Quote:
Originally Posted by Tom Earp
No there seems to be a little margin as was said as there are no refineries that are not owned by Petroluem Companies! DAR! Are they taking the Billions in Profit and builoding REFINERIES? Heck NO!
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Refineries are among the most expensive assets to own and operate- you have to have a fortune to buy one, plus you have to be able to handle significant cash flow emergencies when supply is cut short or you have an internal problem and go through a period where you are refining a lot less product than is possible in a plant that is largely driven by fixed costs (meaning that most of your costs are the same whether you are running at 10% or 90% capacity.)
Oil companies have been trying for decades to get permission to build more refineries or even get permits to do massive upgrades and expansions on existing refineries- and without much luck. You need permission not only to build one but in many cases just to improve upon existing assets.
Overexuberant environmental interests and the "not in my backyard" mentality have done a great deal to prevent oil companies from updating and expanding refinery capacity to meet future demand- just as those same interests have hindered the expansion of our nation's airport system which is a major reason for flight delays and the domino effect that can shut down flights around the country if just one major airport is closed for any period of time.
Just to confirm what macallan suspects, Texas Beta is in fact in a position to be an expert on this subject- and so you just have to take his word or not.
I could say far more, but I have done consulting for many, if not most, of the major oil companies based out of Texas in my career to date- and it is not appropriate or productive for me to get into details and where I got the info.
People are going to believe what they want to a certain extent. And one of the great lessons many have learned in the internet/message board age is that you never do yourself a favor if you give people every detail they want to prove you are right since often you are just putting yourself at risk for no reward.
Oil and gas accounting is incredibly complicated. In 20 pages I could not even explain the basics. How you determine the true cost of a given product in this industry when a single well or field can produce many products from the same piece of ground that use some or all of the assets of the company in terms of extraction, transportation and refinement is yet another complexity that explains why oil and gas accountants are some of the best paid in the profession.
And to address the most common argument that oil companies should just "charge less" for their raw production so that the end products are cheaper- a significant percentage of oil fields are owned by a great many people. It is not uncommon for a single field to have over 100 owners- and the oil company in question extracts the oil and sells in exchange for a piece of the profit (and there are countless ways in which these arrangements are set up.)
So an oil company can't just charge less than the market price because then they are cheating the people who have a piece of ownership in the field where the oil came from.
The bottom line is that this is an incredibly heavily regulated industry and the price of the products being sold is set by a free and open marketplace. So it is very difficult to put forth a rational argument for price controls- I have yet to hear one ever.
Yes, you had some collusion issues with Enron- for example- but that kind of dishonesty can happen anytime multiple parties in a free market conspire. Enron is a poster child for dishonest conduct, but it is no more a measure of the energy industry as a whole than Michael Milken is a measure of the securities industry.
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