It's only going to get worse (ChevronTexaco to buy Unocal)

[MagicMtnDan]

NEW YORK - ChevronTexaco Corp., the nationÂ’s second biggest oil concern, is buying rival Unocal Corp., the ninth biggest U.S. oil and gas exploration and production company, for about $16.4 billion in cash and stock.
Under the deal announced Monday, ChevronTexaco would also assume $1.6 billion of debt in the deal.
Unocal has been evaluating a possible sale and reportedly had also drawn interest from the Italian oil company Eni SpA and China National Offshore Oil Corp., a large Chinese state-owned company.
The deal would be the largest takeover in the oil sector in years, and comes as crude oil futures prices have been hitting record levels albeit they are still lower than the peaks reached in the 1980s in inflation-adjusted terms.
With energy companies struggling to boost their reserves, Unocal, based in El Segundo, Calif., has represented an attractive takeover target. Many of its assets are in Southeast Asia and they could help meet growing demand from China and India.
ChevronTexaco will issue about 210 million shares and pay about $4.4 billion in cash in the acquisition, which provides an overall value of about $62 per share based on the closing price of ChevronTexaco stock on Friday.
Unocal shareholders may elect to receive either 1.03 shares of ChevronTexaco stock or $65 in cash for each Unocal share. Unocal currently has about 270.6 million shares outstanding.
Unocal shares were down $3.85, or 6 percent, at $60.50 in recent premarket activity.
ChevronTexaco, based in San Ramon, Calif., expects disposition of assets following the close of the transaction to result in proceeds of more than $2 billion. Annual savings are anticipated to be more than $325 million before taxes.
The acquisition, which is subject to approvals by Unocal shareholders and certain regulatory agencies, is expected to be completed in six months.
ChevronTexaco expects oil-equivalent production from the combined portfolios during 2006 to average about 3 million barrels per day. UnocalÂ’s 1.75 billion barrels of oil-equivalent proved reserves would increase ChevronTexacoÂ’s reserve base as of the end of 2004 by about 15 percent.
ChevronTexaco expects the transaction will boost its prospective production growth rate.

[BarryMac]

Pretty incredible, these guys are all saying that they aren't making any money, what a bunch of bullshit...

[Freak]

Nice aint it.
The driver here is really simple if you read up on Unocal: = Undrilled reserves. If you want to play the home version of the Oil Tycoon Game, all you need to do is sort out who the big players with deep pockets are (Like Chevron Tex in this case) and who has reserves (like Unocal) and then make investments accordingly and home that the whole oil business hangs together long enough to turn a profit on your speculations.
Oh and how about the EIA pushing for a GLOBAL 55mph limit. "The measures, suggested by IEA, include the reduction of a working week, a ban on using privately owned vehicles, the introduction of a 90-kilometre speed limit, the reduction of public transport fare and the encouragement of staff members to work at home, using Internet.
How about GM. As if GM didn't have enough trouble with debt shaping up to go bankrupt, the Delphi group is in a heap 'o trouble with the Feds now. The hole just got bigger.

[Essex502]

Just keep letting these a$$holes consolidate the market and give them even more market power. Standard Oil was broken into pieces because it had too much market power and all of the little pieces are coming back together like the T-1000 from T2. Letting this happen is disasterous.

[MagicMtnDan]

I keep joking telling people that we're ultimately going to end up with one company some day.
The truth is we're headed in that direction. There'll be one discount store (Wal-Mart), one "borg" (Home Depot will buy or sell to Lowes), one electronics store (Best Buy?), one supermarket company, etc.
In the old days our government broke up these huge conglomerates (remember AT&T? now we have the telephone companies re-buying themselves back together again).
We are so screwed :mad: :mad:

[BarryMac]

In the old days our government broke up these huge conglomerates (remember AT&T? now we have the telephone companies re-buying themselves back together again).
We are so screwed :mad: :mad:
IMO why would they want to do that, our President is a Rich Oilman, his VP has tons of ties to Oil Companies, basically we're phucked...

[NorCal Gameshow]

What would be a worse case scenario , unocal to chevron/texaco or unocal to china ???

[sorry dog]

I worked at Unocal for while and basically it's been for sale for long time. They only did exploration and production (the Union76 name and refineries were sold off years ago) which helped the company focus on that one activity but also made them vulnerable to price fluctuations. They held several patents and got some royalties from that but those are going to run out some day.
I don't see how this would affect pump prices though since open market barrel prices are pretty competitive. If you want to blame somebody for high prices then look to China or the guy next to you driving a suburban.

[Jbb]

If you want to blame somebody for high prices then look to China or the guy next to you driving a suburban.
Yeah...time to trade up to a H2....lol :D

[cdog]

I worked at Unocal for while and basically it's been for sale for long time. They only did exploration and production (the Union76 name and refineries were sold off years ago) which helped the company focus on that one activity but also made them vulnerable to price fluctuations. They held several patents and got some royalties from that but those are going to run out some day.
I don't see how this would affect pump prices though since open market barrel prices are pretty competitive. If you want to blame somebody for high prices then look to China or the guy next to you driving a suburban.
Hey watch that comment. I drive a suburban. What the hell else am I gonna tow my 29 with? Don't need more haters. Ther REAL problem is china. We all need to start demanding Made In USA!

[Jbb]

Hey watch that comment. I drive a suburban. What the hell else am I gonna tow my 29 with? Don't need more haters. Ther REAL problem is china. We all need to start demanding Made In USA!
Forgive him...he is from Alabama....where they still ride donkeys...

[roostwear]

It's time to nationalize the oil companies. The manipulation and outright fraud is the worst I've seen, and if ANY other commodity were to affect this country the way oil does, it would be regulated again. With all the 911 BS the government spews, THIS is truly a national security concern.

[MsDrmr]

Pretty incredible, these guys are all saying that they aren't making any money, what a bunch of bullshit...
Well said, I am not making any $$ either, I make a dime, it goes in the tank...I am at the point I try not to drive anywhere that I don't really need to go.

[Essex502]

I keep joking telling people that we're ultimately going to end up with one company some day.
The truth is we're headed in that direction. There'll be one discount store (Wal-Mart), one "borg" (Home Depot will buy or sell to Lowes), one electronics store (Best Buy?), one supermarket company, etc.
In the old days our government broke up these huge conglomerates (remember AT&T? now we have the telephone companies re-buying themselves back together again).
We are so screwed :mad: :mad:
Remember Rollerball?

[Essex502]

What would be a worse case scenario , unocal to chevron/texaco or unocal to china ???
Option C - Leave Unocal as an viable entity on its own.

[sorry dog]

Oh, yeah that's what we need...gov't running the gas show :yuk:
Forgive him...he is from Alabama....where they still ride donkeys...
Quit talking about my ass.
about the suburban comment...
The first rule of hippocracy is to know when you are doing it.
I have a 12 mpg Landcruiser, but I'm driving it a lot less these days. Got a buzzy little rice burner that I'm going to cruise JBB's neighborhood with to remind him of boats and wackas. :D

[Freak]

I am at the point I try not to drive anywhere that I don't really need to go.
The wave of the future right there for most people. $50 to fill up my daily driver yesterday. Time to look for a gas mizer. Now I plan my trips for the drive home from work instead of heading back out. Such as Homedepo instead of a weekend trip - or two.
Think about this a gas mizers fuel tank is around 12 gal. Gas only needs to hit $4 for a $50 fillup with that size tank. I bet Cali hits $4 in 07.

[Dave C]

This should not be allowed by the FTC The oil/gas industry is slowly becoming an oligopoly. Prices can be affected by a small number of players in a commodity industry. They are too consolidated already. The FTC has the power to stop this. We are ****ed if this goes through.
(definition of Oligopoly: an economic condition in which there are so few suppliers of a particular product that one supplierÂ’s actions can have a significant impact on prices and on its competitors)
Regarding the prices, crude oil only makes up a portion of the overall price of gas. Refining and marketing make up the rest, which is where most of the price increase has come from according to the State.
The demand on the world market is driving the price of crude up but our demand is responsible for the rest.

[Norseman]

The wave of the future right there for most people. $50 to fill up my daily driver yesterday. Time to look for a gas mizer. Now I plan my trips for the drive home from work instead of heading back out. Such as Homedepo instead of a weekend trip - or two.
Think about this a gas mizers fuel tank is around 12 gal. Gas only needs to hit $4 for a $50 fillup with that size tank. I bet Cali hits $4 in 07.
I got to work in Mahwah NJ Monday at 7:30AM, price of gas at the Mobil station next to the office was 1.99 for regular unleaded. Headed out at 5:50pm for home, Gas was up to 203.9 at the same station. This morning it's 205.9. :yuk:
Better than buying gas near home, 35 miles north, Rock Tavern, NY, this morning Sunoco regular unleaded was 229.9 :cry: :cry:
Bob

[Dave C]

I found two interesting links
This shows the breakdown of the cost of a gallon of gas. $1.21 cost of crude, $0.51 TAXES, $0.66 refining :hammer2:
breakdown of gas price (http://www.energy.ca.gov/gasoline/margins/index.html)
This California's actual usage (i.e. demand) It has steadily increased but not as fast as I have originally thought. Refining could have kept pace but did not for some reason.
actual CA usage over the years (http://www.dof.ca.gov/html/fs_data/stat-abs/tables/j6.xls)

