Price of gas. Sorry, I have to.

[Warren]

Thanks Bill. I should have asked the wife. She was reporter for The Trib years ago and would know that sort of thing. The farmers up here are rapidly selling out or turning their farms into subdivisions. There is one local dairy and everything is done on contract as I understand. The only things that keeps the local dairy going are the two military bases and a couple of school districts. They all have to give consideration to local products when letting contracts. So they all have to pay more for the local product than for dairy products shipped in from America.

Are your utilities privately owned in Weir? Anchorage finally sold it's telephone utility and the State opened up the market so now that we have some competition and reasonable rates, adjusted for inflation. The electric providers (one owned by the Municipality and the other a state regulated co-op) are protected from competition and can charge what ever the rate customers will stomach. My electric bill is three hundred a month plus and I have gas heat. I would love to see a private company authorized to come in and compete.

[Ken Weaver]

Warren - I'm just a few years older than you and we will see those alternative vehicles. They won't take over for a long, long time but we will see them. As I see it its a fairly simple situation that has been developing for a long, long time. As the world's largest economy, US consumes more energy than it produces - we have something like 5% of the worlds population and consume 25% of the world's resources (don't hold me to the exact numbers but the scale is correct, just can't re-find my source).

The basic problem boils down to two elements -

1) No more oil is being made, there is a finite amount left, we can argue about exactly how much there is but we can be confident that what ever the exact amount is that's all there is.

2) There are other economies in the world who are growing faster than ours and beginning to compete for those resources in the market. We have no right to the world's resources, we will have to compete for them.

Arguments about CEO salaries really doesn't matter - allthough as a society we will have to deal with it more for the impact on the structure of our society and the continued bifurcation into haves and have nots - i.e. the disappearance of the middle class. While the oil companies can be demonized for their profits, it doesn't change the two underlying elements of the problem.

So all we have left is some alternative to fossil based energy sources. Its also evident that there is no "silver bullet" that will replace what we have now. More likely will be a combination of alternatives not only for our transportation needs, but also power generation for the nation. Fossil fuels will be around for a long time yet, but it will be more expensive and in some cases more unreliable.

Put another way, we're on a train and we know that the track runs out somewhere up ahead, we just don't know exactly where. So - what do we do? If the earth isn't making any more, and we know we're going to run out, we need to change what and how we consume. It will be an interesting time and most of us will see at least the beginning of the changes. As consumers, our lives will change - we have no choice, its only a question of how fast and in what direction.

[jziegler]

I'll agree with the comments that we need to change, and that we will start to see that change in the near future. Changing fuels in transportation will take time, depending on the alternatives that are used. Some is starting to happen now, with flex-fuel vehicles (I hear GM advertising them on the radio regularly), and biobeisel blends for diesel fleets. I've read articles that have talked about fleets switching to biodiesel because it is cleaner. If I could find a supplier, I'd gladly switch to a biodiesel blend for my heating oil. It certainly won't fill all of our needs, but it will help.

Ethanol is up and coming. I've mentioned before that a new plant is supposed to be built near me. While the production is not as efficient as biodiesel from what I understand (it's much more processed from the raw material), it's probably still energy net positive. All of this stuff will add up.

Wind power, and tidal power will be used more for electric generation. Europe already has some large offshore wind farms. Give it a few years and we will start building them too. The only concerns taht I hear about the wind turbines are that they hurt the view and that birds can fly through them. Can't say much about either one. Tidal is too new to know much about its effects.

And the big one: more nuclear. Yup, that scary (to some) word. I heard a radio program yesterday where they were talking to one of the co-founders of Greenpeace, he left that group, and is now supporting nuclear power. The newest generation of plants is much better than the ones currently operating, many more safety features, and there is a big push for passive safe designs, with extra cooling water tanks that can dump water on the reactor without any pumps or electronic controls (pressure valves, I think). In the long run, this may be our best bet for large scale power generation. Only if we build these new plants will hydrogen make any sense.

