Topic: Gasoline price. My simple breakdown.

[ktm525]

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.

[tpl]

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.

[tenpenny]

Overall, refineries in the USA are yielding about 49% gasoline (20.5 gallons per 42 gal barrel) from the mix of crudes they process (2004 data).

The retail margin here in NB is regulated - I believe it's around 5 cents/litre.

[ktm525]

Good info and yes I really simplified the refining process and made the 100% assumption. Now the fact that 1 gallon of gasoline does 200 hours of equivilent manual labour. At $5/gallon = 2.5 cents/hour. That is cheap, real cheap.

[aaronk]

Good info and yes I really simplified the refining process and made the 100% assumption. Now the fact that 1 gallon of gasoline does 200 hours of equivilent manual labour. At $5/gallon = 2.5 cents/hour. That is cheap, real cheap.

1 gallon of gas = 200 hours of labour? That math would be interesting, because oil is shooting out of the wells by the thousands of gallons per minute. I'm not necessarily countering your point, I'd just be interested to hear how that number is reached.

Oh, and I meant to say. You point out "where's the evil", could it be hidden in the $100/barrel? How much of that is massive profit? I know the oil companies made billions in profit last year so it's coming from somewhere (our pockets). BP is making like $5 billion USD a quarter, even with a mega oil spill cleanup. The fact is we want it and they control it.

[ktm525]

Good info and yes I really simplified the refining process and made the 100% assumption. Now the fact that 1 gallon of gasoline does 200 hours of equivilent manual labour. At $5/gallon = 2.5 cents/hour. That is cheap, real cheap.

1 gallon of gas = 200 hours of labour? That math would be interesting, because oil is shooting out of the wells by the thousands of gallons per minute. I'm not necessarily countering your point, I'd just be interested to hear how that number is reached.

Oh, and I meant to say. You point out "where's the evil", could it be hidden in the $100/barrel? How much of that is massive profit? I know the oil companies made billions in profit last year so it's coming from somewhere (our pockets). BP is making like $5 billion USD a quarter, even with a mega oil spill cleanup. The fact is we want it and they control it.

Crude price is set by demand. I sell my natural gas / crude oil by the spot market price. I don't withold my supply to drive the price up. I take what is offered.


The 200 hour thing I read on the net I imagine that a gallon of gas through my chainsaw would easily match me sawing by hand for 200 hours...

[vdk]

Good info and yes I really simplified the refining process and made the 100% assumption. Now the fact that 1 gallon of gasoline does 200 hours of equivilent manual labour. At $5/gallon = 2.5 cents/hour. That is cheap, real cheap.

1 gallon of gas = 200 hours of labour? That math would be interesting, because oil is shooting out of the wells by the thousands of gallons per minute. I'm not necessarily countering your point, I'd just be interested to hear how that number is reached.

Oh, and I meant to say. You point out "where's the evil", could it be hidden in the $100/barrel? How much of that is massive profit? I know the oil companies made billions in profit last year so it's coming from somewhere (our pockets). BP is making like $5 billion USD a quarter, even with a mega oil spill cleanup. The fact is we want it and they control it.

Crude price is set by demand. I sell my naural gas / crude oil by the spot market price. I don't withold my supply to drive the price up. I take what is offered.

Right!

[tpl]

That 200 hours. I have seen that on a recent TV documentary on energy and I believe it.


As for profit on crude.    Sweet light crude pumped in Saudi Arabia or Texas has a very low cost of production ( leaving out all fees,licences and taxes).
A barrel of oil that has been processed from the Oil sands is a lot higher.
It looks like a barrel of oil from the new deep water discovery off the Brazilian coast  will be even more expensive as they have to 2 miles through the Atlantic and about another two miles through rock to get it.

[ArticSteve]

Not to worry ppl.  This will be all explained. 

Tony Clement, Harper bag-man who threw a couple of hundred mill around his riding in "prep" for the G20 Summit on "government fiscal responsibility", is summoning "all concerned" to appear before a parliamentary committee to get them there facts. 

As Clement noted, last year @$140 a barrel gas was selling @$1.23    Today, @$98 a barrel it's $1.41   

Since Harponi and his band of merry marauders are stooges of big corporate energy I some how suspect little resolution on gas prices.  After all it was Harponi who paid McSquinty 4 BILLION to hand over provincial sales tax to the FEDS thus increasing gas by a 8%.  You might RECALL THE NAME .....  HarperSalesTax. 

What's the SOUND you hear

Not to worry, that's only the sound made as Canadian gasoline leaves Canadian refineries and heads south to the good ole USA. 

[ktm525]

Not to worry ppl.  This will be all explained. 

Tony Clement, Harper bag-man who threw a couple of hundred mill around his riding in "prep" for the G20 Summit on "government fiscal responsibility", is summoning "all concerned" to appear before a parliamentary committee to get them there facts. 

