The Taxman Cometh

8 June 2005

The G8 is mulling plans to subsidise the construction of new refineries, and so ease energy bottlenecks that have kept oil prices high. Right problem, wrong solution. One snag is that this approach doesn t do anything about curbing gasoline demand especially in the US.

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The G8 club of rich industrial countries is considering tax breaks for large oil companies that would stimulate the construction of new oil refineries and so ease severe supply bottlenecks, according to press reports.

A lack of refining capacity has helped push oil product prices to record highs this year. The plan is expected to be part of the agenda of the G8 meeting in Scotland next month.

No new refineries have been built in the US or western Europe for about 30 years. The refining sector currently operates at about 95% of its final capacity, compared to 75% two decades ago.

The shortage of refining capacity is most acute in the US, which imports about 15% of its daily petroleum product consumption of about 20m barrels a day. US gasoline users currently pay around $35 per barrel of gasoline in taxes, compared to $170 in Europe, according to Goldman Sachs estimates.

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