|SThe investment environment for refiners in general had
picked up. For much of the past twenty
years, the refining industry has experienced low margins and returns.
|SWhile companies were able to reduce their operating costs,
competition and overall market conditions brought prices down with operating
costs, keeping the net margins low.
|SRefining profits looked to be trending up since 1995, with
a few exceptions. Growing demand and
shrinking surplus refining capacity during the 2003-2007 time period drove
definite improvements. Utilization was
high, and even though refined product growth rates were modest, many felt
more refining capacity was needed.
|–While not shown in this chart, high margins for a given
year frequently came as the result of an event like the hurricanes in 2005.
|–Profitability for the year was the effect of a limited
number of high profit months rather than a smooth general increase, which
increases the uncertainty in predicting profitability.
|SLight-heavy crude price differences were also expanding at
this time, which contributed significantly to profit growth for refiners with
the ability to upgrade the heavy crude bottoms. (The growing light-heavy
crude price difference is sometimes referred to as the heavy, sour crude oil
|SOptimism about the future profitability of refining was
increasing, and with the cash flow from increasing profits, many refinery
expansion and upgrading projects were being planned.