Oil refineries are a unique business. Everyone depends on them. Collectively they have a monopoly. In that way they are a lot like utilities. They sell portable energy that everyone uses and there is no practical alternative, yet.
Long ago one refiner had a virtual monopoly, Standard Oil, ESSO (SO). They got big because initially they had a superior product, kerosene that did not ever explode. They followed up with predatory business practices, like selling below market to drive competitors out of business. Standard Oil was so powerful that Congress passed a law, The Sherman Antitrust Act, to allow the government to break it up into a multitude of smaller companies, most of which still had Standard Oil, as part of their name. There have been a multitude of mergers, acquisitions and reorganizations in the industry. Collectively they still function as a monopoly. Notice that prices seldom vary by more than a cent between nearby competitors, but may vary distinctly depending on politics, or geography.
We obtain electricity from the local electrical utility. Although we may elect from whom they purchase kilowatts for us to use, we are locked into the local wire owner for the last mile. The utilities pay a price for this monopoly, they are heavily regulated and price controlled but with a guaranteed but not large profit. For over a century, this has worked pretty well in most regions most of the time.
City gas has been around even longer and for the last century and a half has worked so seamlessly that no one that has city gas even thinks about it. (Well outside a war zone) There was confusion in changing from manufactured gas (made from coal) to natural gas in the 50s.
City water, most places there is some sort of water utility that keeps the water on 24/7, for about $10 a ton. Although we have become more demanding about the quality of the water, the supply has been reliable starting when Latrobe built the Philadelphia Water Works in 1802.
Cable, TV or internet, we may have some flexibility in choosing the content, but for the vast majority, the last mile is via a single wire. Just like landline telephones have been for over 100 years.
A movie a while ago depicted an engineer who migrated from India to New York, a year later he imported a bride. He had to explain to her. The gas works all the time, the electricity works all the time, the phone too, the water, the heat and the buildings hot water. In much of the world those things are not reliable if they work at all. Most of our utilities are investor-owned, but government-regulated.
What do utilities have in common, they serve everyone in a district, and they serve them all equally and more importantly they are as reliable as a stone fence.
Oil refineries have a lot of power. They can set the price of their product for opaque reasons. There does not seem to be a strong correlation between the commodity price of crude oil and the retail price of their products. Most oil comes from wells drilled long ago and probably paid for also long ago. The cost of the next barrel is basically the energy to pump and transport it. The price of the first barrel out of a new well is the multiple millions to buy the rights, drill the well and establish the logistics. The cost of a particular retail gallon is unknowable, like a kilowatt. There may be superficial differences between brands, but most of that is what is added just before the last mile. Utilities have the same economics, a huge capitalization followed by distribution of an astronomical number of small units. The cost of a particular kilowatt is unknowable.
To avoid political price or availability manipulation, refiners could be regulated as utilities. The only real difference is that utilities have a territorial monopoly, while most refinery products are fungible commodities that can be traded like coffee or sugar.
Ken Obenski is a forensic engineer, now safety and freedom advocate in South Kona. He writes a biweekly column for West Hawaii Today. Send feedback to obenskik@gmail.com.
