Clearing the Smog Around Oil Refineries and the Environment

Hello again,

So this week will be on how the oil industry deals with environmental regulation.  However, before I get into that, I’ll take a second to lay out what the next few weeks will be on.  After this week, the general overarching topics will be covered, and I will go into specific examples of optimization on a very detailed level to gain insight into just how far optimization goes with oil refineries.  

Anyways, back to environmental concerns and oil refineries.  So, first off, optimization of oil refineries and environmental regulations don’t exactly go hand in hand.  This is because generally it takes further refining of the product to make it more environmentally friendly, and thus more costly to produce it.  For this reason, unless it is mandated by law, oil refineries tend to work to meet specification without going much further in order to stay competitive.  There are some refineries that take a slight hit in the profits to lower their environmental impact, but this is mostly done by smaller private companies (as opposed to publicly traded companies, a.k.a companies traded in the stock market) if at all.  The reason for this is kinda outside my scope so I’ll keep the explanation brief: If a publicly traded company made that trade for environment over profits, it's likely that their reported net earnings would decrease.  The risk is that if the decrease is large enough, the company would potentially have their stockholders sell their shares, lowering the company's value.  Basically, not good.

This is where governmental regulation comes into play.  The government sets certain specifications to meet in order to sell oil in the given state (usually done on a state level within the United States), and the oil industry then adjusts to meet them.  By doing so, the government effectively increases the price of refining oil and thus increasing the price of gas, but helps the environment in the process.  Not a bad trade off.  

So what does the government regulate to help the environment exactly?  The answer is sulfur, and to be honest I was a bit surprised as it feels that the sulfur levels are rarely mentioned.  And this regulation has helped the environment a lot.  Sulfur is one of the main contaminants in oil, and lowering it greatly aids air quality.  Unsurprisingly, California generally leads the charge in lower sulfur, followed by the rest of the United States usually, and then the rest of the world (not a hard set rule, but generally true).  Over the last few decades, sulfur levels have decreased from a few hundred parts per million, down to the 10-15 ppm range.  This staggering decrease has helped, however the government on both a federal and state levels have continued to lower allowable sulfur levels, especially now focusing on diesel fuel (as that is currently higher).  Anyways, that's what I going on as far as environmental concerns and oil refineries.  Thanks for reading!

Stephen