As I have said before, the increasing costs are making me rethink things myself. I currently could go along business as usual, without making any real changes. But, I won't. I'm upgrading my house gradually. My next car will be more efficeint. If we all make as many of the small improvements that we can, it will make things go better for everyone in the long run.

Jim

[onedash]

A few things I didn't see so far. Credit card purchases. I think about 9-10 Cents for every gallon that gets charged goes to Master Card or Visa. Which in many cases can kill the local guy. I seen a gas station on the news that would have gone out of business if he relied on gas sales only.
Taxes of course are a smalle piece of the pie now. It should have been more bothersome when it was closer to 50% or more of the price.
Oil companies make about 8-9% profit margin but like others said banks, high tech and others have over twice that profit margin.
Find me a refinery out there that doesnt want to expand or build more! Everyone says we need more but if they try to build in their back yard those same people are up in arms and will do anything to stop it.
Regardless of how much oil we produce in the US won't solve much other than exporting more of our $$ to other countries.

Imagine if everyone who drive got a wheel allignment and tune up!!!And everyone caulked and added a little insulation to their house...
And everyone got energy star appliances....Or turn the heat down one degree....If everyone made a small effort it would make a huge difference.
That would be one **** of a bite out of demand.
I saw one of the airlines saved millions a year by taking one olive out of every salad they served.

I bought a bike to ride to work. It saves 2 gallons a day when I ride.
After 50 trips (@ $3 a gallon) the bike has paid for itself.

If we only complain and do nothing to help nothing is going to change.
Of course the government did make a lot of bad decisions when we had cheap oil because I guess they thought it would stay cheap forever.
Now we can't get through the permits to build ar expand refineries.
Kuwait and Saudi bot want to finance new refineries. Im sure exxon would build if they were allowed.

And lastly if I opened a business that made pencils and my profit margin was 10%. That means I only make a dime for every dollar I spend.
If they raise the minimum wage or the cost of wood goes up or whatever the price of pencils are gonna go up.
And you do have to keep investors happy or you will go out of business/.
They guy who got 400 Million was over 12 years by the way. Lots of money sure but not as bad as it sounds.
I think Bill Gates and plenty other make a little more than that.

Raising the interest rates keeps the economy on track and prevents prices from rising way faster than income(inflation).
Im no economic guru but I say let the free market run the way its supposed to. Once oil is to expensive the alternates become more appealing. If that wasnt true we would still all heat our homes with wood and ride horses.

[Russianwolf]

as a side note.

Local news ran a short story last night on a guy in MD that paid $40k for a Toyota Rav4 EV. One of the very few made when California had a law that 10% of all vehicles sold in the state had to be Electric by 2003.

GM had the EV-1.

The law was repealed.

90% of ALL electric vehicles made by the car manufacturers have since been CRUSHED, despite people being willing to pay large sums of money for them.

Owner of said Rav4 says he pays about $3/day in electricity for his 70 mile drive. And laughs as he passes stations where gas is $3.15/gal for the cheap stuff.

The motor has an expected life of......... 1.5 million miles.

[spf45]

I want to throw out my two cents. I am a shareholder in several companies, and I am a consumer, as well. My goal was to keep all politics out, but I do have a perspective on how things work that may not be shared.

First, the commodity prices in the oil and gas industry are market based: the intersection of supply and demand, but the markets for the commodities differ. Crude oil prices are set by a largely global commodities market, refined gasoline’s market is more regional, and pump prices are set by local markets.

Much of the *crude oil* price goes to governments; oil companies get a decent share, but much goes toward the exploration and production costs. Governments play hardball. They put areas “or blocks” of territory on auction, and oil companies fight to acquire rights to the blocks. As in other auctions, the oil company that pays the highest gets the block. With oil becoming harder to find, companies fight harder for the territory. Then they take years working and spending millions and millions to develop the blocks. If the expected amount of oil is found AND it is sold for the forecasted market prices, it is barely profitable for a company. If prices are a little bit low, production in the block will lose money. Look at where these companies have to operate. Offshore platforms in the North Sea (horrible weather conditions), unstable governments in the Middle East and Africa. All the easy places are gone.

