Topic: Gasoline price. My simple breakdown.

[johngenx]

We need a sliding scale that recognizes the fixed costs of exploration and production.  We're trading long term wealth for some short term jobs, and we're getting the shaft.  We could raise corporate taxes, which are zero for firms that have no profits.  Perhaps a combination of sliding royalties and progressive corporate taxes?

The drilling and on-land business might be competitive, but at the macro level, the oil business is dominated by a few players.  I know there are economies of scale and and vertical integration works in the business, but the reality is, at the "big league" level, there are too few firms for the industry to be truly competitive.

The other thing we have to do is stop down-stream stripping of natural gas.  Those are high-value-added jobs that need to remain in Alberta.  No raw products should move through a pipeline.  Natural gas is not in short supply right now (long term, probably, but not in the immediate short term) and we need to maximize the benefits of the industry.

As for pension plans and dividends reaped from energy producers, that still does leaves many, many Canadians out of receiving benefits from the energy business.  How many single parents waiting tables at Humpty's or passing your double-double through the drive-through window have stock portfolios, mutual funds, or pension plans?  Practically none.  It's easy for the upper-middle class to think everyone is like them, but they seem to forget the large numbers of people that fall well below the line in terms of economic ability to share in those methods.  Those also tend to be the people that could benefit the most from long term government wealth if we used it to subsidize post-secondary education and other programs designed to enhance socio-economic mobility.  We also need that money to invest in alternative energy sources and other basic research (and to realign our public institutions away from all research and development) that is long term thinking.

But, we don't think long term.  Alberta is filled with massive house, boats, Seadoos, trucks and SUVs and the bankruptcy rates when the oil biz coughs are horrendous.  We live in a society of selfish now-thinkers that, when setting policy, ignores the needs of others, including our future selves.

[ktm525]

Most companies plow ALL their revenue and then some to grow production.

 

MOST 

Not Shell, not Esso, not PetroCanada (Suncor)  all closed major refineries in Ontario/Montreal last 5 years and built how many?  ZERO 

Whose is left in central Canada in increase refinery production 

This same tactic is used in the USA.  Not a refinery built in the last 15 years despite TRILLIONS in after tax profits.

Man o man are you ppl SUCKERS for corporate BS. 

If refiners were making money hand over fist would the stock prices of pure refiners like Valero be through the roof. They are not because refining margins were thin. I have no idea what the exact story on the Eastern refineries are but typically plants here are closed when they have reached the end of there useful life and can no longer be upgraded. Has the capacity lost by these refineries been made up by expanding the remaining ones?

I do know that more Alberta/Sask crude is heading south rather than East.  What is the source of the crude that gets refined down East? It could explain some of the gasoline price differential E/W if the refineries down East are being forced to buy Crude priced in Brent and not WTI.feedstocks (ie. the source of the cude)

[tpl]

Artic there is a good point amid your  rant.   I betcha that once you have closed a refinery that NIMBYism and Lawyers various will never let it be reopened or rebuilt... unless of course there is a proper hard line right wing government  to smash a few heads and do it anyway.

[ktm525]

We need a sliding scale that recognizes the fixed costs of exploration and production.  We're trading long term wealth for some short term jobs, and we're getting the shaft.  We could raise corporate taxes, which are zero for firms that have no profits.  Perhaps a combination of sliding royalties and progressive corporate taxes?

The drilling and on-land business might be competitive, but at the macro level, the oil business is dominated by a few players.  I know there are economies of scale and and vertical integration works in the business, but the reality is, at the "big league" level, there are too few firms for the industry to be truly competitive.

The other thing we have to do is stop down-stream stripping of natural gas.  Those are high-value-added jobs that need to remain in Alberta.  No raw products should move through a pipeline.  Natural gas is not in short supply right now (long term, probably, but not in the immediate short term) and we need to maximize the benefits of the industry.

As for pension plans and dividends reaped from energy producers, that still does leaves many, many Canadians out of receiving benefits from the energy business.  How many single parents waiting tables at Humpty's or passing your double-double through the drive-through window have stock portfolios, mutual funds, or pension plans?  Practically none.  It's easy for the upper-middle class to think everyone is like them, but they seem to forget the large numbers of people that fall well below the line in terms of economic ability to share in those methods.  Those also tend to be the people that could benefit the most from long term government wealth if we used it to subsidize post-secondary education and other programs designed to enhance socio-economic mobility.  We also need that money to invest in alternative energy sources and other basic research (and to realign our public institutions away from all research and development) that is long term thinking.

