Why is gas so cheap?

[Tom Slick]

The big, "fully integrated" (pumping, refining, marketing) companies like ExonMobil are making a profit. They net ~10% of their gross revenues, pretty much as they always have done. The thing that gets some people upset is that the 10% is calculated against a much bigger number now, making the real number ginormous.

JR

Exxon is selling it's company gas stations because they are losing money.
http://www.cnn.com/2008/US/06/12/exxon.mobil/index.html

[jackellis]

The big, "fully integrated" (pumping, refining, marketing) companies like ExonMobil are making a profit. They net ~10% of their gross revenues, pretty much as they always have done. The thing that gets some people upset is that the 10% is calculated against a much bigger number now, making the real number ginormous.

Exactly!

Exxon earned about $40 billion net which, although not a small number, is less than the $100 billion it paid in taxes of various kinds.

[Kristofor]

<snip>
If this math is any indication - gas companies right now are barely breaking even.

That's true, but when was the last time you visited a store that ONLY sells gasoline? You buy 10 gallons of gas and they make less than a buck off of the sale, then you go inside and buy a can of soda for $1.65 and they made another $1... Buy a cup of coffee for $1.50 and they made $1.40...

So basically, at the prices they can get for gasoline the pumps are really mostly there to get you in the front door.

Kristofor.

[LCHIEN]

actually I've heard many times over that gasoline stations are pretty low margin operations where gasoline itself is concerned, netting only a few cents per gallon, that's why historically they have been combined with either a garage or a mini-food mart/conveninence store. Most have to sell quite a large volume of gasoline.

[LCHIEN]

For those that care to know, liquid petroleum is made up of hydrocarbons. Hydrocarbons are the various combinations of hydrogen and carbon atoms. The specific atomic structure binds these in chains of multiple carbon atoms with hydrogen atoms clustered around the other various "attachment" points of the molecules. The very short chains are low density and become methane butane and propane gas at standard pressures and temperatures and these are usually separated from the liquid hydrocarbons at the point of production. The longer chains of carbon get progressively denser and thicker as the carbon count goes up.
For a twelve carbon chain the name is dodecane
Twelve dodecane, eleven undodecane, ten decane, nine nonane, eight octane, seven heptane, six hexane, five pentane, four butane, three propane, two ethane, and one is just methane http://www.worsleyschool.net/science...compounds.html

Heptane and octane are used for gasoline. Octane, the chain with 8 carbons has more energy than heptane and that's why gasoline is rated in terms of octane content; premium has the highest octane content, [is more resistant to pinging or knocking-corrected], and is for higher performance cars.
Crude oil varies from the point of production in its mix, it can actually vary from water-like consistency and color to near tar and asphalt consistency where it has to be heated for it to flow.
Some (the more desirable and high priced crude) have lots of desirable heptane and octane while others have less. Typically 5-30% by volume.
Oil refineries separate the different 'anes and in an effort to meet higher demands for gasoline, actually break longer chains and combine shorter chains to increase the heptane and octane yield. To maybe as much as 50%.
Other yield from a barrel of oil becomes kerosene, aviation fuel, diesel, heating oil, asphalt and petrochemical feedstocks. Some of these are higher priced per gallon than gasoline, to answer someone's question. I'm sure a very high percentage is ultimately used, only a tiny bit of waste is flared off (burned) that is uneconomical to recover and sell.

Refineries take energy to run them, it takes additional energy to distill (purify) and crack (modify the chains) so there is a significant cost associated with refining. they also add small amounts of additives for detergent (engine cleaning) and other driveability issues and make the mix of regular, plus and premium by combining percentages of heptane and octane and nowadays, adding ethanol, too.

[Kristofor]

<snip>

Heptane and octane are used for gasoline. Octane, the chain with 8 carbons has more energy than heptane and that's why gasoline is rated in terms of octane content; premium has the highest octane content, hence more energy per unit and is for higher performance cars.

<snip>

Shorter chain hydrocarbons will give off more energy per molecule when burned, so in general octane has slightly less energy and a higher octane rating than heptane.

Octane ratings are a resistance to ignition factor, they're not directly related to energy content per molecule. Adding to confusion is the fact that different octane isomers produce a different octane rating. Octane can have an Octane rating that ranges from 100+ to less than 0.

The reason why higher is better in a high performance car is that you can use a higher compression ratio since the higher octane rating fuel is more resistant to adiabatic ignition before the spark plug fires. With more air compression you can inject more fuel and have a more energetic reaction per fire.

Kristofor.

[LCHIEN]

thanks for that correction...

