With the usual disclaimer that this may actually belong on the GD board, but probably not, I offer the following:
AP reported today that oil company executives are nixing plans to imcrease gasoline production facilities by as much as 10 percent over the next several years. The reason? Because the president’s “push for biofuels” makes them jittery about the continued demand for gasoline.
Is it just me, or is everybody else’s bullshit meter going off, too?
Mods: I did a quick search of the boards, didn’t find this question anywhere else, so if it’s already been asked, please shut this one down.
I think if we read between the lines – and with corporate types, you have to – we read, “Why would I invest in a refinery when you’re obviously willing to pay more than $3.00 a gallon for gasoline and take every drop I produce?”
Y’see, they’re not in the business to make gasoline. They’re in the business to make money. It’s just that printing money is illegal, unless you’re the U.S. government. If they could just invest in printing presses and bypass the whole messy business of selling gasoline, they’d do that.
B’sides, if they spend billions of dollars on new refining capacity, the price of gasoline goes down because supply goes up. That means they make less money per gallon on the gasoline produced in their expensive new refinery than they did in their paid-for old refinery.
The push for bio-fuels is caused by high gasoline prices. If the price of gasoline goes down significantly, the issue of bio-fuels gets dropped like an ugly girlfriend.
Who will help the poor oil companies? They’ve had so many refinery problems lately that pushed the price of gas up just in time for the summer driving season, despite their best efforts to keep them down. Maybe we can give them some more tax breaks, or better yet, just give them oil leases on public land for free. That will make it all better!
From a practical standpoint, the fact that they don’t know how. The technology and the knowledge are owned by people already in the business, and they’re not going to help anyone compete with them.
I just had another thought: Anyone want to lay odds that Bush Inc. will back walk away from his commitment to biofuels sometime in the next 30 days – after which ExxonMobil will announce plans to expand their production capacity by 10 percent over the next five years?
What I can’t get over is the massive disconnect that is going on in the O & G industry that they think that they will be able to continue business as they are used to indefinitely into the future. Not only do they have global warming to consider, but there is also the indisputable fact that they will run out of easily-accessible oil one day (the only debate is when). Sure, there are oil sands to get into, but my holy god, the environmental consequences of that kind of oil production! It seems like a complete no-brainer to me that O & G companies have to start branching into things other than straight O & G, but they don’t seem to think like that at all.
Shell and BP are both actively involved in renewables/hydrocarbon alternatives, and see themselves (or maybe just branding themselves) as energy companies. This is to say they will provide sources of energy to the consumer whatever the source. Given that oil and gas is still the simplest form of energy to obtain and put in a small container so as to be easily transportable, don’t expect a major change in their investment portfolio anytime soon.
Some of the other oil cos view are that they are oil and gas companies, that is what they are good at and that is what they will continue to do. They don’t have expertise in renewables and so it would be irresponsible to spend shareholders cash on those ventures. If the market and the investors want to go in the direction of renewables they (the investors) would be better served investing in companies that have competencies in renewables.
Another way to say that is if one was to bitch at Exxon for not investing in solar power, one should also bitch at GE, Macdonald’s and Calvin Klein who have as much competence and obligation to invest in these areas as Exxon does.
Clearly that strategy accepts that one day the the name of Exxon et al will pass into history as oil and gas is replaced by some as yet undefined fuel, but I don;t think these guys are worried about that anytime soon.
I agree with NaturalBlondChap. They are in the business of producing oil and gas, and although many of them have begun to research and provide alternatives, what else do you expect them to do?
I think another issue with the increase in production and new refineries is that, at least here in Canada, they are a huge liability (which investors don’t like) and they are also very hard to obtain federal approvals for.
The oil companies (AKA big oil) do have a interest in keeping prices down, for if they go up too much the economy will take a nose dive and their investments will be devalued. The question is how high prices can go before this starts to happen.
From the article (and I did a quick check of the IEA and DOE websites, and the numbers seam to tally) , the US produces 8.8 mb/day of gasoline (not crude).
Today the US needs 9.4mb/day, by 2015 this is expected to rise to 10.5mb/day
The proposal to use 20% bio fuels by 2015 would mean US needs 8.4 mb/day of gasoline, which is 400k a day below current capacity.
Current refinery capacity is running about 85%, which is on the low end of the 5 year range and a lot of the outages are in the high end coking and hydrocracking units (the bits that make gasoline rather than the ship bunker oil)
so allowing for a degrading situation with the refinery capacity is still sufficient.
So given those numbers (or if anyone has others please post them) how much chance would you stand going to a bank and getting a loan for 20 billion to build a new refinery? I would venture not much, and why would the oil companies invest as well?
So what is the game? On one hand the oil companies are pushing for easier permitting (unless of course that senator from Oklahoma was acting entirely on his own initiative) and on the other they are saying, no we won’t build refineries.
My guess would be that the Oil cos are still paving the legislative way for easier refinery capacity, if the need arises, if the bio fuels route cannot supply the required capacity. At the same time they are shelving current plans for capacity expansion, until they see how the bio fuels route works out. If it does, then hey ho no money spent. If it doesn’t then they can still build.
The oil cos also have to send a message to the investors saying, we are not about to burn a chunk of change on some refineries with no future market.
Either that or the execs at the various Eviloil Incs are all still high and confused after the excitment from last weeks interboardroom invitational kitten stamping competition, and haven’t been reading the secret faxes from the Bushhouse.
The only needle that should be spiking is on the practical business sense meter. If you were at the helm of an energy company, and saw trend lines pointing away from your staple product, would you invest your firm’s (& your shareholder’s) assets in adding to the supply of that product - or investing in r & d to find a more competitive product?
Come to think of it, would you even bother working in an industry where your per gross profit is 6% while the federal government’s cut is almost 19 cents per gallon and New York State pulls in almost 50¢.
Ah, yes, the “proposal”. The statement that there will be no further investment in refinery capacity is Big Oil’s response to that proposal. To which, as I previously stated in this thread, the Bush Administration will say, “Fuck it!” to the “proposal” within 30 days. I promise you, there will be a “course correction” before mid-July on this issue. And by the end of third quarter calendar 2007, Big Oil will announce plans to increase capacity 10 percent within five years.
Ummm - these would be the same refineries that were “struggling to meet demand” and drove the prices up by about 50% just a few months ago? But… but… but… You mean it is not supply & demand in action? I am shocked - SHOCKED, I tell you! :eek: