What is going to keep US petrol prices - already at record levels - high in the future? Ethanol, according to oil industry pundits quoted in the New York Times. It is an elegant argument: targets to replace petroleum-based road fuels with biofuels cast doubt on the future profitability of oil refineries, which deters new investment, which keeps capacity tight and refining margins high. So if you think you are paying too much for your petrol in future, blame the environmenatlists and the farmers and the Bush administration, and every other supporter of ethanol, but not Big Oil.

It is a provocative thesis, which has attracted comment both negative and positive. But while ethanol may be part of the picture, it is far from being the only deterrent to investment in US refineries. Consumer journalist Christopher Platt suggests such investment just hasn’t been popular with shareholders. And there are plans for new investment by Marathon, for example, (full story requires subscription).

The clincher, though, is that refining margins are simply not the most important determinant of petrol prices: that is the price of crude, as this analysis at the Oil Drum blog makes clear. Other things being equal, the more biofuels the US can use to replace petroleum products, the lower the price of crude will be.

May 24th, 2007 in Biofuels, Gasoline, US | Permalink