But, we don't think long term.  Alberta is filled with massive house, boats, Seadoos, trucks and SUVs and the bankruptcy rates when the oil biz coughs are horrendous.  We live in a society of selfish now-thinkers that, when setting policy, ignores the needs of others, including our future selves.

Are you suggesting that we don't ship Arctic his  crude for his Eastern refineries but rather build the refinery in Alberta and ship him the gasoline?

I can't think of any liquids rich gas that is leaving the Province right now. Between the deep-cuts at the plants and TCPL's straddle plants I think we are pretty much down to methane by the time it hits the border. Am I missing something?

[tpl]

JohngenX    " No raw products should move through a pipeline."     Quite right and that goes for oil sands oil  as well as gas and imho it also means that no raw logs or unprocessed minerals cross the border either. It is a financial hit we should take/should have taken years ago even if it would have meant pissing off the Americans.


KTM    "Are you suggesting that we don't ship Arctic his  crude for his Eastern refineries but rather build the refinery in Alberta and ship him the gasoline?"      Yep... well build it somewhere between AB and Thunder Bay anyway.

[johngenx]

Folks seem to think that there is some rich guy at the top of the pyramid who's raking in billions of dollars, flying in private 747, smoking Cuban cigars, drinking Dom Perignon and keeping a stable of call girls all with the oil and gas money he's stealing from us. If we can just "tap into" that money by raising his taxes or charging higher royalties, "we" will get some of "our" money back.

Most oil company stock is held by institutional investors and most of those are pension plans...and most of those are union pension plans! Some is held in mutual funds for the benefit of little guys like me. I don't make much money anymore but I invested in a mutual fund when I was younger and had more cash...now I NEED the income from my early investments just to stay in my own home. If I lose the money from oil and resource company dividends, I'll be on welfare...and so will my 77 year old mother. It won't hurt that mythical fat cat with his private business jet, it will hurt guys like me. I'm 52 years old and I rather not take a job delivering newspapers and cutting lawns because the stocks I bought when I was 25 don't pay anymore.

People need to think the WHOLE thing through.

It's easy to complain about high prices and "rich" companies but  the economics is just not as simple as that.

I'm not complaining about high prices.  I think gasoline should be taxed in order to keep the price at a fairly stable $2.00L.  This would change the landscape of our roads within no time, and consumption patterns would change, and quickly.  It would hurt like hell in the short term, but long term, we need to rethink our consumption of energy and the use of non-renewable resources.  Yes, it is a regressive tax, but maybe we could pour some of the money into good, cheap, public transit?  Wow, what an idea?!  Sheesh.

Also, you don't think there aren't oil company execs flying around in corporate jets?  Sure.

It's nice that you "had some cash" to invest.  I consider myself lucky that I've enjoyed financial success, but I do consider a portion of that success luck, or good chance, or whatever.  Many people are not so lucky.  They don't have the potential to do much more than menial service jobs.  This is through a combination of factors, but the reality is that we have an underclass of people that are excluded from the success of our nation as the system only allows those with the resources to own (directly, or indirectly) energy stocks.  Every single person, regardless of means, should share in the flow of income from natural resources.

Oh, I know, they should "work harder" or "work smarter."  I've heard it all.  I've spent thousands of hours working with low income families, and the idea that they can just pull themselves up by the bootstraps is nothing more than looking away and ignoring the facts.  Most of those folks work very hard and barely scrape by.  They don't have $5 to invest.  They're busy buying clothes for their kids.

[ktm525]

JohngenX    " No raw products should move through a pipeline."     Quite right and that goes for oil sands oil  as well as gas and imho it also means that no raw logs or unprocessed minerals cross the border either. It is a financial hit we should take/should have taken years ago even if it would have meant pissing off the Americans.

Would that thinking mean also mean the death of our auto industry where "raw" parts are shipped here and assembled in Ontario?

Hyundai may be ahead of the plan where they are producing their own steel, assembling the cars and then shipping them as a finished product.

[johngenx]

JohngenX    " No raw products should move through a pipeline."     Quite right and that goes for oil sands oil  as well as gas and imho it also means that no raw logs or unprocessed minerals cross the border either. It is a financial hit we should take/should have taken years ago even if it would have meant pissing off the Americans.

Yup.  Those value-added jobs belong in Canada.  It's one of the many benefits to being natural-resource rich.  I'm a nationalist, sorry.

[johngenx]

Car parts are not raw materials.  Also, the assembly jobs are high paying value added jobs.

[tpl]

JohngenX    " No raw products should move through a pipeline."     Quite right and that goes for oil sands oil  as well as gas and imho it also means that no raw logs or unprocessed minerals cross the border either. It is a financial hit we should take/should have taken years ago even if it would have meant pissing off the Americans.

Would that thinking mean also mean the death of our auto industry where "raw" parts are shipped here and assembled in Ontario?

Hyundai may be ahead of the plan where they are producing their own steel, assembling the cars and then shipping them as a finished product.

No as all the parts "raw" or not are manufactured somewhere.   But yes in that "our" steel parts should be made of steel from Canada...we have plenty of iron ore and we used to have a steel industry.  For aluminium parts I guess we, like 1/2 the world would have to import bauxite from Jamaica.   Hyundai probably are ahead of the plan.

[ktm525]

John I understand you are looking out for the downtrodden and that is good.

My little shop pays on average about a 20% Royalty to the government on all production  as well as money up front to secure a production lease (competitive landsale). On top of this we pay income tax (true most sheltered by federal drilling shelters), property tax to all the municipalities (pipelines, roads, equipment, we pay yearly tax on these). How much of a burden can we place on a producing Company? Already I estimate that over 90% of the projects we consider are rejected because they are not feasible. The investors (pension funds etc) will not put up the money because there is not a big rate of return on their capital.

Yes Alberta is full of excess, but for every slack-jawed oilfield construction worker making $200k/year (most due to overtime)  there is a highly educated professional with multiple University degrees. Calgary is at the forefront of oil and gas technology and is one of the world leaders when it comes to innovation. The high tech design/engineering is world class and we export a ton of this knowledge worldwide and yes the money does come back home. Why should we apologize for being a technological world leader?

[johngenx]

If the oil business can't make money at today's oil prices, then we leave it in the ground.  It's no different than leaving money in the bank.  The real problem is that we didn't diversify our industry base starting in 1973, instead thinking the oil boom would last forever.  So, if we set our royalties and taxes to reflect the real present value of the oil, we lose a whack of jobs.  We're selling our non-renewable resources for some jobs.  Hey, I get it.  I like my job!  But, this is short-sighted thinking.  That resource belongs to every Canadian, past, present, and future.  Once it's gone, it's gone.  It's like being behind the eight ball, and we rolled ourselves there very carefully.

Oh, and if oil company profits were subject to high taxes and the government took the money instead of dividends being paid to pension and mutual funds, I'm fine with that.  Yes, I belong to one of those pension funds (though I'd NEVER own mutual funds for many, many reasons) but even with the corrupt governments we have now, it seems that they have less chance on blowing oil company profits on ridiculous real estate investment scams (they say "schemes") and other garbage that pension and mutual funds do.

[mmret]

There has been a lot of talk, perhaps a little too much talk about gasoline price. Here is my breakdown. I am going to make a huge assumption that 100% of a crude barrel can be converted to gasoline.

Oil is quoted in barrels.

1 barrel = 42 US gallons = 159L

Using a price of $100/barrel = $0.63/L is the cost of the raw crude.

Next the raw crude heads to the refinery. I read in the paper that refining margins are up (crack spread). These margins have been low lately but this spring they are up to 30%.

Produced product wholesale gasoline is now $0.90 after the refiner takes his cut.

Next up is the government: Between all the road taxes / GST /HST. the % is? I  wil call it 35%. Litre is now $1.22.

Transport from refiner to retail stations ($0.02/litre ?) now $1.24

A retailer markup of $0.05/L and we are at $1.29. I paid $1.28/L last night at the local station. I fail to see where the "evil" lies. If anyone has some better figures for any of the above please feel free to provide them so we can get a more detailed breakdown of the costs.

You are missing two numbers.
1) the amount of the fractions "distilled" from the crude that go into gasoline  this number alters by time of year 'cos of demand for heating oil ( ==diesel) vs demand for gasoline  ( is this "crack spread"?)
2) the cost of the mandatory ethanol added and the detergents and so on that are added.

As for taxes.  In Ontario there is 24.7 cents added before the retailer markup and then 13% HST added at the end and that 24.7 is itself taxed of course by the HST.

Anyway, details aside, I agree that there is not much evil involved.   With NAFTA the only thing we could alter would be the amount of taxes on gasoline and maybe they should be higher...got to pay for health care somehow.

The crack spread is quoted in various ways depending on what specific inputs/outputs you are talking about. Common ones are:

gasoline crack (NYMEX RBOB vs NYMEX WTI)
distillate/diesel crack (NYMEX No 2 heating oil vs NYMEX WTI)
321 crack spread (2 parts gasoline, 1 part distillate, 3 parts WTI)
532 crack spread (same idea)
gasoil crack spread (Europe Gasoil vs Brent)

So despite that WTi only maxes out at something like 60% gasoline content if you hydrocrack it really hard, its very common to trade the spread at a 1:1 ratio against gasoline. Of course the 321 and 532 are more "accurate" but less commonly traded.

ktm is correct, you can just take front month WTI and add the front month RBOB/WTI crack spread. Or you can use the RBOB price directly (same thing).

But yeah, there really isn't any "evil" in the pricing. People just need to be educated on what exactly goes into a barrel. I believe I have expunged on this stuff before somewhere on this forum.

EDIT: "WTI" is short for West Texas Intermediate, which is the worlds most liquid crude oil contract, despite not being anywhere near the most physically traded grade of oil. It serves as the world benchmark and is the assumed grade that people refer to when they just say, on CNBC, "oil is up $5". Due to certain idiosyncracies of the WTI market, it can often be very dislocated against world crude prices (Brent, Dubai, Saudi Light/Medium, etc.). I am not fully up to date on the commodities business but last time I checked, front month WTI was well under other grades (by $10-15/bbl) due to a nasty inventory situation in the US. This however hasn't quite been reflected in gasoline prices so the front month crack spreads blew out as a result. Might have changed now though as I've been away for 2 weeks.

[ktm525]

Leave it in the ground? Then you risk it being worth zero when cold fusion is discovered.   Saskatchewan left it in the ground in the 60's. 30 years of economic decay. No money for schools, and the conditions of the roads approached third world status. Life was OK if you had a gravy government position or worked for one of the precious Crowns.  Most ambitious young people left in droves creating a weird mix of Government employees and old people. There were still lots of downtrodden left in Sask though. No money available to help them either. 

[johngenx]

Yup, we screwed the pooch when we didn't invest the windfall from Boom #1.  Now it's all we have.  Shame.

[No H2O]

If anyone has some better figures...

Not really other than gas just across the border is 28 cents per liter less.

[rrocket]

If anyone has some better figures...

Not really other than gas just across the border is 28 cents per liter less.

Yep.  Been filling up over there lately.  ANOTHER item Canadian retailers don't want to sell me at a fair cost.  Add that to car parts, cigars, etc...

[No H2O]

If anyone has some better figures...

Not really other than gas just across the border is 28 cents per liter less.

Yep.  Been filling up over there lately.  ANOTHER item Canadian retailers don't want to sell me at a fair cost.  At that to car parts, cigars, etc...

I've kept track of the differences over the last year and its always been 23 cents a liter till a couple of weeks ago when it went up to 28 cents a liter.

I'm lucky that my tank is nearly empty when I have to hit the UPS Store for a pick-up. 

[ArticSteve]

Artic there is a good point amid your  rant.   I betcha that once you have closed a refinery that NIMBYism and Lawyers various will never let it be reopened or rebuilt... unless of course there is a proper hard line right wing government  to smash a few heads and do it anyway.

Conservatives who tend to describe themselves as REALISTS have a simple phrase that I too subscribe:

If it walks like a duck and it qackes like a duck; it's a duck!

In the first 3 MONTHS of this year EXXON made 34 BILLION dollars which includes revenue from one of Canada's premier gasoline retailers, ESSO.  Argue all you like about low margins in refining or low profit here or there.  The fact remains that "oil" profits are beyond obscene.

And while we're talking about Exxon/Esso it's amusing to note that Harponi's first and only private sector job was with Esso where apparently he was a genius.  Oddly, his father was a Senior VP of Esso.  An amazing coincidence. 

If Exxon/Esso desired to expand or build new refineries it would certainly happen.   Instead they merge and close facilities with impunity.  Harponi and his band of jokers are big oils wet dream. 

[rrocket]

Artic there is a good point amid your  rant.   I betcha that once you have closed a refinery that NIMBYism and Lawyers various will never let it be reopened or rebuilt... unless of course there is a proper hard line right wing government  to smash a few heads and do it anyway.

Conservatives who tend to describe themselves as REALISTS have a simple phrase that I too subscribe:

If it walks like a duck and it qackes like a duck; it's a duck!

In the first 3 MONTHS of this year EXXON made 34 BILLION dollars which includes revenue from one of Canada's premier gasoline retailers, ESSO.  Argue all you like about low margins in refining or low profit here or there.  The fact remains that "oil" profits are beyond obscene.

And while we're talking about Exxon/Esso it's amusing to note that Harponi's first and only private sector job was with Esso where apparently he was a genius.  Oddly, his father was a Senior VP of Esso.  An amazing coincidence. 

If Exxon/Esso desired to expand or build new refineries it would certainly happen.   Instead they merge and close facilities with impunity.  Harponi and his band of jokers are big oils wet dream. 

Canada's version of G.W. Bush...