Refiners buy crude oil at its market price and sell products at their respective regional market prices. The difference between the cost of the crude, or “feedstock” prices and the product prices is call “spread”. Regional prices for wholesale gasoline differ by region and thus spreads can be quite different. In part, this is due to the fact that states mandate different formulas for gasoline. It is not uncommon for a refinery to have a negative spread for periods of time. Over the last fifteen years, spreads have been so low that there has been very little incentive to build new refineries. Spreads lately have been high. Refiners do not need to build a new refinery to increase capacity. They can upgrade their units and they can also add units within existing refineries. This is common within the US.

Refineries are extremely dangerous and have unbelievable costs associated with them. Refiners need to run as close to maximum capacity as they can or they risk losing money, even if spreads are high. The difference in profits between 85% capacity and 97% capacity is unbelievable. It doesn’t even compare to an extra cents at the pump. Throughput and efficiency is king.

Gas at the pump is set for the local market and greatly depends on what the guy across the street is charging. The goal is to make money, but as someone already said, it is hard to make money on gasoline alone. Here is a typical scenario with round numbers: A small businessperson decides to set up a station on a corner lot. After purchase of the land and an environmentally friendly tank system, he or she probably owes the bank a million dollars. If interest rate is 10% (round numbers, or $100,000/yr) the cost of capital is $10,000/month. Using dated information, I’d say a station does well if it makes $0.12/gallon. Twelve cents! So, how many gallons must that station sell to break even just on interest? 10,000/30 days=300 dollars, roughly. That’s 3000 gallons to break even on interest. Taking it further, if a station gets 10 hours of steady business, that’s 300 gallons/hour. Then they have their other costs, but I am not an expert on this. Suffice it to say, a typical station makes more on tobacco products and beer, and then fountain drinks and sundries, than the station can make on gasoline.

There are only a few large oil companies in 2006. They make massive profits in times like today. At the same time, ConocoPhillips, the third largest US oil company, produces petroleum equivilent to 1.6 million barrels of crude oil and refines 2.6 million barrels a day! It owns or is involved with 29,000 miles of pipeline. If the restaurant industry was consolidated into 3-4 companies, we would have another gigantic target to point at.

Again, our gas prices are based on supply and demand. People just keep filling up their tanks! Is it the same mentality that keeps me from being able to take my kids to a ball game? Very expensive, but people just keep paying.

By the way, I also believe that many executives get paid too much. Wow. And they dedicate 24 hours a day for their lives to get it. No thanks.

[Howard]

I'm also a refugee of the oil and gas biz - former landman - dad's a retired Petroleum engineer, brother's a landman - and there's a lot of good info out on this thread. It's mostly the traders causing the turmoil, IMHO. Demand is certainly up, refining capacity hasn't kept up, but these guys in the commodities markets are making a mess. Even the hint of a supply disruption somewhere in the world sends these guys into a frenzy and there goes the price through the roof!

[maxparot]

To those that are mentioning how tight things are for the service stations:
Last night on one of our local news stations did a report on why investigations into price gouging are being launched. (even though AZ has no price gouging laws) Seems last year when gas hit it's high price point average profit at the pumps for the retailer were 10 cents/gallon. Fast foward to present prices and the average profit is 35 cents/gallon. I'm sorry but goods and service that are necessary for the health and well being of both the economy and the individual more controls are needed. No one should have to pawn their valuables to fill up their tanks so they can go to work. (another item from the news (pawnshops doing a brisk business due to gas prices))

[430752]

Huh?

quote:

Much of the *crude oil* price goes to governments; oil companies get a decent share, but much goes toward the exploration and production costs. Governments play hardball. They put areas “or blocks” of territory on auction, and oil companies fight to acquire rights to the blocks. As in other auctions, the oil company that pays the highest gets the block. With oil becoming harder to find, companies fight harder for the territory. Then they take years working and spending millions and millions to develop the blocks. If the expected amount of oil is found AND it is sold for the forecasted market prices, it is barely profitable for a company.

