View Full Version : More discussion on energy policy

06-03-2008, 07:14 AM
Got this off a motorcycle forum. Yes, it is partisan. Yet there is a lot of data here. What say you?
*You be the judge as to why our gasoline prices are high**.
Some facutal information to digest regarding the evil American oil
**May 21, 2008
*Earlier today, the Senate Judiciary Committee summoned top executives from
the petroleum industry for what Chairman Pat Leahy thought would be a
politically profitable inquisition. Leahy and his comrades showed up ready
to blame American oil companies for the high price of gasoline, but the
event wasn't as satisfactory as the Democrats had hoped.

The industry lineup was formidable:
Robert Malone, Chairman and President of BP America, Inc.;
John Hofmeister, President, Shell Oil Company;
Peter Robertson, Vice Chairman of the Board, Chevron Corporation;
John Lowe, Executive Vice President, Conoco Philips Company; and
Stephen Simon, Senior Vice President, Exxon Mobil Corporation.

Not surprisingly, the petroleum executives stole the show, as they were far
smarter, infinitely better informed, and much more public-spirited than the
Senate Democrats.

One theme that emerged from the hearing was the surprisingly small role
played by American oil companies in the global petroleum market.**

John Lowe pointed out:
I cannot overemphasize the access issue. Access to resources is severely
restricted in the United States and abroad, and the American oil industry
must compete with national oil companies who are often much larger and have
the support of their governments.

We can only compete directly for 7 percent of the world's available reserves
while about 75 percent is completely controlled by national oil companies
and is not accessible.

**Stephen Simon amplified:
Exxon Mobil is the largest U.S. oil and gas company, but we account for only
2 percent of global energy production, only 3 percent of global oil
production, only 6 percent of global refining capacity, and only 1 percent
of global petroleum reserves. With respect to petroleum reserves, we rank
14th. Government-owned national oil companies dominate the top spots. For an
American company to succeed in this competitive landscape and go head to
head with huge government-backed national oil companies, it needs financial
strength and scale to execute massive complex energy projects requiring
enormous long-term investments.

To simply maintain our current operations and make needed capital
investments, Exxon Mobil spends nearly $1 billion each day.

Because foreign companies and governments control the overwhelming majority
of the world's oil, most of the price you pay at the pump is the cost paid
by the American oil company to acquire crude oil from someone else.

Last year, the average price in the United States of a gallon of regular
unleaded gasoline was around $2.80. On average in 2007, approximately 58
percent of the price reflected the amount paid for crude oil. Consumers pay
for that crude oil, and so do we.

Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the
United States, 90 percent were purchased from others.

**Another theme of the day's testimony** was that, if anyone is 'gouging'
consumers through the high price of gasoline, it is federal and state
governments, not American oil companies. On the average, 15% percent of the
cost of gasoline at the pump goes for taxes, while only 4% represents oil
company profits. These figures were repeated several times, but, strangely,
not a single Democratic Senator proposed relieving consumers' anxieties
about gas prices by reducing taxes.

The last theme that was sounded repeatedly was Congress's responsibility for
the fact that American companies have access to so little petroleum.

**Shell's John Hofmeister explained, eloquently:
**While all oil-importing nations buy oil at global prices, some, notably
India and China, subsidize the cost of oil products to their nation's
consumers, feeding the demand for more oil despite record prices. They do
this to speed economic growth and to ensure a competitive advantage relative
to other nations.

Meanwhile, in the United States, access to our own oil and gas resources has
been limited for the last 30 years, prohibiting companies such as Shell from
exploring and developing resources for the benefit of the American people.

**Senator Sessions, I agree, it is not a free market.
According to the Department of the Interior, 62 percent of all on-shore
federal lands are off limits to oil and gas developments, with restrictions
applying to 92 percent of all federal lands. We have an outer continental
shelf moratorium on the Atlantic Ocean, an outer continental shelf
moratorium on the Pacific Ocean, an outer continental shelf moratorium on
the eastern Gulf of Mexico, congressional bans on on-shore oil and gas
activities in specific areas of the Rockies and Alaska, and even a
congressional ban on doing an analysis of the resource potential for oil and
gas in the Atlantic, Pacific and eastern Gulf of Mexico.

