Help lower Gas prices

[HeyBub]

You may jest, but some British trains in North Africa ran on mummies instead of wood. Seriously.

[HeyBub]

"The so-called Supermajors, Exxon, BP, Shell, Chevron. Conoco, and Total have paid more in taxes than they have invested in the oil business. For the three year period, 2005 to 2007 these companies have paid $292 billion in taxes and invested $265 billion in capital projects. Stunningly, Exxon has spent nearly twice as much buying back it's own stock ($78 billion) as it has on capital projects ($44 billion)."

[Paul M. Eldridge]

Do you find it a little odd that so many well-run and outwardly profitable oil majors are losing money on their retail and refining operations?

In excess of $200 billion a year from what I gather. But as staggering a sum as that is, it's proving insufficient to replace the

31 billion plus barrels of oil we burn through each year -- some 86 to 87 million barrels a day.

To whit:

"The reserve replacement rate is the additional proved reserves found through drilling as a percentage of reserves removed by production. Worldwide reserve replacement rates for both oil and natural gas deteriorated in 2006... Oil was replaced at the rate of 59 percent and natural gas at the rate of 88 percent."

"From 1994 through 2001, the FRS companies replaced all of their worldwide oil and natural gas production and added an additional 7.6 billion boe of reserves. However, from 2002 through 2006, the companies replaced all of their natural gas production and added 2.0 billion boe to reserves, but they did not replace 5.1 billion barrels of their oil production, with most of that deficit occurring in the last 3 years..."

Source:

Cheers, Paul

[Paul M. Eldridge]

Hmm, looks like the results for 2007 will be even more disappointing:

Cheers, Paul

[Red Green]

"HeyBub" wrote in news:SJCdnfyZ1uuUQM_VnZ2dnUVZ [e-mail]:

Me?! Red Green?! Jest?!!

[HeyBub]

I don't find it surprising on the retail end. They make a bigger profit margin on Beef Jerky than on gasoline and the government nets more per gallon of gas than do the oil companies. Big oil DOES make a profit on refining.

Notice the statement "... additional proved reserves found THROUGH DRILLING..."

If the oil companies can't drill (in ANWR, offshore California, Florida, New Jersey, etc., South Dakota, Utah, etc.), they're hard-pressed to fulfill the conditions of the equation. At least that's the status in the U.S.

World-wide, there's plenty of oil reserves already proven and there's no pressing need, I suppose, to look for more.

[Paul M. Eldridge]

Some historical context from the DOE:

"In general, refining has been significantly less profitable than other industry segments during the 1990's, as shown in the accompanying graph. Gross refinery margins -- the difference between the cost of the input and the price of the output -- have been squeezed at the same time that operating costs and the need for additional investment to meet environmental mandates has grown, thus reducing the net margin even further. In addition, much of the investment made during the 1980's was designed to take advantage of the differential between the dwindling supply of higher quality crude oils and the growing supply of heavier and higher sulfur crudes. When that differential narrowed, however, the financial return on those investments declined. Refining margins peaked in the late 1980's."

"During the 1990's the role of independent refiners (those without significant production) has grown substantially, largely as the result of refinery purchases from integrated companies (the "majors") seeking to streamline and realign their positions. Furthermore, the independent refiners, like the majors, are in a period of consolidation; the mergers and acquisitions are having a significant impact on refinery ownership (although not overall refined product supply)."

Source:

This June 12th news report suggests things haven't improved:

"While oil companies are under heavy scrutiny for the enormous profits now being made with crude selling for well over $100 a barrel, major integrated companies such as Exxon, Chevron CVX and ConocoPhillipsCOP have seen the profitability of their refining and marketing segments get hammered."

"This past spring, nuances in the supply, demand and refinery production in the gasoline market kept spot and futures prices for motor gasoline well below their fair-market price. At the same time, gasoline's crack spread, which reveals the profit made by converting crude oil into gasoline, actually went negative for a short period of time."

Source:

More specifically:

"Refined from crude oil, gasoline prices have been lagging their progenitor for the better part of a year now. This is just killing oil refiners, who can?t even hope to earn profits in such a hostile environment. Many of their stocks are trading near 52-week lows, they?ve just been slaughtered. The carnage in this sector is amazing. This is rather ironic since retarded politicians are blaming oil companies for high gas prices...."

"With a barrel of oil costing 45.8x as much as a gallon of gasoline, every refiner was operating at a steep loss. In the business, they call the difference between input oil costs and output gasoline (and other petroleum products) prices the 'crack spread'. Cracking is the process where heavier raw hydrocarbons in oil are separated from the lighter simpler molecules used in gasoline. The crack spread measures the profit per barrel in refining oil."

"Average crack spreads over the last 5 years have run between $4 and $18 per barrel with a heavy seasonal component. Generally gasoline refining is the most profitable, crack spreads are highest, in the spring leading into the summer driving season?s high demand. Crack spreads are usually the lowest in November and December when gasoline demand wanes due to winter arriving."

"Around this time last year, crack spreads were incredibly profitable running between $30 to $40 per barrel. Gasoline prices stretched well ahead of crude oil prices, as the next chart will show. But this year, crack spreads ran around $5 until March when they plunged to zero. The low gasoline prices (relative to crude) we saw in recent months made gasoline refining an impossible business. Why refine to lose money?"

Source:

According to USGS estimates (which some believe to be a tad "optimistic"), there's enough "technically recoverable" oil in ANWR to supply American needs for perhaps six to eight months (95% probability) or if you go with their high estimate, two-years (5% probability). However, getting that oil physically to market would be no easy task and the capital costs would be truly enormous. For example, the estimated cost of the Alaska Highway pipeline is currently pegged at $31 billion and given how final costs in this industry are often two to three times higher than original estimates, by the time the work is completed that figure could balloon to $60 billion or more. Even at $135 a barrel, "technically recoverable" and "economically recoverable" are not necessarily one and the same.

What the oil industry has been able to do is extract a larger percentage of crude oil from new and existing fields, thereby improving their "recoverable" reserves. That's all well and good in itself. The problem is that they're not finding new deposits in sufficient quantities to replace what we're consuming now, some 1,000 barrels a **second**.

Moreover, these new discoveries are typically much smaller in size and more difficult to reach and thus far more costly to bring online. The cost of BP's Thunder Horse platform which is expected to produce up to

250,000 barrels/day at its peak is in excess of $5 billion and you would need at least 350 Thunder Horses to meet current world-wide demand.

In addition, other limiting factors come into play. For example, Alberta's tar sands and America's shale resources are substantial, but we don't have enough natural gas and fresh water to process them into a usable form; as a result, much of it will likely remain in the ground no matter how expensive or scarce oil becomes going forward.

Cheers, Paul

[Paul M. Eldridge]

Those who believe drilling for oil on the continental shelf will help lower U.S. pump prices, the U.S. DOE has this sobering assessment:

"The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030... Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant."

"Although a significant volume of undiscovered, technically recoverable oil and natural gas resources is added in the OCS access case, conversion of those resources to production would require both time and money. In addition, the average field size in the Pacific and Atlantic regions tends to be smaller than the average in the Gulf of Mexico, implying that a significant portion of the additional resource would not be economically attractive to develop at the reference case prices."

Source:

More coverage here: Cheers, Paul

[Paul M. Eldridge]

Sadly, if this were a real horse, there's a good chance it would be taken behind the barn and shot:

Cheers, Paul