Wait a minute. I haven't seen a oil company go belly up in a long time. In fact, they're all listing record profits. So don't give me this hogwash.

No if you're talking exploration companies, maybe. But note that exploration companies are just that, exploration cos. Not exxonmobil or whomever. Thus, the big OilCo's prop up little exploro corps and if they find oil they control the exploro corp and thus capture the oil. If they don't find oil, the exploro corp. goes belly up, the banks write off the loans and the big OilCo's write off their investment. So what's this BS about oilco's taking a big risk?

And getting to market forces again, someone mentioned that refinieries haven't been built in a long time, thus market forces make prices higher. Yeah. what about the market forces that state more companies should be building refinieries then in order to supply the market at an acceptable profit yet supply higher volume and thus garnering more market share? What, those market forces don't exist. They do, they're just suppressed, artificially, since th big OilCo's don't want it. They can chose not to invest and yet make more money. Thus, they ignore or supress market forces when it suits them. Thus, don't give me this market force theory. It is just pure money grabbing, plain and simple.

I'd respect oil co's more if they just came out and said it: "We do it because we can! And you can't stop us, you need us more than we need you!"

which is true, and if we believe in capitalism, we might need to eat it.

curt j.

[spf45]

quote:

Wait a minute. I haven't seen a oil company go belly up in a long time. In fact, they're all listing record profits. So don't give me this hogwash.

I didn't say they went belly up. The hogwash thing is probably strong. I represented it as my perspective.

quote:
No if you're talking exploration companies, maybe. But note that exploration companies are just that, exploration cos. Not exxonmobil or whomever. Thus, the big OilCo's prop up little exploro corps and if they find oil they control the exploro corp and thus capture the oil. If they don't find oil, the exploro corp. goes belly up, the banks write off the loans and the big OilCo's write off their investment. So what's this BS about oilco's taking a big risk?

Legal entity structures are set up for tax reasons and to mitigate risks. There is no doubt. It is, however, hard to find financiers willing to accept the risk for oil companies (or any other company or any other individual). Bankers have a system: The more commitment, the lower the interest rate. No commitment and no loan. There is no free lunch. To "write off" means to take a loss. There are usually profits to offset the loss.

quote:

And getting to market forces again, someone mentioned that refinieries haven't been built in a long time, thus market forces make prices higher. Yeah. what about the market forces that state more companies should be building refinieries then in order to supply the market at an acceptable profit yet supply higher volume and thus garnering more market share?

Owning a refinery in the US. isn't all it's cracked up to be. You couldn't give them away 10-15 years ago. No one wants the legal liability. They pollute, they kill workers, they stink, they are very expensive and take many years to build. Every once in a while you have to shut them down (very dangerous) and send workers out to clean the wax and everything else out of them. Then you have to start them up again (even more dangerous). All this time you are making nothing on the shutdown unit.

If you started building one now, it would take about ten years to get it running. It won't solve today's problems. Upgrades and expansions to existing refineries are much quicker.

The lack of refining capacity is not a factor in the high price of crude, by the way, which is in the 70's/bbl. Increased refining capacity would help with refining spreads, of course, and that would be a good thing for consumers. Spreads are very high right now.
[/quote]

quote:
What, those market forces don't exist. They do, they're just suppressed, artificially, since the big OilCo's don't want it. They can chose not to invest and yet make more money. Thus, they ignore or supress market forces when it suits them. Thus, don't give me this market force theory. It is just pure money grabbing, plain and simple.

You cannot rush a refinery to market.

quote:
I'd respect oil co's more if they just came out and said it: "We do it because we can! And you can't stop us, you need us more than we need you!"

which is true, and if we believe in capitalism, we might need to eat it.

Well, they do many things because they can. I can tell you from a shareholder's perspective that they are pouring too much money into reinvestment instead of passing the profits to me. I have been through the thin years and I would like more while the going is good. I think we will see tough times for the industry (lower prices) in the future. As Lee Raymond, former CEO of ExxonMobil has said, "No one offered to help when times were tough (and that's okay, we didn't expect it)."