[Essex502]

Refining didn't keep pace because of the consolidation of the oil industry the the big five buying and closing refineries. Here's some interesting information:
Leaked Oil Industry Memo Suggests Bid to Curb Refinery Output
by H. Josef Hebert
Even as the Bush administration cites a lack of refineries as a cause of energy shortages, oil industry documents show that five years ago companies were looking for ways to cut refinery output to raise profits.
The internal memos involving several major oil companies were released Thursday by Sen. Ron Wyden, D-Ore., whose office obtained them from a whistleblower. He said the materials did not necessarily reflect any illegal activities but said some of them "sure look very anticompetitive."
In response, Red Cavaney, the president of an industry trade group, said: "This finger pointing six years into the past serves no useful purpose."
Wyden was turning the material over to the Governmental Affairs Committee, which plans hearings on oil industry practices and energy prices.
Tight gasoline supplies have been cited repeatedly by the industry and the White House as a primary reason for soaring gasoline prices this year.
While pump prices have eased recently, the cost of gasoline jumped an average of 31 cents a gallon nationwide during the seven weeks ending in mid-May, according to government figures presented at a House hearing Thursday.
Because it takes about four years to build a large refinery, planning for a new plant would have had to begin by the mid-1990s, energy experts say. There has not been a new refinery build in the United States in 25 years; in the meantime, dozens of small ones have closed.
The documents obtained by Wyden's office suggest that in the mid-1990s oil companies had no interest in building refineries because of low profit margins. In fact, companies were discussing the need to curtail refinery output in order to make more money, the documents suggest.
"If the U.S. petroleum industry doesn't reduce its refining capacity, it will never see any substantial increase in refinery margins (profits)," said an internal Chevron document in November 1995, citing views presented by participants at an American Petroleum Institute conference.
A year later, an official at Texaco, in a memo marked "highly confidential," called concerns about too much refinery capacity "the most critical factor" facing the refinery industry. Excess capacity is producing "very poor refining financial results," the memo said.
Wyden said the documents "raise significant questions about whether America's oil companies tried to pull off a financial triple play – boosting profits by reducing refinery capacity, tagging consumers with higher pump prices and then arguing for environmental rollbacks."
The institute produced statistics showing refinery capacity has increased since 1996 as refineries became more efficient and some expanded. The figures also showed capacity increasing slower than demand.
Cavaney, the institute's president, said the industry's reluctance to invest in new refinery capacity when profit margins are low and supplies are adequate – as was the case in the mid-1990s – was "a normal response in a commodity market."
Wyden singled out a 1996 memo from Mobil Corp., which has since merged with Exxon, that suggests that Mobil was ready for a "full court press" to make sure an independent California refinery, which had closed in 1995, would not reopen.
At the time Mobil was concerned that if the refinery, owned by the Powerine Oil Co., resumed production it might force down the price of a special, cleaner burning gasoline by as much as 3 cents.
"Needless to say, we would all like to see Powerine stay down," the memo said. "Full court press is warranted in this case." The refinery remained closed.
Texaco spokeswoman Keelin Molloi said Wyden's allegations "divert attention away from legitimate policy questions" about energy needs.
As for the 1995 Texaco memo, she said: "Within any company, discussions about the margins and capacity are conducted in a normal course of business and in no way constitutes inappropriate or illegal behavior."
Chevron spokesman Fred Gorell said the company "flatly denies any improper conduct involving refinery production levels or gasoline pricing."
Attempts to reach ExxonMobil were unsuccessful.
The need for more refinery capacity has been the focus of President Bush's energy plan. Vice President Dick Cheney has blamed gasoline prices increases on tight supplies caused to a large part, he contends, by the fact that the last new U.S. refinery was built in 1976.
In fact, 24 refineries – many of them small independents – have shut down since 1995, according to the Energy Department. That has accounted for the loss of 831,000 barrels a day of refining capacity. Individual refinery expansions at the same time have added 1 to 2 percent of capacity annually.
The above is an older article but smoke usually indicates fire.