As Clement noted, last year @$140 a barrel gas was selling @$1.23    Today, @$98 a barrel it's $1.41   

Since Harponi and his band of merry marauders are stooges of big corporate energy I some how suspect little resolution on gas prices.  After all it was Harponi who paid McSquinty 4 BILLION to hand over provincial sales tax to the FEDS thus increasing gas by a 8%.  You might RECALL THE NAME .....  HST. 

What's the SOUND you here

Not to worry, that's only the sound made as Canadian gasoline leaves Canadian refineries and heads south to the good ole USA. 

Didn't the HST come into play since last year?  What effect does that have? Sorry I don't know, no HST here.

On the last price run up look at what the stock price of oil refiners did (VLO). The margins went to almost 0%. It sounds like this time that the refiners are going to try to add a 30% margin and go from there. Perhaps the government will also explain why the biggest cost in a litre of gas is tax?

[ArticSteve]

Didn't the HST come into play since last year?  What effect does that have? Sorry I don't know, no HST here.

July 1, 2010

Effect is big.  Adds 8% to the already existing 5% GST.

Ironically, it was Harper that made the HST happen in Ontario, but again Ontario voters are DUMB.  It's a better system for business and government.  It significantly reduced the size of the Ontario civil service by transferring a large chunk of the Ontario Ministry of Finance to Ottawa.  The only problem is that the rate should have been lowered to 10% to offset somewhat the gains.

[ktm525]

Didn't the HST come into play since last year?  What effect does that have? Sorry I don't know, no HST here.

July 1, 2010

Effect is big.  Adds 8% to the already existing 5% GST.

Ironically, it was Harper that made the HST happen in Ontario, but again Ontario voters are DUMB.  It's a better system for business and government.  It significantly reduced the size of the Ontario civil service by transferring a large chunk of the Ontario Ministry of Finance to Ottawa.  The only problem is that the rate should have been lowered to 10% to offset somewhat the gains.

So 8% increase in gasoline price due to HST? Did the old PST apply to gasoline?

[ArticSteve]

NO

Consequently, 8% immediate increase.   A bridge to far.

Politically here is what we have:

We have the Industry Minister, who wasted MILLIONS of Federal dollars on the most useless street improvements, etc., all thru his very expansive riding, leading a political dog and pony show over high gas prices when it was HE who raised Ontario gas 8% over night.

That's enough for me,     I'm getting a coffee at Tims to EASE the PAIN of it all.

[johngenx]

Crude prices are NOT a true function of supply and demand.  Why not?  Because in the commodities market, you don't have to take delivery of the product you are buying and selling.  These are financial instruments.  If we only had end users buying from suppliers, we would have a much more stable market.  Do we think the demand for oil has doubled in the last year?  Of course not.  Has the supply really halved?  No.  The price is very volatile in the short run thanks to speculation in the market.  Some oil producing nation has some instability, speculators drive the price, and presto, oil goes from $80 to $130/bbl in no time.  The true supply has not been impacted enough to drive that price change.

As for oil company profits, they do not come from the retail price of gasoline.  They come for the price of oil.  Oil companies post billions upon billions in profits, and it's not 5 cents per liter at a time.  So, yes, it's fruitless to complain about the price of gas as gouging, as the reality is it is not, at least not at the retail level.

Where we're getting the shaft is at the ground level.  Oil is the most precious and least renewable resource this nation has at this time.  The world is so crude dependent and the alternatives are not coming for some time.  So, the people of Canada have billions, no, trillions, of dollars buried in the ground.  But, we essentially give it away.  Oil companies threaten to pack up and leave if we enact royalties, but c'mon, where would they go?  If there was free/cheap oil in abundance elsewhere, they'd be gone.

When negotiating, a threat is a reveal.  It shows what you DO NOT want to do.  See, if it was in your best interest, you'd just do it.  When Big Oil threatens to leave, we need to call their bluff.  Sure, they might pack up, a little bit, to scare us, but the reality is that if they knew of better places to spend their capital, they'd be long gone.  Norway called their bluff, and Norway has a massive public treasury today.  We have nothing.

I don't mind paying $1.50/L.  I don't mind that oil is over $100/bbl.  I hate that the oil, a publicly owned resource, is practically given away by our government.  Yes, Alberta's royalties are lower than the right-wing bastion of Texas.  Insane.

[ktm525]

John some great points on oil speculators adding volatility to the market. I do disagree with jacking the royalty rates to get "our fair share".

Oilsands aside the WCSB (Western Canadian Sedimentry Basin) is a mature field. This means that most of the easy reserves are long gone. What is left is smaller, less productive , and deeper reserves which are very expensive to identify, drill and produce. Offsetting some of this is technology advancements which helps to recover more reserves. Pools vary but jack the Royalty rates and many become uneconomic very quickly. Any situation where Royalties are too low is quickly addressed by the hyper competitve environment. There is literally thousands of oil and gas producers in Alberta, some big most small and they are all competing for investment dollars and producing reserves. If the Royalties are too low, the producers make "too much" and the competitors flood in. This is happening right now in Alberta where premium oil sections are selling for over $5 million for a one section lease (1 mile*1 mile). Landsale revenue for the government is pure gravy as the money is all up front. There is no waiting in taking a % of the production. If the buyer doesn't produce the lease expires and the government gets to sell it again.

