210 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
Operations within firms have become more autonomous. In the
past, vertically integrated oil companies often managed downstream operations as a means to monetize crude oil production
operations; for example, downstream refining operations were
often subsidized or financed by the upstream. Currently, refining
and marketing operations in the United States are generally managed as stand-alone business units accountable for their own profitand-loss performance. Disaggregation of business units combined
with new management practices has focused attention on obtaining
greater returns from existing capital, avoiding unnecessary investment, and cutting costs.
A few significant structural changes characterize the industry.
Mergers, acquisitions, and joint ventures have changed the ownership profile of the industry, altering concentration patterns both
regionally and nationally. A change in business model from an
integrated component, to a stand-alone profit center, has focused
attention on requirement of competitive profitability rates from
each stage in the production chain if the industry is to remain
viable in its current form. Evidence suggests that the new market structure and business model might demand better economic
performance from the industry. Regulatory compliance to meet
congressionally mandated environmental standards, both on
refined products and refinery sites, requires substantial capital
investment by refiners, and has resulted in reduced profitability,
according to the Energy Information Administration (ElA). To
the extent that continued capacity expansion and technological
investments are reduced, or not undertaken, because of low rates
of return, U.S. dependence on imported refined products might
increase, or product markets could be disrupted by shortages and
price spikes.
Consolidation and restructuring appear to have had the salutary effect executives intended insofar as there are indications
that mid-size and large-size refiners have reduced the per-barrel
operating costs by one-third. On the other hand, the elimination
of spare downstream capacity generates upward pressure on
prices at the pump and produces short-term market vulnerabilities. Disruptions in refinery operations resulting from scheduled
maintenance and overhauls or unscheduled breakdowns are more
likely to lead to acute supply shortfalls and price spikes, as measured in weeks.
Operations within firms have become more autonomous. In the
past, vertically integrated oil companies often managed downstream operations as a means to monetize crude oil production
operations; for example, downstream refining operations were
often subsidized or financed by the upstream. Currently, refining
and marketing operations in the United States are generally managed as stand-alone business units accountable for their own profitand-loss performance. Disaggregation of business units combined
with new management practices has focused attention on obtaining
greater returns from existing capital, avoiding unnecessary investment, and cutting costs.
A few significant structural changes characterize the industry.
Mergers, acquisitions, and joint ventures have changed the ownership profile of the industry, altering concentration patterns both
regionally and nationally. A change in business model from an
integrated component, to a stand-alone profit center, has focused
attention on requirement of competitive profitability rates from
each stage in the production chain if the industry is to remain
viable in its current form. Evidence suggests that the new market structure and business model might demand better economic
performance from the industry. Regulatory compliance to meet
congressionally mandated environmental standards, both on
refined products and refinery sites, requires substantial capital
investment by refiners, and has resulted in reduced profitability,
according to the Energy Information Administration (ElA). To
the extent that continued capacity expansion and technological
investments are reduced, or not undertaken, because of low rates
of return, U.S. dependence on imported refined products might
increase, or product markets could be disrupted by shortages and
price spikes.
Consolidation and restructuring appear to have had the salutary effect executives intended insofar as there are indications
that mid-size and large-size refiners have reduced the per-barrel
operating costs by one-third. On the other hand, the elimination
of spare downstream capacity generates upward pressure on
prices at the pump and produces short-term market vulnerabilities. Disruptions in refinery operations resulting from scheduled
maintenance and overhauls or unscheduled breakdowns are more
likely to lead to acute supply shortfalls and price spikes, as measured in weeks.