[phuggit]

If the cost of yeast, hopps and water go up I'll be done. I wont be able to afford going to the river any longer. :cry:

[Essex502]

And another interesting tidbit:
No new oil refineries planned in U.S.
By JOCELYN PARKER
Knight Ridder News
DETROIT - With the United States consuming record amounts of gasoline, there's never been a more dire need to build new oil refineries.
But don't hold your breath.
There hasn't been a major new refinery in the United States since 1976, and experts say none is on the horizon. Refineries are expensive, and nobody likes having a big, smelly refinery near his or her back yard. But another reason you won't see any refineries springing up soon is that oil companies like things the way they are: Their refineries are operating near capacity, so they sell practically every drop of fuel they make.
Consumption surge
Consumers' driving habits and vehicle choices don't make things better. Consumption has jumped 24 percent since 1990, thanks in part to the surge in the number of sport utility vehicles on the road. And the government expects another 48 percent increase by 2025.
There aren't enough domestic refineries to do the job. As a result, the amount of gas that's imported has gone from a mere 4 percent of consumption in 1995 to about 10 percent today.
Insufficient inventories of domestically refined gasoline contribute to high prices and spark fears about gas shortages, as they did last month.
Refining makes up roughly 14 percent of the cost of a gallon of gasoline, and in recent weeks gas prices reached record highs. Because demand for gasoline is greater than what the refineries can produce in many cases, refineries can charge more for gasoline.
Domestic refineries decline
The soaring gas costs are bringing more attention to the limited refining capacity in the United States. The number of domestic refineries is declining. In 1980, there were more than 300 U.S. refineries. At the end of 2003, there were 149, roughly a 50 percent decrease. Through early June, those refineries cranked out 8.5 million barrels of gasoline a day, up 4 percent from last year. Some are running at close to 100 percent of their capacity just to keep pace with demand, so it's tough to further boost production.
The chance of new ones being built is slim. The last major U.S. oil refinery was built in 1976, and stringent pollution controls and the overall public distaste for refineries make it nearly impossible for oil companies to build more, oil experts say.
"No one wants one," said Anthony Sabino, associate business professor at St. John's University in New York. "Building a refinery is very expensive. It's a multibillion-dollar proposition."
Even a smaller-scale refinery could cost at least $1 billion to build, said James Nelson, a division manager at Marathon Ashland Petroleum LLC's Detroit refinery, the only refinery left in Michigan. And due to changing clean-air rules for refineries, it costs millions to maintain the operations, experts say.
In the last 10 years, U.S. refiners have invested about $47 billion in environmental improvements for their facilities, much of that to make cleaner fuels. Recently, refiners have invested millions to make cleaner, low-sulfur fuels for the environment.
But even before the idea of building a new refinery leaves the gate, it's faced with opposition from consumers and environmentalists. They're considered eyesores, so no one wants one in the neighborhood. It's difficult for oil companies to get the environmental permits to build. Smaller refineries have a tough time thriving because they just don't produce enough fuel to offset their operating costs, and experts say that's why so many refineries have shut down over the years.
"Most of them, if not all, were inefficient, and the owners of those refineries were unable to make a reasonable profit," Marathon's Nelson said. "That's typically the reason people would shut down a refinery."
Ashland Inc., which has a 32 percent interest in Marathon Ashland Petroleum, closed several refineries in the last 25 years. Marathon Ashland operates seven refineries.
Marathon's Garyville, La., refinery, which makes 245,000 barrels of gasoline a day, was the last major refinery to be built in the United States. Since then, oil companies have acquired or expanded refineries to boost production.
For instance, production at Garyville went from 232,000 to 245,000 barrels this year, Nelson said. And its Detroit refinery is going from 74,000 barrels of gas to 100,000 barrels by 2005. A barrel is 42 gallons.
Experts also say fewer refineries give the oil companies a huge advantage: They stand to make a lot more money when supplies are limited, so, even if people wanted more refineries, companies don't have a lot of incentive to build more.
In the first quarter, industry giant ExxonMobil saw its profits from refining operations jump 38.8 percent. Refining profits at ConocoPhillips grew 19.2 percent in the first quarter. Marathon Ashland, which isn't publicly traded, wouldn't release information on profits.
A spate of mergers in the oil industry has also limited the number of companies that operate refineries, so they're able to control the market, said Tyson Slocum, research director for Public Citizen's energy program.
"Let the record show that they're not very unhappy financially with the current state of affairs," Slocum said. "They're making profits on the tight capacity."
Limited capacity also presents another huge problem: When a breakdown occurs in the refinery system, it can create supply disruptions. And when that happens, consumers are likely to see the impact at the pump.
Though opposition for refineries is abundant, some lawmakers are pushing for construction of new refineries to help ease tight gasoline supplies and lower prices. House Republicans recently pushed through legislation that could speed up the regulatory and approval processes for new refineries in certain regions of the country. The bill encourages construction of new refineries in areas that have an unemployment rate 20 percent higher than the national average, have experienced massive layoffs in manufacturing segment or have a closed refinery in the area. The bill still has to be approved by the Senate.
Marathon Ashland's Nelson also said advanced-technology vehicles such as fuel cells and gas-electric hybrid vehicles could ease demand for gasoline over the years.
Experts also say the nation can expect more imports of gasoline to make up for what the domestic refineries can't produce.
Expansions of existing refineries are expected to continue.
But, as Sabino puts it, oil companies can only "increase capacity so much." "Eventually we will have to build more refineries," Sabino said.

