Wednesday, June 18, 2008

Observations on the Refining Industry

The conversations at the Southern California Section of AIChE meeting on June 17, 2008 were very interesting. One of the most discussed topics was the high price of gasoline and the direction in which the refining industry is heading. The average price of unleaded regular gasoline in the Los Angeles area is $4.65 at this time.

I believe it is crucial to note that, first, gasoline demand is decreasing in the U.S., second, the price of crude oil is much higher than supply and demand would indicate it should be, and third, a new energy technology is looming on the horizon. I will explain each of these.

First, the U.S. Energy Information Agency, EIA, publishes each week on Wednesday a summary of the previous week's petroleum activity. One of the items tracked by EIA is the rolling four-week demand for gasoline. The gasoline demand is compared to the same period from one year ago.

For the past few weeks, the current demand is somewhat less than the year-ago demand. This is significant, because in the past the current demand has increased by a few percent. The four-week average reported today (June 18, 2008) was 1.9 percent below that of a year ago. This indicates that American drivers are taking action to decrease gasoline usage, even though the population continues to grow. I expect this trend to continue, as Americans purchase more fuel-efficient cars such as hybrids, plug-in hybrids, and pure electric vehicles. It is instructive to note that several auto manufacturers are closing plants that make vehicles with low miles per gallon, such as pickup trucks and SUVs. At the same time, the sale of hybrids is booming. Plug-in hybrids will also zoom off the showroom lots when they are available, probably in 2009.

Second, the high price of crude oil. Today's price was $136 per barrel for light sweet crude oil. Oil producers are either not able, or not willing, to meet the world demand, and the difference is made up by drawing down stored oil inventories. This is not much on a percentage basis, but it is nonetheless significant. However, in light of the first point, and especially the third point to follow, this makes a lot of sense. Basic economics predicts that prices rise during a shortage, whether actual or perceived. This is happening with crude oil.

Third, there is an incredible new energy technology that is looming. What went virtually un-noticed four years ago was a breakthrough in basic research by scientists at Imperial College London. As reported here in the journal Science, these researchers found the precise atomic structure of the protein in plants that splits water into hydrogen and oxygen during photosynthesis. The structure is a cube with an appendage at one corner. This discovery will allow, after a period of more research and development, the production of vast quantities of hydrogen from sunlight and water, at ambient temperature and pressure. The only question, I believe, is how long it will be from laboratory discovery to commercialization.

The availability of virtually free hydrogen as a fuel source, and within the next 15 years or so, has serious implications for oil-rich countries around the world. The demand for oil will be reduced by a factor of approximately four or five. Thus, if total world oil demand remains as it is today at roughly 80 million barrels per day, I predict that the demand will drop to 16 to 20 million barrels per day. The crude oil will be used primarily to make petrochemical feedstocks, lubricating oils, and asphalts.

The implications are huge for oil refineries, power plants, automobile manufacturers, those in the oil exploration, development, and production industry, and even the natural gas industry. There will no longer be a need for power plants that burn coal, natural gas, and especially nuclear power. Instead, clean-burning hydrogen will be burned in electric power plants. And, if done properly, the water vapor that is produced can be condensed, collected, and recycled to the solar-powered synthetic photosynthesis plants that produce the hydrogen.

Given all the above, it is little wonder that oil-rich nations are pressing to keep the price of oil as high as possible. Their days in the sun, so to speak, are coming to an end.

Roger Sowell is an attorney who represents and defends oil and petrochemical companies. His website is

Wednesday, June 4, 2008


RAGAGEP is defined as: Recognized and Generally Accepted Good Engineering Practice.

RAGAGEP are "engineering, operation, or maintenance activities based on established codes, standards, published technical reports or recommended practices (RP) or a similar document." They "detail generally approved ways to perform specific engineering, inspection or mechanical integrity activities such as fabricating a vessel, inspecting a storage tank, or servicing a relief valve." (source: OSHA NEP for refineries, 2007)

Sources of RAGAGEP are many. Examples are the API Standards (American Petroleum Institute), ASME Code, CCPS (AIChE's Center for Chemical Process Safety), OSHA, NEC (National Electric Code), NFPA (National Fire Protection Association), and other engineering disciplines such as ASCE (American Society of Civil Engineers).

