Delta buys a refinery

[Sapper!]

If it were only so simple. There is no money to be made in refining. The margins razor thin. There is no incentive for the industry to invest in refining capacity. There is a reason we don't build refineries in the country... just as we don't build nuke power plants... its FUCKING expensive and the return is near 0.

Correct, sort of. You are right there is no profit margin currently although refineries make quite a bit of money around here. The issue is that the federal government has explicitly targeted industrial construction and the petro chemical industry. Between the outrageous overhead, the competition from ethanol, the taxes imposed at the pump and on the companies, correct the money isn't there. But rest assured there is lots of money being made in refining, Exxon and BP are the largest grossing companies in the world. They pay over 100 billion together in taxes but hey they are in business for a reason. The real catch here is that if you upped refining capacity around here with more infastructure you can run your plants longer because the raw product is available. If you do that long enough you drop your $/gal overhead and the profit margin jumps. Oil companies up until 2000 made about 3-4% annually, they would have been better off liquidating their assets and investing it somewhere else. They didn't and now these guys are pulling in lots of money, sadly before 2008 there was so much mom and pop oil and gas around here things boomed. The profit margins weren't big but there is tons of small time, big money oil guys around because of it. Tell me they aren't making money because my town hasn't had empolyment drop hardly one bit except for some uncertainty during the BP spill and even then they just kind of layed dormant. I was offered a six figure job just a week ago by a buddy dying to get his hands on some military guys to do safety work (which I have zero experience in!), he hired 4 guys in one week. My chemical engineering department and the petroleum engineering department at my college has a 100% job placement for graduates. Money is there refining, drilling , upstream, downstream, whatever, the government is just fixing the stupid game.

http://www.texasgulfcoastonline.com/news/tabid/86/ctl/articleview/mid/466/articleid/72/default.aspx

 

[MasterBates]

Yep.

FEDGOV basically made it impossible for a 100+ year old refinery (and the biggest single employer in the biggest city in my state) to stay open about 10 years ago. Thankfully, we have a shitton of exploration, so the bump to employment has smoothed out by now.

 

[scoober78]

Refining capacity is the only true link to gas prices at the pump. There is no relation to the price per barrel.

Uhh...in a word....wrong.

Yeah, you're right...those don't look anything alike.

Don't get me wrong, refining capacity does change the price of gas...in graphic terms it is a MAJOR player in the space between those lines, but trying to say that the cost of a barrel of oil doesn't change the price of a gallon of gas is absurd.

 

[Sapper!]

Uhh...in a word....wrong.
.

You are absolutely correct and it won't be the last time I put my foot in my mouth. I am definitly wrong to say there is NO link. By in large though we never see price corrections at the PPB that make equivalent changes at the pump mainly due to the complications at the refining side of things, which is hugely manipultated by federal policy.


http://online.wsj.com/article/SB10001424052970203405504576603120580952858.html

 

[scoober78]

You are absolutely correct and it won't be the last time I put my foot in my mouth. I am definitly wrong to say there is NO link. By in large though we never see price corrections at the PPB that make equivalent changes at the pump mainly due to the complications at the refining side of things, which is hugely manipultated by federal policy.
View attachment 10866

http://online.wsj.com/article/SB10001424052970203405504576603120580952858.html

Refining is part of the problem for sure...but to say that simply building more refineries will result in dramatically lower gas prices is only partially correct...Don't forget that even without the federal government making it harder, building a refinery is a colossally expensive undertaking. If hypothetically, all the major refiners elected to double their domestic refining capacity, there are two things you'd have to consider. 1) Those refineries won't reach production capacity for at least two years. (Master, check my number here...) 2) Those colossally expensive capital outlays will be passed on to the consumer in the near term in the form of...you guessed it...higher prices. Sure, that is a short term (relatively) recovery but there is no short term reduction to be found in building new refining capacity...It needs done, just don't expect a dramatic decrease in gas prices.

Next, there are some monumentally complicated micro-economic devices at work in the pricing of gas. Without delving waaaay into the weeds, suffice it to say that when crude prices are rising, gas prices will be a leading indicator...in other words, they will rise higher, faster and before oil prices do. However, when oil prices fall, and you can see this on the graph, gasoline prices are a lagging indicator. They will fall slower, less, and after oil.

Why? Well, pretend you are a gas station owner. You are a small business owner that relays on gas sales for your livelihood. Consequently, you use the sale of, let's just say 10000 gallons of gas in your tanks to keep your station running, pay your employees (including yourself) AND this is the critical part, turn a big enough profit to be able to fill the tanks when they are empty. So, if you think that the gas that you will buy next week will be more expensive than the gas in your tanks, you have to charge more for it NOW despite the fact that prices haven't actually risen yet. You raise prices preemptively to enable you to stay in business. Leading indicator...

Conversely, if you think prices may fall, you aren't going to immediately lower prices because you cannot afford to be wrong. If you are wrong only once, you can't buy gas and you go out of business. When prices are extremely volatile, as they have been for the past several years, you are reluctant to lower your prices ever because you just don't know what's going to happen...and you can't afford to guess wrong on the low side even once. Consequently, the more volatile prices, the more chronologically, you lead price increases and lag decreases.

Keystone XL...there are lots of reasons to build it...lots of employed labor etc...but don't expect it to help gas prices much if at all...That oil is already going to market. It's not like building the pipeline will bring any new oil to market. It will reduce transport costs for a some of that oil but in the end, I'd expect little if any change in the market price of crude...and as a result a similarly small effect on gas prices.

Sorry for the long post...hope it answers, or at least makes you ask some questions. What can I say...I was an economics major...

 

[phrogpilot73]

You are a small business owner that relays on gas sales for your livelihood.

If you're a gas station owner that relies on your gas sales for your livelihood? Then you deserve to go out of business.

Why? Because a gas station makes $.10-.15/gallon of gas. That is BEFORE they are hit with the 2.5% credit card fees for those people that like to pay at the pump. So 10000 gallons of gas equates to less then a $1000 profit for them. Why do you think damn near every gas station has a convenience store? So people pay the high markup for the convenience of a snack, etc... THAT'S where a gas station owner is making his profit.

 

[scoober78]

If you're a gas station owner that relies on your gas sales for your livelihood? Then you deserve to go out of business.

Why? Because a gas station makes $.10-.15/gallon of gas. That is BEFORE they are hit with the 2.5% credit card fees for those people that like to pay at the pump. So 10000 gallons of gas equates to less then a $1000 profit for them. Why do you think damn near every gas station has a convenience store? So people pay the high markup for the convenience of a snack, etc... THAT'S where a gas station owner is making his profit.

My point wasn't to roadmap a plan for opening a gas station, it was to illustrate a principle that contributes to the setting of gas prices. Do you disagree with that or did you just want to tell me not open a gas station?

 

[BusyBee604]

That is BEFORE they are hit with the 2.5% credit card fees for those people that like to pay at the pump.

In my experience in SanDogg, most stations charge a premium for pay at the pump to more than cover that 2.5% fee. Arco is fairly gentle @ $.35 per debit card transaction. On the outrageous end, Valero charges $.10 per gal. for using their own company credit card (no other credit/debit card allowed). Their credit card program is a cash cow, in addition to their convenience stores.
BzB

 

[insanebikerboy]

Hopefully someone here can help clear this up, because here's what I don't understand about gas prices. Try and follow along....

There are 149 operable refineries in the US today (been that way for several years).

Back in 2008 at the peak the average price of oil was $147 a barrel, when the average cost of a gallon of gas was $4.11. That equates to a gallon of gas per price of barrel of 2.79%.

The peak so far this year is $126, with the peak average of a gallon of gas is $3.92. That's a percentage of 3.1%.