[Norseman]

Dave;
I have a feeling that you will have a tough time getting much support at the White House on having the FTC regulate the oil industry. :idea:
Bob
This should not be allowed by the FTC The oil/gas industry is slowly becoming an oligopoly. Prices can be affected by a small number of players in a commodity industry. They are too consolidated already. The FTC has the power to stop this. We are ****ed if this goes through.
(definition of Oligopoly: an economic condition in which there are so few suppliers of a particular product that one supplierÂ’s actions can have a significant impact on prices and on its competitors)
Regarding the prices, crude oil only makes up a portion of the overall price of gas. Refining and marketing make up the rest, which is where most of the price increase has come from according to the State.
The demand on the world market is driving the price of crude up but our demand is responsible for the rest.

[Essex502]

Dave;
I have a feeling that you will have a tough time getting much support at the White House on having the FTC regulate the oil industry. :idea:
Bob
The FTC doesn't have to regulate the oil industry but the are required to sign-off on any mergers such as this. The FTC can require - and have done so in the past - mitigation for the monopolistic joining of entities such as these two companies.

[gnarley]

Everybody really better start paying attention to whats going on in CHINA-INDIA, they are sucking alot of life out of america, jobs , product, oil , fuel , we want to do more oil drilling in alaska , but who does it benefit , NOT THE LOWER 48 YOU DUMMIES !!!!!! ASK YOURSELFS, why the u.s. has not built ANY NEW REFINERIES IN THE LAST 20 YEARS !!!!!!!!!! see if the oil companies will answer that ??? were more worried about taking care of the rest of the world than our own!!!!!!!!!! tell me i'm wrong.....
Dude, you hit the nail on the head! CHINA-INDIA, and it's only going to get worse!
Wake up everyone, in our desire to have lower and lower prices the countries with the lower wages have gotten lots of manufacturing we buy the goods and they get more of our money. As they produce more they need more oil. If we drill and find more oil in Alaska do you think it will stay here? I bet ya it gets sold to the highest bidder and don't do a thing to our prices. Ever heard of a trade deficit? Who knows when this will end but IMO it ain't going to get better.
Better hold on to your shorts ;)
Keep buying cheep goods from 3rd world countries

[Dave C]

Maybe, but I dunno. Dramatic increases in the price of energy and positive economic activity have an inverse relationship.
They have a choice to make. Help their friends in big oil or watch the economy go down the toilet.
where is that cystal ball? :notam:
BTW prior administrations allowed us to get too consolidated to the point we are today. The question is will the trend continue?
Dave;
I have a feeling that you will have a tough time getting much support at the White House on having the FTC regulate the oil industry. :idea:
Bob

[gnarley]

This should not be allowed by the FTC The oil/gas industry is slowly becoming an oligopoly. Prices can be affected by a small number of players in a commodity industry. They are too consolidated already. The FTC has the power to stop this. We are ****ed if this goes through.
Well as long as a pro business republican president and senate are in power there isn't likely to be any end in sight, and do you think they'd want to stifle business?
I just seems like the regrouping of the old Standard Oil Monopoly. It sure would be nice if someone would stand up to them, Bush or our senate won't.

[boatnam2]

in this world its all about oil.people can say what they want people who run are country,the president of our country,his dad and so many more of the most powerful people in the world make there money on oil.there is a shit load of countries that wouldnt even exist if it wasnt for oil.we wouldnt be in iraq if it wasnt for oil ,i dont give a shit what all these i fight for my country guys have to say your dying to save our oil not our country.our presidents oil is there and he dont mind killing few of are servicemen to protect it.

[Essex502]

I just seems like the regrouping of the old Standard Oil Monopoly. It sure would be nice if someone would stand up to them, Bush or our senate won't.
Dude - you are right in this statement. It is a re-consolidation of the Standard Oil companies.

[Essex502]

If the Administration in Washington really cared they would throw a coupla' billions bucks at Fuel Cell research to alleviate the need for fossil fuels.

[Freak]

Just to add to the problem:
To prevent oil spills in all oceans of the world, older single hull tankers carrying heavy fuel oil are now required to meet a new set of deadlines for phaseout or conversion to double hulls. Oil tankers transport some 1,800 million metric tons of crude oil around the world by sea, including 50 percent of U.S. oil imports.
A Greenpeace analysis shows that over 2,000 such tankers will be removed from the water and scrapped within five years. More than 1,000 tankers are expected to be scrapped in 2005, a figure that the international environmental organization says "dwarfs previous estimates."

[gnarley]

Just to add to the problem:
To prevent oil spills in all oceans of the world, older single hull tankers carrying heavy fuel oil are now required to meet a new set of deadlines for phaseout or conversion to double hulls. Oil tankers transport some 1,800 million metric tons of crude oil around the world by sea, including 50 percent of U.S. oil imports.
A Greenpeace analysis shows that over 2,000 such tankers will be removed from the water and scrapped within five years. More than 1,000 tankers are expected to be scrapped in 2005, a figure that the international environmental organization says "dwarfs previous estimates."
Hard to believe anything that Greenpeace says! I don't

[sorry dog]

This should not be allowed by the FTC The oil/gas industry is slowly becoming an oligopoly. Prices can be affected by a small number of players in a commodity industry. They are too consolidated already. The FTC has the power to stop this. We are ****ed if this goes through.
(definition of Oligopoly: an economic condition in which there are so few suppliers of a particular product that one supplier?s actions can have a significant impact on prices and on its competitors)
Regarding the prices, crude oil only makes up a portion of the overall price of gas. Refining and marketing make up the rest, which is where most of the price increase has come from according to the State.
The demand on the world market is driving the price of crude up but our demand is responsible for the rest.
I doubt it's to that point yet.
Justice Dept tends to look at things like the Herfindal-Hershmann Index.
An industries HHI number is calculated by taking the percent of market share that each major company has and squaring that number. Then those numbers are all added together and the sum is the HHI number. So in a total monopoly situation the score would be 10,000.
Anyway usually threshold that gets gov't attention is around 2000 to 2500
...but, they only companies included in this are domestic based companies.
I seriously doubt Unocal's market share of the E&P industry will change this number very much.

[Freak]

Refining didn't keep pace because of the consolidation of the oil industry the the big five buying and closing refineries. Here's some interesting information:
Leaked Oil Industry Memo Suggests Bid to Curb Refinery Output
by H. Josef Hebert
Even as the Bush administration cites a lack of refineries as a cause of energy shortages, oil industry documents show that five years ago companies were looking for ways to cut refinery output to raise profits.
The internal memos involving several major oil companies were released Thursday by Sen. Ron Wyden, D-Ore., whose office obtained them from a whistleblower. He said the materials did not necessarily reflect any illegal activities but said some of them "sure look very anticompetitive."
In response, Red Cavaney, the president of an industry trade group, said: "This finger pointing six years into the past serves no useful purpose."
Wyden was turning the material over to the Governmental Affairs Committee, which plans hearings on oil industry practices and energy prices.
Tight gasoline supplies have been cited repeatedly by the industry and the White House as a primary reason for soaring gasoline prices this year.
While pump prices have eased recently, the cost of gasoline jumped an average of 31 cents a gallon nationwide during the seven weeks ending in mid-May, according to government figures presented at a House hearing Thursday.
Because it takes about four years to build a large refinery, planning for a new plant would have had to begin by the mid-1990s, energy experts say. There has not been a new refinery build in the United States in 25 years; in the meantime, dozens of small ones have closed.
The documents obtained by Wyden's office suggest that in the mid-1990s oil companies had no interest in building refineries because of low profit margins. In fact, companies were discussing the need to curtail refinery output in order to make more money, the documents suggest.
"If the U.S. petroleum industry doesn't reduce its refining capacity, it will never see any substantial increase in refinery margins (profits)," said an internal Chevron document in November 1995, citing views presented by participants at an American Petroleum Institute conference.
A year later, an official at Texaco, in a memo marked "highly confidential," called concerns about too much refinery capacity "the most critical factor" facing the refinery industry. Excess capacity is producing "very poor refining financial results," the memo said.
Wyden said the documents "raise significant questions about whether America's oil companies tried to pull off a financial triple play – boosting profits by reducing refinery capacity, tagging consumers with higher pump prices and then arguing for environmental rollbacks."
The institute produced statistics showing refinery capacity has increased since 1996 as refineries became more efficient and some expanded. The figures also showed capacity increasing slower than demand.
Cavaney, the institute's president, said the industry's reluctance to invest in new refinery capacity when profit margins are low and supplies are adequate – as was the case in the mid-1990s – was "a normal response in a commodity market."
Wyden singled out a 1996 memo from Mobil Corp., which has since merged with Exxon, that suggests that Mobil was ready for a "full court press" to make sure an independent California refinery, which had closed in 1995, would not reopen.
At the time Mobil was concerned that if the refinery, owned by the Powerine Oil Co., resumed production it might force down the price of a special, cleaner burning gasoline by as much as 3 cents.
"Needless to say, we would all like to see Powerine stay down," the memo said. "Full court press is warranted in this case." The refinery remained closed.
Texaco spokeswoman Keelin Molloi said Wyden's allegations "divert attention away from legitimate policy questions" about energy needs.
As for the 1995 Texaco memo, she said: "Within any company, discussions about the margins and capacity are conducted in a normal course of business and in no way constitutes inappropriate or illegal behavior."
Chevron spokesman Fred Gorell said the company "flatly denies any improper conduct involving refinery production levels or gasoline pricing."
Attempts to reach ExxonMobil were unsuccessful.
The need for more refinery capacity has been the focus of President Bush's energy plan. Vice President Dick Cheney has blamed gasoline prices increases on tight supplies caused to a large part, he contends, by the fact that the last new U.S. refinery was built in 1976.
In fact, 24 refineries – many of them small independents – have shut down since 1995, according to the Energy Department. That has accounted for the loss of 831,000 barrels a day of refining capacity. Individual refinery expansions at the same time have added 1 to 2 percent of capacity annually.
The above is an older article but smoke usually indicates fire.
Here is what I do not understand. I would have think that a refinery shortage would increase gasoline prices but would LOWER crude oil prices. If I own crude oil and can't find a refinery, I don't expect to get paid extra. So why is the price of crude climbing along with gas. There has to be more to it.