The Argonne National Laboratory did a report in 2004 that identified 40
specific federal policy areas that halt, limit, delay or restrict natural
gas projects. I urge you to review it. It is a long list. If I may, I offer
it today if you would like to include it in the record.

When many of these policies were implemented, oil was selling in the single
digits, not the triple digits we see now. The cumulative effect of these
policies has been to discourage U.S. investment and send U.S. companies
outside the United States to produce new supplies.

**As a result, U.S. production has declined so much that nearly 60 percent
of daily consumption comes from foreign sources.
The problem of access can be solved in this country by the same government
that has prohibited it. Congress could have chosen to lift some or all of
the current restrictions on exploration and production of oil and gas.
Congress could provide national policy to reverse the persistent decline of
domestically secure natural resource development.
Later in the hearing, Senator Orrin Hatch walked Hofmeister through the
Democrats' latest efforts to block energy independence:

HATCH: I want to get into that. In other words, we're talking about Utah,
Colorado and Wyoming. It's fair to say that they're not considered part of
America's $22 billion of proven reserves.

HOFMEISTER: Not at all.

HATCH: No, but experts agree that there's between 800 billion to almost 2
trillion barrels of oil that could be recoverable there, and that's good
oil, isn't it?

HOFMEISTER: That's correct.

HATCH: It could be recovered at somewhere between $30 and $40 a barrel?

HOFMEISTER: I think those costs are probably a bit dated now, based upon
what we've seen in the inflation...

HATCH: Well, somewhere in that area.

HOFMEISTER: I don't know what the exact cost would be, but, you know, if
there is more supply, I think inflation in the oil industry would be
cracked. And we are facing severe inflation because of the limited amount of
supply against the demand.

HATCH: I guess what I'm saying, though, is that if we started to develop the
oil shale in those three states we could do it within this framework of over
$100 a barrel and make a profit.

HOFMEISTER: I believe we could.

HATCH: And we could help our country alleviate its oil pressures.


HATCH: But they're stopping us from doing that right here, as we sit here.
We just had a hearing last week where Democrats had stopped the ability to
do that, in at least Colorado.

HOFMEISTER: Well, as I said in my opening statement, I think the public
policy constraints on the supply side in this country are a disservice to
the American consumer.

**The committee's Democrats attempted no response. They know that they are
largely responsible for the current high price of gasoline, and they want
the price to rise even further. Consequently, they have no intention of
permitting the development of domestic oil and gas reserves that would both
increase this country's energy independence and give consumers a break from
constantly increasing energy costs.
Every once in a while, Congressional hearings turn out to be informative.


06-03-2008, 08:08 AM
I liked where John Hofmeister said "Senator Sessions, I agree, it is not a free market." Which is due to the burdens placed on the industry by government. Certainly some is necessary, even if it's relatively unilateral by the U.S. and western Europe, being responsible sometimes isn't cheaper or easier. I don't know to what extent we should develop the oil shale, but it is a potentially huge resource.

In the same vein, a post I made over at Expedition Portal. I am an ExxonMobil share holder and had been reading the 2007 investor booklet when this thread was going on, so I happen to have it handy.


None of the oil companies set the price of oil, that is an internationally controlled market. Some of them are producers, just like Aramco, Yukos, PDVSA, PetroChina or Sinopec (all state-owned and a couple are essentially the business end of state-run operations in OPEC nations). A barrel of oil is 42 gallons and produces feedstock for about 30 gallons of end motor fuel, along with resources for plastic, solvents, heating oil, lubricants and the like. So the raw material for 30 gallons of fuel alone cost about $3.50 at $120/bbl. Here in Colorado, the combined Federal, State and local taxes is about $0.22 per gallon, so the refining, distribution and end retailer aren't making much money at $3.75 per gallon, just a few cents. The refining and retailing end of the business has a pretty much fixed amount and gas stations are not making much more or less money now at ~$4 than they did at ~$2, probably less since they have to absorb more into their margins to keep customers.