The intent of RAGAGEP is to ensure that process plants, manufacturing plants, structures, civil works, electrical works, and other things designed and built are as safe as possible. This extends to ongoing repairs and maintenance, alterations and changes, inspection and testing.

Disclaimer: The information above is not intended to be, nor is it, legal advice. The content above is for informational purposes only. For legal advice, please contact a qualified attorney.

For more information, please see Mr. Sowell's website at

Engineer Liability

Under California Code of Civil Procedure 337.1, and 337.15, an engineer's liability for his or her "design, specifications, surveying, planning, supervision or observation of construction or construction of an improvement to real property" is divided into two categories: patent deficiencies and latent deficiencies.

A Patent deficiency is a deficiency that is apparent by reasonable inspection. In California, a plaintiff has four years from the substantial completion of the project to bring an action for patent deficiencies. California Code of Civil Procedure 337.1.

A Latent deficiency is a deficiency that is not apparent by reasonable inspection. Under California law, a plaintiff has ten years from the substantial completion of the project to bring an action for latent deficiencies. California Code of Civil Procedure 337.15.

These statutes may seem clear, however, disputes arise and have been settled in the courts over the exact meanings of "deficiency," "inspection," what is "reasonable inspection," and when "substantial completion" occurs. An attorney knowledgeable in engineering law can evaluate a particular situation and provide advice. There may also be issues that extend the four-year and ten-year terms above.

Disclaimer: Nothing contained on this blog is to be construed as legal advice. Instead, the content of this blog is for general information purposes, and may or may not fit a particular situation. For specific legal advice pertaining to a particular situation, please contact a qualified attorney.

Please see Mr. Sowell's website for more information:

Mr. Roger Sowell is the attorney responsible for the content of this blog.

Speech to AIChE - Southern California June 17, 2008

Mr. Sowell was the speaker at the June 17, 2008 dinner meeting of the Southern California Section of American Institute of Chemical Engineers (AIChE) in Montebello, California. Presentation slides and a transcript will be posted on this blog afterward.


Legal Aspects of the March 23, 2005 Explosion at BP's Texas City Refinery
by Roger E. Sowell, Esq.

The deadly explosion of March 23, 2005 killed 15 and injured 170 others. This explosion has reportedly cost BP more than $2.1 billion in legal settlements. Additional millions will be or have been spent to repair the damaged refinery units.

The explosion was caused by a series of errors while starting up a distillation tower at the C5/C6 Isomerization Unit following a scheduled shutdown for maintenance. The presentation reviews the events of the startup, and other factors that contributed to the deaths and injuries.

Next, the legal setting at this refinery is outlined, including several legal theories of liability. These include the torts of negligence and wrongful death, violations of Texas and Federal environmental laws, and criminal violations of the Clean Air Act. The important differences in Texas laws and California are presented.

Next, the presentation covers important actions taken by Federal agencies as a result of this explosion, and that affect refineries.

To conclude, several do's and don'ts are given. Designers and operators of refineries and chemical plants should be aware of these, to enhance process safety.

(Most information presented is taken from public domain sources. Any copyrighted material is used under a fair use exemption to the copyright laws. )

Post-speech comments by Mr. Sowell:

I was delighted to speak at the AIChE meeting in Montebello. The audience was wonderful! They were very attentive for the entire one hour of the presentation, and asked excellent questions afterward for almost forty-five minutes.

The topic of criminal liability under the Clean Air Act is of great interest not only to engineers, but also to attorneys such as myself who are involved with oil refineries and petrochemical plants. This is a new development in the law, as the prosecution of BP under Section 112 of the Clean Air Act is the first such criminal prosecution. This case should serve as a clear signal to all those in the petroleum industry.

I have made presentations throughout my 30-year career both as an engineer and an attorney, in such far-flung places as Beijing, China, to Gelsenkirchen, Germany, and closer to home in Ponca City, Oklahoma.

In Beijing, I was on Chinese national television as a consulting engineer for their oil refineries. My presentation in Gelsenkirchen was to an audience of PhDs in chemistry and chemical engineering, each of whom had deep experience in ethylene production from steam cracking of naphtha and distillates. In Ponca City, the large audience was comprised of refining process engineers, unit superintendents, and upper management from the U.S. refineries of a major integrated oil company.

see Mr. Sowell's website at