[shueman]

From what I know, which ain't much, ALL THE GAS, regardless of the sign on the pump, comes from the SAME REFINERIES here in SoCal....only the additives make the difference in the BRANDS....

[Essex502]

Here is what I do not understand. I would have think that a refinery shortage would increase gasoline prices but would LOWER crude oil prices. If I own crude oil and can't find a refinery, I don't expect to get paid extra. So why is the price of crude climbing along with gas. There has to be more to it.
Crude oil prices quoted each day are for FUTURE contracts. Speculators bid it up when they think the price of oil will be going up and they bid it down when they think it will be going down. Refinery capacity in the U.S. is constrained but that doesn't mean the rest of the world's refineries are constrained as well. The U.S. is importing refined gasoline right now while our refineries are running nearly flat out. We are also exporting to ASIA our Alaskan oil. Did you know that? China is rapidly gaining on the U.S. as an oil comsumer. They gladly take any we don't take.
Pump prices are refective of the spot market pricing and will rise with all of the factors including crude costs, refinery margins (costs and PROFITS) as well as supply. If there is a constriction in supply of refined gasoline or diesel such as with the recent refinery explosion in Texas - pump prices will rise regardless of the crude oil price. $1.00 in crude oil price increase SHOULD reflect in $0.025 (two and one half cents) rise in the pump price. Doesn't though many times due to increase profit margins at the refineries when there is not a competitive market such as today. When every refinery is running at nearly full capacity and every gallon of gasoline/diesel is accounted for where is the motive to be competitive?

[Essex502]

From what I know, which ain't much, ALL THE GAS, regardless of the sign on the pump, comes from the SAME REFINERIES here in SoCal....only the additives make the difference in the BRANDS....
You are partially correct. The branded gasolines use a different additive package than the unbranded gasolines sold at independent stations. The less independent stations - as in So Cal - the less competitive pressure on the branded stations to keep prices in check. Note that it isn't the stations that set the price so much as the wholesale pricing set by the distributors (look up "Zone Pricing" on Google) when there is a lack of local independents to force the distributors to be competitive.

[Freak]