Some companies, like ExxonMobil and Chevron are in the discovery and extraction business, some others like Valero are not. The companies on the front end are tending to do better obviously, but that's not solely tied to the US market. Exxon buys and sells oil and end products all over the world. For 2007, 80% of Exxon's upstream (crude oil recovery and sales) revenue came from outside the USA and almost 60% of it's downstream (gasoline, chemical, lubes) revenue was non-USA. Exxon in 2007 produced about 2.6 million barrels of oil per day and 9.4 billion cubic-ft of natural gas per day. Refined about 5.6 million barrel (equivalent) of fuel per day and sold about 7.1 million barrel (equivalent) of gasoline, diesel, av fuel and heating oil. They sold about 28 million tons of solvents and lubes for the year.

Add it up, they extracted 40 billion gallons of oil and sold 109 billion gallons of fuel. That means that Exxon bought on the open market ~65% of the crude it uses for gasoline and diesel. They have no control over the price for crude and they pay that price for futures contracts just like any other country or company does.

So Exxon is HUGE and even at a small profit margin, they will make HUGE amounts of money. They also pay HUGE amounts of money to many countries in fees, taxes and bribes. Their 2007 income was $405 billion, their costs were $334 billion and they paid $30 billion to the IRS. Their net income after taxes was $41 billion, which puts their profit margin at 10%. Of that after tax profit, they returned $8 billion to shareholders, about 24%.

But if you think a company like Exxon is big, Aramco and PetroChina (China National Petroleum) both dwarf it. PetroChina in 2007 capitalized at $1 trillion dollars when their stock price was at its high. At the time, PetroChina was making $35 billion per quarter, 4 times what Exxon showed last year as a pre-tax profit. They are competing with Exxon for oil field contracts with nations and in one case at least, beat out Exxon for Iranian oil contracts. Money talks and when you have the power that the Chinese government is wielding, there you go. No one knows for sure how big Saudi Aramco is, being that it's 100% state owned it does not publish public returns and is not publicly traded. Most estimates have Aramco making about $150 to $165 billion in profit per year. It's somewhere around 50% of the GDP for the Kingdom.

The tacit understanding that being in Iraq is about stabilizing the US supply of oil is first probably true and second necessary, whether or not you agree or like it. Hopefully no one honestly believes that as China gathers oil field contracts and the continuing socialization of oil fields means the price for crude would go down. The only thing that will push crude prices down is reduction of demand and the truth is that if the US does not buy it, China and India certainly will. The price of oil will never go down, so we'd best face reality. As long as we rely on SUVs and gas hog vehicles, we have to deal with the distasteful oil market. Don't like it, don't drive. It's really as simple as that. If you drive to work or take internal combustion public transit, then you are relying on crude oil and the worldwide market demand is growing by about 1.5% per year and a minute fraction of it is here in North America. Yet it's getting harder to find enough oil to replace existing supplies (Exxon last year discovered new reserves that are just at 100% of the oil reserves it used and they can't supply enough of their own oil to cover what they refine and sell).

Who is making the money are the oil producing nations. The break down in Exxon's production is roughly 40% into the Mid East & Asia, 10% into Russia, 35% into the America (I dunno the break down, but at least 50% of that would be Mexico, Venezuela, etc.) and 15% into Europe and Africa.

06-03-2008, 08:36 AM
I'm torn (gee, whodathunkit, a centrist torn...) because I have seen what has happened to the area around Parachute and what is possible on the Roan Plateau. The companies definitely do NOT tread lightly, to put it mildly.

But the logic above seems clear, and indisputable. We are enriching some of the nastiest nations on the planet not at piddly Wally World levels, but to the tune of hundreds of billions of dollars. So some of our pristine areas remain pristine - but their areas get raped, they most DEFINITELY do not care about the environment until it bites them right back. They make Parachute look like pristine wilderness.

It's called exporting environmental impact. The ultimate NIMBY-ism. It's also called enriching our enemies. It's environmentally stupid (from a global perspective) and politically obscene.

Caribou Sandstorm
06-03-2008, 09:45 AM
ok I read most of these posts. I agree. We are a smart enough country, we should be able to beat other nations at their own game.

We should be able to get to the oil in our own back yard and not turn it into a Parachute town, especially in Alaska.

A bi-partisan over sight comittee made up of oil industry insiders and a few tree huggers...

I have some serious 4x4 trails to crack and I don't want to pay 6 bucks a gallon to do them...

06-03-2008, 09:50 AM
Short, succinct, and to the point. :thumb: