Why are there no new Oil Refineries built lately when price of Oil today is higher than it was 50 years ago?
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Oil refineries are actually incredibly low margin businesses compared to other parts of the oil and gas industry. The refinery and gas station cuts of the profits are the smallest in the entire cycle of fuel production. The big money is made by the drillers who can pump oil when it’s high value and curb production when it’s low. Refineries on the other hand have no easy ability to ramp up or ramp down. Changing up production to maximize profits is a costly endeavor and is only done 2-4 times a year.
Regulations are also an issue. If you want to innovate you can do so with improvements to create efficiencies that give you an advantage on competitors. Refineries are not permitted to be innovative. They have to go through a costly and expensive regulatory process that almost never goes in their favour. Building a new refinery just means competing against existing refineries that have maximized efficiencies they’re permitted to…. so you really have no competitive advantage on them. When you build a new refinery they can just expand their current one to push you out of the market.
Finally, there’s a current political mood that is particularly anti-oil all around the world. It’s difficult to find investors to build a new multi-billion dollar business that might get shut down by government at any point. Investors like steady stable revenue… they don’t like something so unstable.
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