Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
did not build any new refineries during this time, however. Rather, they added this capacity
through expansion of existing refineries. See Box 3-4.
Box 3-4: No New U.S. Refineries for Gasoline Since 1976, But One Is Now Planned.
Since 1976, no new refinery has been built in the U.S. with the primary purpose of producing gasoline.
Of the variety of factors that likely contributed to this, one may be economies of scale. Because an
existing refinery may become more efficient by becoming larger (up to a certain point), it may make
more economic sense to expand existing refineries than to build a new one. Another factor may be
declining U.S. crude oil production. In earlier years, U.S. refiners often sited refineries near crude
production facilities to reduce transportation costs and ensure a steady supply. The opportunities for
such economies have declined with the decline in U.S. crude production. Other factors likely include
costly and extensive permitting and licensing requirements mandated by various federal, state, and
local environmental and other laws, as well as community opposition. In addition, relatively low
refinery profitability may not justify the investment required to surmount these hurdles. The EIA
reports that, from 1977 to 2003, the return on investment in refining and marketing assets averaged 6
percent per year. This is just over one-half the average return on investment in crude oil production
assets (10.3 percent) and pipeline assets (10.9 percent) during the same time period. See PETROLEUM
MERGER REPORT 72, 193-95 (updated with EIA data through 2003).
Although new entry into refining in the U.S. has been widely regarded as very unlikely, plans for a
new refinery in Arizona are now moving forward. The output of such a refinery could ease West
Coast gasoline prices. See Tony Illia & Tom Armistead, $2-Billion Petroleum Refinery in Arizona
Would Be First in 28 Years, MCGRAW HILL CONSTRUCTION ENGINEERING NEWS-RECORD, Nov. 1,
2004, at http://www.construction.com/NewsCenter/Headlines/ENR/20041101e.asp.
a. Historical background: government regulations in the 1970s encouraged excess
crude oil refining capacity and overbuilding of U.S. refineries.
Figure 3-7 shows total U.S. crude refining capacity on a yearly basis for 1949-2004.
Between 1949 and 1969, total crude oil refining capacity gradually increased, from 6.2 million
barrels per day in 1949 to 11.7 million barrels per day in 1969. The number of U.S. refineries
during that period generally declined, from 336 refineries in 1949 to 279 in 1969.
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FEDERAL TRADE COMMISSION, JUNE 2005