Crude oil prices quoted each day are for FUTURE contracts. Speculators bid it up when they think the price of oil will be going up and they bid it down when they think it will be going down. Refinery capacity in the U.S. is constrained but that doesn't mean the rest of the world's refineries are constrained as well. The U.S. is importing refined gasoline right now while our refineries are running nearly flat out. We are also exporting to ASIA our Alaskan oil. Did you know that? China is rapidly gaining on the U.S. as an oil comsumer. They gladly take any we don't take.
Pump prices are refective of the spot market pricing and will rise with all of the factors including crude costs, refinery margins (costs and PROFITS) as well as supply. If there is a constriction in supply of refined gasoline or diesel such as with the recent refinery explosion in Texas - pump prices will rise regardless of the crude oil price. $1.00 in crude oil price increase SHOULD reflect in $0.025 (two and one half cents) rise in the pump price. Doesn't though many times due to increase profit margins at the refineries when there is not a competitive market such as today. When every refinery is running at nearly full capacity and every gallon of gasoline/diesel is accounted for where is the motive to be competitive?
Makes sense. Thanks.
Now looking at the return on investment of building a new refinery I dont think there is a high enough percentage of return to make business look into building a refinery in the U.S.? I know in the past it was not. If you are in this business, please feel free to correct if anything is wrong on any of this.
If we guess that the output of this beast will be 150,000 barrels per day, at a ratio of 85:35:30 per the above, so at todays prices for unleaded, diesel and jet fuel this comes to almost exactly $10 million per day in sales.
We also know that the input will have to be approximately 150,000 barrels per day of crude oil. At $54, todays price, thats about $8.4 million in feedstock costs.
Looking up a few references, the day cost of one of these big refineries (utilities plus other operating costs) is about $9,000 per day ($5200 in utilities, and $3800 in operating costs).
So, your day rates on the days when you get to run your plant will be about $10 million in sales, minus $8.4 million in feedstock and day operating costs, so your net is about $1.6 million per day. But, maybe you get to run the plant every day, and maybe you do not. Maybe some idiot tries to start his pickup when you are starting your hydrogen unit up and causes a hell of a fire and you have to shut down, etc.
You go to the bank, and borrow your $2.5 billion to build the plant, using Joe Shmo finance business to broker the deal for you. If you are lucky, since Shmo is working for you, plus have backing from the state and the EPA, you get the loan for 8% interest. This means that you are going to pay about $200 million per year in the first year for interest. The bank does not know or care whether you run the plant every day or not. They still get to collect their interest. Also, you will need to pay taxes on your income (35% is the current corporate rate) but you get to reduce your taxes by deducting depreciation. In this example, a 30-year project life, depreciatin will be $83 million per year.
Your income will depend on how effectively you can run the plant. At 95% uptime (prodigious), you will have gross earnings of $554 million (365*$1.6M*.95), minus $200 million for interest, minus $83 million for depreciation minus $96 million for taxes, so the bottom line is $178 million, which is a respectable 7.2% annual return on your $2.5 billion investment after interest and tazes. If you are more typical, and only can run the plant 85% of the time, your gross earnings are only about $500 million. The $200 million for interest, and the $83 million for depreciation is there whether you are good or not, but if you have less income, your taxes are less, only $76 million, so the bottom line is $140 million, and your rate of return is only 5.6%.
Looking at it that way the return is still not there. We need to price to go up even more but then will it still be a good idea? Not necessarily. Usually when gas goes up, the feedstock goes up too, so chances are you would be no better off under a higher price scenario than any other time. My mind really starts to reel now.
So. What if Greenspan succeeds in his plan to gradually raise interest rates. What effect will this have on the economic viability of the project?
Well, if interest rates on a project like this go from 8% to 9%, the profitability of the project goes from 7.2% and $179 million, to 6.5% and $162 million, ROR and after tax profit respectively, at 95% operating efficiency. At some point, the backers will no longer be able to raise money for the project, especially if Stephen Roach is right and interest rates go up 4% like he says is needed to keep off economic collapse.
Now, what if you are Saudi Arabia: Instead of paying $55 per barrel of oil, you can get oil for what your exploration and pumping costs are, which is $5 per barrel, and build this refinery and refine the stuff into gas yourself. In this case, everything else being equal, the ROR is 73% and the plant will bring in $1.8 billion in the first year, and will be paid off in the second year. Not only that, but chances are you have enough spare billions lying around that you do not really need to finance it at all.
Looking at it that way I would guess Saudi is where the plants will be built.

[Freak]

Some people have told me the operating costs estimate are way low. With the revised operating cost of $4 per barrel, this plant has a zero ROR at peak efficiency, and is a money loser at 85% throughput as it is now configured.
Looks like the only way to make it work is to figure a way to increase the throughput and/or reduce the capital costs. Reducing the cost to $1.0B with the same throughput will give them a 12% ROR. This is approximately $6,666 per BOD capacity, which is still over the $4100 that is available by buying this through the stock market.
How about that Saudi plant. With a $5b investment, and 400,000 bod output, that's $12,500 per BOD capacity.
At an average price of unleaded, diesel and jet fuel of $1.75/gallon ($73.50 per barrel) and a crude price of $55 would give them $7.4 million dollars in gross income per day, or an $18 spread between input and output. Subtract $4 for operating costs, the net $14 and 95% operating efficiency gives them an EBIT of about $2B the first year.
If the "kingdom" owns the company, then there is essentially either zero or 100% taxation, depending on their attitude. Also, I think there is some Islamic resistance to "usury" so maybe they do not have the same finance structure.
Anyway at today's prices, according to our spreadsheet, the project makes 29% ROR. Therefore, this project gets built. Also, it pretty much tells you that the Saudis are expecting the gap between raw materials and finished goods ($18 per barrel) to persist for awhile.