut back on production. But not all of those production cutbacks were intended. A variety of factors affected gas prices in mid-August, including the normal high summer demand leading up to Labor Day, higher crude oil prices, generally low gasoline stock and disruptions such as a broken gasoline pipeline in Arizona, refinery problems in California and the blackout-related refinery shutdowns.The recent blackout halted refining operations in the Northeast and Midwest. Nowhere is there mention of any of the more likely culprits in the BusinessWeek analysis.
They also throw out the line that pats US on the back for our conservation effort. In the U.S., output per unit of energy, adjusted for inflation, is up 77% since 1973, the year of the first Arab oil embargo. While it is true from the data that energy efficiency had increased significantly during the years after the Oil Embargo, the demand for energy has increased dramatically during the years since. And at the same time, measures to further increase efficiency have not taken root, as energy prices have remained relatively favorable since the embargo. According to a 1998 report from the US Energy Information Administration, per capita consumption of energy has not significantly changed, indicating that energy usage has increased per person each year since 1983. So depsite our increased efficiency AND population growth, each person today uses more energy than a person going about his or her day in 1983, on average.
Finally, there’s no real mention of the lack of new refining capacity in the country. Perhaps that’s because the Department of Energy faults deregulation for removing the incentive to create new capacity, something that the anti-regulation BusinessWeek finds disturbing. According to the DoE’s web site
The United States experienced a steep decline in refining capacity between 1981 and the mid-1990s. Between 1981 and 1989, for instance, the number of U.S. refineries fell from 324 to 204, representing a loss of 3 MMBD in operable capacity, while refining capacity utilization increased from 69% to 86%. Much of the decline in U.S. refining capacity resulted from the 1981 deregulation (elimination of price controls and allocations), which effectively removed the major prop from underneath many marginally profitable, often smaller, refineries.
Without the spare capacity that this provided, any disruption in refinery activity, such as a blackout coupled with a pipeline interruption and some routine maintenance is enough to lead to price spikes. But for some unknown reason, BusinessWeek didn’t find it necessary to look in to these issues.
This one last statement in the BusinessWeek article, however, I fully agree with. Global growth isn’t exactly torrid.