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October 11, 2006
India To Refine America's Gasoline

America has not built a new refinery in almost 30 years, and the increaded demand for gasoline has our existing refineries operating at near-maximum capacity. The Bush administration has often proposed easing environmental rules that handcuff refiners from opening new facilities in order to meet the new and varied demands for different mixtures for regional requirements, but to no avail. Now a massive new refinery has been built for American production of gasoline, but Americans might be surprised to discover its location:

Sitting on the edge of the water in the Gulf of Kutch on India's western shore is one of America's dirty secrets. A mass of steel pipes and concrete boxes stretches across 13 square miles (33sq km) - a third of the area of Manhattan - which will eventually become the world's largest petrochemical refinery.

The products from the Jamnagar complex are for foreign consumption. When complete, the facility will be able to refine 1.24m barrels of crude a day. Two-fifths of this gasoline will be sent 9,000 miles (15,000km) by sea to America.

India's biggest private company, Reliance Industries, with a market capitalisation of $33bn (£17.8bn), runs the plant. Controlled by billionaire Mukesh Ambani, whose father Dhirubhai founded the company, Reliance towers over its industry rivals, contributing 8% of India's exports.

The company's ambitions in Jamnagar have helped India move from being a net importer to an exporter of refined petroleum products. "We want to make a statement that India can be an industrial giant. Jamnagar is a refinery for the world, based out of India," said Hital Meswani, executive director of Reliance Industries. "In the mid-90s when this project was conceived, no one believed it would work. We were told there was too much capacity, returns were not great and every management consultant we hired told us don't bother."

India has caught the wave provided by global instability and nervousness in the oil markets. Suddenly, refining has returned to profitability, thanks to the higher energy prices of the past year. The American refinery crisis after Hurricane Katrina arrived in time to confirm the wisdom of Reliance in its investment in the massive facility.

However, it also confirms the short-sightedness of American policy. The reason India can derive a profit from refining gasoline for Americans is because we have failed to provide for our own energy needs. That adds one round trip to every shipment of oil or gasoline we import. Instead of delivering the oil directly to the US, it now has to pass through India to get the gasoline from a half-million barrels of oil every day. How much does that second trip add to the cost?

The Saudis plan on eliminating some of that additional cost. They plan on opening a refinery capable of handling 400,000 barrels of oil per day. Some of that capacity will undoubtedly be used for exports to nations unwilling to refine their own crude. Saudi Arabia already exports 1.4 million barrels of oil a day to the US, and now we make ourselves even more reliant on Arab energy than ever before.

It's not just an issue of cost, either. The gasoline from a half-million barrels of oil comprise a small but significant part of our energy imports. Having tankers sailing every day with that cargo puts a massive weapon into the hands of terrorists, if they can manage to wrest control of the ship away from its crew. This is no idle talk; the Council on Foreign Relations has been warning about this for at least two years:

Not only has piracy never been eradicated, but the number of pirate attacks on ships has also tripled in the past decade-putting piracy at its highest level in modern history. And contrary to the stereotype, today's pirates are often trained fighters aboard speedboats equipped with satellite phones and global positioning systems and armed with automatic weapons, antitank missiles, and grenades.

Most disturbingly, the scourges of piracy and terrorism are increasingly intertwined: piracy on the high seas is becoming a key tactic of terrorist groups. Unlike the pirates of old, whose sole objective was quick commercial gain, many of today's pirates are maritime terrorists with an ideological bent and a broad political agenda. This nexus of piracy and terrorism is especially dangerous for energy markets: most of the world's oil and gas is shipped through the world's most piracy-infested waters.

We can take two lessons from this. Anything that keeps our energy resources on the seas longer than necessary creates that much more risk for this critical component to our economy and national security. More importantly, it underscores the pressing need to drastically reduce our reliance on overseas oil. We need to boost domestic production of both crude oil and refinined gasoline and eliminate the risks of the Indian Ocean and Persian Gulf. That means more drilling and refining in the US for the short term, and a plan to move to completely different sources of energy in the long term, preferably clean sources like nuclear energy.

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Posted by Ed Morrissey at October 11, 2006 5:48 AM

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Captain Ed has a piece today talking about how India is building a massive refinery “A mass of steel pipes and concrete boxes stretches across 13 square miles (33sq km) - a third of the area of Manhattan - which will eventually become the world&#... [Read More]

Tracked on October 11, 2006 1:34 PM


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