Give up? Valero Energy Corp. and Frontier Oil Corp., two refining companies, each matched Google’s stock, which soared 300 percent over that period. And a spate of new motor fuel regulations – including lower sulfur standards, the phase-out of MTBE, the phase-in of ethanol, and the ongoing Balkanization of the domestic fuel market – may give the refining sector even fatter profit margins in the comming months. A March 15 report by Simmons & Co. International analyst Jeff Dietert, one of the sharpest downstream analysts in the business, calls the new fuel regulations, combined with the lack of capacity, a “perfect storm in the U.S. gasoline markets.” The new sulfur regulations require gasoline sulfur content to decrease from 90 ppm to 30 ppm and diesel sulfur content to drop from 500 ppm to 15 ppm, effective as of January and June, respectively. In addition, Dietert’s report underscores the role played by MTBE (methyl tertiary-butyl ether), the cause of litigation and legislative battles for several years. Fearing potential legal liabilities, refiners are getting rid of MTBE. And new federal laws require the addition of ethanol to gasoline, which means refiners have to dramatically lower the vapor pressure of their fuel to accommodate the evaporative properties of the alcohol. Dietert points out that federal regulators may also force refiners to further reduce the vapor pressure by 2010. Should that happen, Dietert says it has the “potential to create a major challenge” for refiners.

America now has the most stringent motor fuel regulations on earth, making it difficult for refineries in Europe and Latin America to meet American standards. The punchline: domestic refiners don’t have any spare capacity. Substantial imports are doubtful. Demand keeps growing. And myriad federal rules are making it harder to manufacture, transport, and sell motor fuel. This all should translate into fatter margins for refiners – and higher prices for consumers at the pump.