Re: E-85

FMD - in 2006, ExxonMobil had total assets at end of year of $219 billion, and spent $19.9 billion on capital expenditures and exploration. That's 9% of total assets. The equipment lasts a lot longer than 11 years, so they ARE paying attention to upgrades, maintenance, and capital improvements. They would be foolish not to. It is extremely expensive for the plant to be shut down - it represents lost profits. So they work at uptime. Check the statistics on operating rates, and all the refineries are operating at well over 90%, closer to 97% if memory serves me. Those operating rates do not come easily, and require dedicated effort to maintain the assets.

I don't have the time to look through the financial statements of the various companies, but I think some of the information presented in the run-on sentences above are misleading (especially the bit about subtracting the sale of assets (assets in what?) from the cash expenditures for additions to property, plant, and equipment). So let's look at it in a different way.

Crude oil is about $70/barrel, which is 42 gallons. So to buy the crude, it costs $1.67/gallon. They then must transport the crude to a refinery and refine it to gasoline, which is no easy task. I don't know if you have ever seen what is involved, but there is a lot of capital investment. The crude tower and the vacuum crude tower give the straight run gasoline, along with other cuts such as diesel, kerosene, LPG, and heavy oils. But since the most valuable commodity is gasoline, they do everything in their power to convert the fuel to gasoline. This involves splitting larger molecules and combining small ones through a variety of processes - crackers, isomerization, alkylation, hydrotreating, reforming, etc. - and I'm only naming a few of the operations. All this costs money.

So we have $1.67/gallon to purchase the crude. Add at least $.40/gallon for tax (current tax in TN - and that is on the low side, California's total gasoline tax is $.60/gal). That gets you to $2.07/gal.

The price of gasoline here in east TN right now is about $2.80/gal. So that leaves about $.73/gal to cover crude transportation to the refinery, refining costs, distributon costs to the consumer, oil company profit, and service station profit.

This analysis does not take into account the fact that not all of the crude is converted to gasoline. A certain percentage goes to other, less valuable (in some cases significantly less valuable) products. So if we assume that 90% of the crude is recovered as gasoline equivalent (which may be optimistic, but I don't know the number off hand), it costs $2.25/gal, leaving $.55/gal for all the above costs.

My point is that the profits are NOT obscene. Sure, they make a profit, but it's not that much, and all the folks that whine about the "obscene" profits made by oil companies do not blink an eye when they spend a far higher percentage on profits for other items - like clothing, for example, which typically has a 100% markup.

What would you consider to be a "fair" profit? And why is it up to you or the government? You are quite willing to pay it as it is. No one is forcing you to do so, it is just terribly convenient to be able to drive your own car whenever and wherever you want. I have lived in a part of the world where few people own automobiles - so I have seen first hand that it is not a necessity to survive. Convenient, absolutely. But not necessary.

If you think the price is high now, just wait. The Chinese and Indian economies are growing very fast, and they are going to be buying an ever larger share of the fuel supply. I have seen very large increases in the price of industrial equipment in the last few years, due in large part to the incredible hikes in the price of steel and stainless steel. The above named economies are sucking up a lot of the world's supply of these materials, and it shows in the prices here.

Yeah, I've been on a soap box about this issue - you can tell it really gets under my skin. It's just that the powers that be use it as a political tool to rile up their constituents, who will then see them as doing something to "help" them where they will really notice it, in their pocket book every time they are at the pump. But they capitalize on the common ignorance of many people who do not understand the cause of the price of gasoline, and understand even less the fact that the governement has very little power to change it in a meaningful way, at least in the short run (short run being the next 5-10 years).