Putting Up The 'For Shale' Sign

Oil: Exxon Mobil is selling its gas stations because there's no money in it. Meanwhile, two GOP congressmen do what John McCain should do — change their position on drilling in ANWR.

Exxon Mobil, proclaimed by the no-drill demagogues to be the poster child for gas gouging, recognizes this as well, deciding to unload its 800 company-owned stations and an additional 1,400 dealer-operated locations to distributors.

Still, Democrats will say Exxon and its unindicted co-conspirators still make obscene profits. The fact is that American oil companies in 2007 had an 8.3% profit margin, compared with 8.9% for all U.S. manufacturing. The cigarette and beverage companies' profit margin was 19.1%. Drug companies made 18.4%.

Nobody complains about profits made by politically connected ethanol producers such as Archer Daniels Midland. Since February 2006, the congressionally mandated use of heavily subsidized and energy-inefficient ethanol has caused the price of corn, wheat and soybeans to increase more than 200%. Isn't this price-gouging?

Misleading? It is a standard accounting practice.

The accounting is fine. However, it seems to me that the large energy companies are only vocalizing part of the issue when they just keep repeating "8.3%" Well, we know that already. What they should be SCREAMING at the congressional hearings is this.

"Government orgs and NGO's must get out of the way."

The insanity of not even beating able to build any new refineries in thirty years is malfeasances on the part of Government regulators and Environmental offices on the scale of Treason.

But they just sit there and mumble 8.3 percent and then "suggest" that government stop banning every attempt to really solve the problem. The energy companies themselves should be buying adds on TV explaining the high cost of energy and who and what to hold responsible. They should be selling the solution to the voters. It would be the responsible thing to do for the shareholders as well because if they can open new oil fields, industries and develop new technologies those energy companies will make even more money for their stockholders.

But they are not and that is what is misleading. The crutch of repeating “8.3%” and not emphasizing the solution.

Sorry, Comrade, margin is margin.

You can "comrade" all you like but it is quite simple.

Same refinery, same annual maintenance, some slight expansion.
Same pipeline, same annual maintenance, some slight expansion.
Same employees, same annual maintenance, some minor raise in salary / benefits.
Same taxes.
Shipping costs increased slightly.

So let’s look at a bigger picture. Lets go back to the year 2000 when crude was $27.39 and $34.16 (adjusted). Prices are adjusted for Inflation to April 2008 prices using the Consumer Price Index.

Eight point three percent of $34.16 crude going through the refinery generates $2.83 profit per barrel of crude processed.

Eight point three percent of $135.00 crude going through the refinery generates $11.20 profit per barrel of crude processed.

You now have two stacks of money in front of you.

One is $2.27 and the other is $11.20.

Which one do you want?

It is not complex. If you have a larger input number your resultant from the 8.3% margin of profit will be larger.

At $50 they are buying 12 MPH SUVs. At $135 they are buying 42 MPH compact.

Great! The customer will save themselves a nice sum of cash but it will make only the slightest difference in the price of the gas. The US is not the only customer for the crude and the refined products.

Let me put this another way. Have you noticed any gas stations going OUT of business? I haven't. But gas is at record highs? Ok, back in the early `90 they were dropping like flies. Gas was cheap again, after the President Carter debacle. I made my living back then removing leaking Underground Storage Tanks from abandoned gas stations for the State of Texas working as a project manager for private engineering firms.

But now, with gas at $4.00 a gallon I know of three brand new QT stations that are just being built. Right here in Dallas. A lot of other company’s gas stations are being built new, being modernized and expanded.

Why?

The gas stations operates on fairly fixed margins. So lets say an average QT station has four 10,000 gallon UST's and we will look at one full load of gas, all four tanks. We just make up a number for the percentage margin, let’s say 5%.

If the gas sells for $2.00 a gallon the total profit for the entire 40,000 gallons the station can hold is $4,000.

ok Same station, same employees, same salary’s, same maintenance, slightly increased utility bills. If the station sells an entire load (40,000 gallons) of gas at that very same 5% profit margin, the station owner gets $8,000 cash.

$2.00 a gallon vs $4.00 a gallon.
$4,000 vs, $8,000 per load.

And demand is going up, not down. They have VERY economical vehicles in western Europe and the global demand is going up, not down. Our utilization here in the US is going down but global demand is going up. Right now they are having shortages of gas And they are roughly at what, $10 a gallon? Or more? So price is a small factor in decreasing demand but only that, a small one.

The real solution is total energy supply.

Build nukes and electric cars.

Heat houses with natural gas, not fuel oil. Let that be blended to diesel.

Open the clean coal reserve in Kaiparowits Plateau in Utah and dig dig dig. There is a BUNCH of very clean burning coal that could be powering power plants instead of natural gas. Save the natural gas for heating homes.

Stop transmitting electricity into remote areas and substitute (where possible) the Moderate Temperature geothermal electrical generators. They are extremely clean and very efficient.

Lastly, get rid of the useless ban on exploration and drilling on the East, West and Alaskan coast and in Alaska itself.

That is where the future answer is. A Total Energy solution.

The customer will save themselves a nice sum of cash but it will make only the slightest difference in the price of the gas.

Correction: Having your biggest customer drop his consumption by a quarter is going to have a great deal to do with the price of gas

The US is not the only customer for the crude and the refined products.

No. But it is the biggest. And since the price in other countries is even higher they are going to cut back even further.

Have you noticed any gas stations going OUT of business?

Several in my area.

And you are confusing the margin of profit a gas station makes with what the oil companies make.

The two often bear little or no resemblance.

I still think the best approach on the drilling issue is to skewer the Dems on their own brochette:

The US environmental standards for drilling are the most strict in the entire world.

Given the choice between very-low-risk drilling in the US, or ecologically destroying the ecosystems of Venezuela's Lake Maracaibo, or Mexico's Gulf coast, or Africa's Niger Delta, or leaking oil all over the Persian Gulf, what do the Democrats want? They want global ecological disasters, that's what they want.

US consumption is DOWN since a year ago, but WORLD consumption is up dramatically, hence the pressure on countries who are not concerned about despoiling the planet to greatly expand production (and their pollution).

Dear Democrats: Just WHO is NOT thinking globally?

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