[Alex Franke]

The reason why higher is better in a high performance car is that you can use a higher compression ratio since the higher octane rating fuel is more resistant to adiabatic ignition before the spark plug fires. With more air compression you can inject more fuel and have a more energetic reaction per fire.

This is interesting... so because my car requires the 91+ octane rating, it means that it's tuned to run with higher compression? And if a car doesn't use higher compression then there's really no benefit to using the higher octane fuel?

[Kristofor]

I guess that's the idea behind building an engine that requires premium blend fuels. My understanding is that newer engines can also tweak timing and/or mixture on the fly to work with higher or lower (than optimal) octane rating fuel with only a very small impact on performance.

[jackellis]

The beauty of electronic ignition, fuel injection and all those computers under the hood is that they can maximize performance and minimize emissions by making small adjustments in the mixture and spark timing. Those of us who fly small planes have to use 100 octane fuel in part because our engines still use relatively primitive fixed spark timing systems. We also have to run a fairly rich mixture (though we do have the ability to vary it in flight) in certain flight regimes like high power climbs to avoid detonation, which will turn our engines to molten metal in a few minutes.

Auto engines run at compression ratios of around 10:1. My airplane runs at around 8:1.

[Gator95]

I think the answer to the original question is that oil being supplied to the refineries is not being bought for $140 a barrel. It's either part of a vertically integrated company (e.g. Exxon) or a company that has a long-term contract to buy oil at a given price.

[Long Shadow]

Well, my father, who would be a hundred and three now, used to say that you could eat everything on a pig except the squeal but that was used in the Ford.

[JR]

The beauty of electronic ignition, fuel injection and all those computers under the hood is that they can maximize performance and minimize emissions by making small adjustments in the mixture and spark timing.

Here is a description of the Kruse Limited Temperature Cycle engine:

Kruse - Limited Temperature Cycle
"The Kruse Limited Temperature Cycle is an improvement on the Otto and Diesel Cycle processes. By controlling (limiting) peak combustion temperatures in direct injection gasoline (petrol) and diesel engines, the Limited Temperature Cycle allows compression ratios to be increased with appreciable gains in volumetric efficiency for spark-ignition engines and lowers peak temperatures to significantly reduce the creation of Nitrogen Oxides (NOx) in exhaust gas emissions in compression-ignition engines."

Kruse's idea is to provide multiple injections of the fuel/air mixture within a compression cycle. In the ideal implementation the fuel/air mixture, which is delivered via a high-pressure line, is gated into the combustion chamber by fast-acting (<1ms) switch/valve located right in the dome like a spark plug. Multiple micro-burns during each compression cycle keeps the detonation temperature within a tight range, optimizing efficiency.

There are similar systems now being used in many internal combusion engine applications, notably outboard motors, some motorcycle, and a few truck engines. Kruse's patent is focused on the controlled temperature aspect, as opposed to multiple meters or or individual control of high-pressure fuel.

JR

[jackellis]

I think the answer to the original question is that oil being supplied to the refineries is not being bought for $140 a barrel. It's either part of a vertically integrated company (e.g. Exxon) or a company that has a long-term contract to buy oil at a given price.

Some oil is undoubtedly being purchases for well under $140 because it is hard to refine. However, it's unlikely the production business inside the major oil companies sells crude to the refining side of the business for less than market value. Nothing is impossible but if they're being economically rational, they likely book profits on production and losses on refining.

[herb fellows]

Actually - this is a very good question and I still don't get it. I looked up on the web what comes out of a barrel of crude oil - here is the link http://www.energy.ca.gov/gasoline/wh...arrel_oil.html
According to this government site one barrel of oil will yield a total of 50 gallons of products and that includes processing gain and an addition of ethanol. 50% of that is gasoline, remaining stuff is still marketable ranging from jet fuel to asphault. Somehow I doubt that remaining stuff on average will get price higher than gasoline. Let's say that "other stuff" made from oil gets the same price on average as gasoline. Presuming that refinining process has no costs associated with it, that all additivies including ethanol cost nothing to produce and there are no taxes included in the sale price of gasoline - we still come to the manufacturing cost of gasoline being at about $3 per gallon. Ignoring additionally transportation costs, etc - gas station selling you that gasoline at $4 per gallon operates at 30% markup before its own expenses (real estate, salaries...). No retailer in United States will want to touch any product with the markup that low. Most stores routinely operate with the markup around 100%. Not long ago I heard some election-time speaches calling for "windfall taxes" being levied on gas companies. If this math is any indication - gas companies right now are barely breaking even.

I don't know the math, but Exxon has had record profits in almost every quarter in the last several years, from what I read. Maybe it's like the loaves and the fishes??!