Peace.

[LarryG]

No one should have to pawn their valuables to fill up their tanks so they can go to work. (another item from the news (pawnshops doing a brisk business due to gas prices))

Another thing I've thought about is the number of people who will be forced to start charging their gasoline on bank credit cards (Visa, Mastercard, Discover) and end up paying even MORE per gallon than the price on the pump. And possibly end up in real trouble over the long run, especially if they have a high-interest card.

And before anyone gets the wrong idea, I'm not about to break out the same old tired arguments that are often used against lotteries or other forms of legalized gambling. I'm not one given to clamouring for the government to protect people from themselves. If someone persists in driving a gas-guzzler and feeds it with his Visa card, that's his affair and not mine. But as maxparot says, there's a point at which the public interests have to be considered and the corporate books thoroughly examined to see just exactly what the h3ll is going on, and why. Whether we've arrived at one of those times, I don't yet know. But I'm inclined to believe we're getting close.

[drumpriest]

I've been avoiding posting to this thread up until now, but I may have a point to make. I feel that our country is so dependant upon gas at this point, it's a national security issue. Once gas gets to the point that people cannot afford to work, it's a problem that can break the economy.

I'm not saying that we're there yet, just that we easily can get there. Our country's public transport systems in general are a joke. There are a couple of citys with good setups, but for the most part, the idea of taking a bus to work is laughable. My wife looked into it for us, it was to be a 3 transfer 3 hour ride for something that takes her 20 minutes in a car.

The government will think about getting involved, I think, once other industries are actually hurting due to oil price increase. Travel last year wasn't really down considering the big hike in gas price. If it seems that the economy will be fine with more expensive gas, then the market will be fine with it. My opinion is that the resource is now akin to food, I wonder how people would react if all food suddenly became 3 times as expensive though corn production was just fine, for instance. There would be intervention.

P.S.

We are gas aware, because we don't like paying more than we should, our worst vehicle does about 26 mpg, our best about 35, but many people arn't, and that's fine.

[Joe Lyddon]

The ROOT of the problem is with OPEC...

They have the biggest source available... like a big water tank, if you will.

They have formed a group to decide how the spigot, of that tank, should be opened! If they just let it drip out to the public, it tends to be very expensive because it is needed by the world to stay alive. If they open it too much, the price goes down... They basically control the world's access to oil and the price of it!

That type of action and the ability to do it, should be against humanity law!

The problem is, there is no country, or group of countries, that have the balls to force the issue to deem it illegal and put a stop to it.

In the mean time, they are holding us all hostage milking us for all they can.

The only thing the oil refineries can do is add their (non gouging) markup to the oil and sell it! Everybody else in the food chain must ALSO increase prices as a result of the increase to them... resulting in INFLATION and a hit on the economy.

I heard on Rush Limbaugh that the economy is doing just fine... I suspect that everyone is just using their credit cards... eventually, that will peak out, cannot be paid, and the economy heads for the crapper big time.

Prices of everything will have to be increased; eventually... squeezing the life out of not just our economy, but the rest of the world's economy.

All because of a small group of greedy crooks at the start of it all!

If all oil producing countries were FREE to produce all of the oil they wanted, without any restrictions from an OPEC type of organization, oil would truly be on the free world market.

Just my viewpoint and analysis...

[billbeery]

Leadership?!

I just read that the Senate is today discussing a "$100 gasoline rebate" to U.S. consumers. That should really address the issue at its very roots. I sometimes wonder if the Senate is just a poorly directed sitcom.

[bigsteel15]

I just read that the Senate is today discussing a "$100 gasoline rebate" to U.S. consumers. That should really address the issue at its very roots. I sometimes wonder if the Senate is just a poorly directed sitcom.

That's falls into the same category as the $400 "windfall" we got here in Alberta last fall. Lots of retailers were offereing to double your rebate if you brought the cheque in and bought something worth $2k or more.