The difference of 0.31% is significant statistically speaking. Basically that means there is more profit being made per barrel of oil as compared to four years ago, when the peak oil of a barrel was higher.

Plus, when you correct for inflation, the 2008 barrel is $157.94 per barrel of oil today. Compared to the $3.92 of today, that's 2.48%, so the spread goes up to 0.62%.

I may not be an economist but something doesn't add up when the cost per barrel of oil is going down but the average cost per gallon of gas is going up, which means more profits are being generated.

Additionally, the refinery utilization in 2008 at the peak was 85.3%, and the peak now is about 86% (estimated since it's an annual number). So, the normal supply/demand ideas apply since there hasn't been a cut in oil being produced.

Maybe I'm out to lunch, but building refineries doesn't seem to be the issue here.


*These numbers come straight from the US Energy Information Administration.

 

[MasterBates]

Refining capacity is also effected by seasonal formulation changes, planned outages an what I'm working on right now, old infrastructure breaking down. Main feed pipeline I'm fixing is 93 years old and about impossible to get parts for.



Sent from my PH44100 using Tapatalk 2

 

[villanelle]

Hopefully someone here can help clear this up, because here's what I don't understand about gas prices. Try and follow along....

There are 149 operable refineries in the US today (been that way for several years).

Back in 2008 at the peak the average price of oil was $147 a barrel, when the average cost of a gallon of gas was $4.11. That equates to a gallon of gas per price of barrel of 2.79%.

The peak so far this year is $126, with the peak average of a gallon of gas is $3.92. That's a percentage of 3.1%.

The difference of 0.31% is significant statistically speaking. Basically that means there is more profit being made per barrel of oil as compared to four years ago, when the peak oil of a barrel was higher.

Plus, when you correct for inflation, the 2008 barrel is $157.94 per barrel of oil today. Compared to the $3.92 of today, that's 2.48%, so the spread goes up to 0.62%.

I may not be an economist but something doesn't add up when the cost per barrel of oil is going down but the average cost per gallon of gas is going up, which means more profits are being generated.

Additionally, the refinery utilization in 2008 at the peak was 85.3%, and the peak now is about 86% (estimated since it's an annual number). So, the normal supply/demand ideas apply since there hasn't been a cut in oil being produced.

Maybe I'm out to lunch, but building refineries doesn't seem to be the issue here.


*These numbers come straight from the US Energy Information Administration.

Are those PPG numbers what the consumer is actually paying? If so, might some of that price increase be attributable to taxes and therefore be entirely removed from commercial profit margins? I'm way too lazy to look it up the 2008 average tax rate on a gallon of gas vs. the 2012 rate; just spitballing.

 

[insanebikerboy]

Are those PPG numbers what the consumer is actually paying? If so, might some of that price increase be attributable to taxes and therefore be entirely removed from commercial profit margins? I'm way too lazy to look it up the 2008 average tax rate on a gallon of gas vs. the 2012 rate; just spitballing.

Yes, the numbers per gallon is the average price at the pump for a gallon of gas.

That said, the numbers I put up are my own spitballing using some basic statistics. What I don't know and am asking is what would cause the large difference between the profit from the cost of a gallon of gas in 2008 and now considering the large difference in the price of a barrel of oil?

 

[villanelle]

But if most of that difference in price is in taxes, then there is no difference in profit. That's what I wondering--if the increase comes from taxes or if it's actually more money per gallon for Big Oil et al.

 

[phrogpilot73]

I was curious, and California has some good data on one of their state's websites. The only difference between taxes and fees between 2008 and 2012 is state/local taxes, sales tax, and underground storage fee. In 2008 if you added up all taxes and fees levied by the state and federal government, it was $0.63/gallon. In 2012, the same added up is $0.65/gallon. Guess what? That's a 3.1% increase.

 

[HAL Pilot]

The problem is oil speculators. 90% of the oil traded doesn't exist. End the trading of virtual oil and the price will drop.