The first province to jack royalties was Saskatchewan in the 60's. At one point Regina had a ton of head offices and was projected to be the oilpatch capital of Canada. Royalties got jacked and the producers left to Alberta and set up the head offices in Calgary. Saskatchewan then endured 40 years as an economic backwater with crumbling everything. It wasn't until the NDP (ironically) began to reduce royalty rates that Sask. began to come to life. I think Sask reached a point where everyone realized that not every employee could work for the government.    Stelmach repeated the mistake and jacked royalty rates in 2008 and the natural gas industry has still not recovered. Why? Most projects didn't make a positive rate of return. Drilling rigs headed to the US, Saskatchewan and British Columbia. Alberta was now reaping higher royalties but the amount of production was dropping. Isn't that basic econ? When the Provincial government jacked the royalties they forgot that the industry in Alberta is hyper competitive.

Most companies plow ALL their revenue and then some to grow production. The Companies that don't generally pay the rest out as divedends to shareholders. Dividends only benefit the rich you say? I challenge anyone to find me a pension plan in Canada that is invested in the stock market that doesn't include energy producers. Some of the biggest oil and gas investors (and company owners) are OMERS (Ontario Municipal  Employees Pension fund and  the Ontario teachers fund. 

As for us junior O&G companies we are happy if we can generate a 20% rate of return annually for our shareholders. We have to compete for investment capital every day. A sample of small projects competing for that money (Indonesia, offshore Vietnam, Poland, and Belize).

[Erik]

Wow. Great posts, guys. Thanks.

For a change, I am actually getting smarter reading things on here. 

[Sir Osis of Liver]

John some great points on oil speculators adding volatility to the market. I do disagree with jacking the royalty rates to get "our fair share".

Oilsands aside the WCSB (Western Canadian Sedimentry Basin) is a mature field. This means that most of the easy reserves are long gone. What is left is smaller, less productive , and deeper reserves which are very expensive to identify, drill and produce. Offsetting some of this is technology advancements which helps to recover more reserves. Pools vary but jack the Royalty rates and many become uneconomic very quickly. Any situation where Royalties are too low is quickly addressed by the hyper competitve environment. There is literally thousands of oil and gas producers in Alberta, some big most small and they are all competing for investment dollars and producing reserves. If the Royalties are too low, the producers make "too much" and the competitors flood in. This is happening right now in Alberta where premium oil sections are selling for over $5 million for a one section lease (1 mile*1 mile). Landsale revenue for the government is pure gravy as the money is all up front. There is no waiting in taking a % of the production. If the buyer doesn't produce the lease expires and the government gets to sell it again.

The first province to jack royalties was Saskatchewan in the 60's. At one point Regina had a ton of head offices and was projected to be the oilpatch capital of Canada. Royalties got jacked and the producers left to Alberta and set up the head offices in Calgary. Saskatchewan then endured 40 years as an economic backwater with crumbling everything. It wasn't until the NDP (ironically) began to reduce royalty rates that Sask. began to come to life. I think Sask reached a point where everyone realized that not every employee could work for the government.    Stelmach repeated the mistake and jacked royalty rates in 2008 and the natural gas industry has still not recovered. Why? Most projects didn't make a positive rate of return. Drilling rigs headed to the US, Saskatchewan and British Columbia. Alberta was now reaping higher royalties but the amount of production was dropping. Isn't that basic econ? When the Provincial government jacked the royalties they forgot that the industry in Alberta is hyper competitive.

Most companies plow ALL their revenue and then some to grow production. The Companies that don't generally pay the rest out as divedends to shareholders. Dividends only benefit the rich you say? I challenge anyone to find me a pension plan in Canada that is invested in the stock market that doesn't include energy producers. Some of the biggest oil and gas investors (and company owners) are OMERS (Ontario Municipal  Employees Pension fund and  the Ontario teachers fund. 

As for us junior O&G companies we are happy if we can generate a 20% rate of return annually for our shareholders. We have to compete for investment capital every day. A sample of small projects competing for that money (Indonesia, offshore Vietnam, Poland, and Belize).

So by raising royalty rates, Saskatchewan exchanged a windfall in the 1960s when crude prices were relatively low, for a much bigger windfall now, when oil prices are high? Sounds like long term thinking. 

[Dexer]

Most companies plow ALL their revenue and then some to grow production. The Companies that don't generally pay the rest out as divedends to shareholders. Dividends only benefit the rich you say? I challenge anyone to find me a pension plan in Canada that is invested in the stock market that doesn't include energy producers. Some of the biggest oil and gas investors (and company owners) are OMERS (Ontario Municipal  Employees Pension fund and  the Ontario teachers fund. 

I'm so glad that someone FINALLY pointed out that fact.

People need at least a very basic understanding of economics before flying off the handle at whatever rising price is currently trendy.

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.

[ArticSteve]

So, yes, it's fruitless to complain about the price of gas as gouging, as the reality is it is not, at least not at the retail level.

 

The retailers and the refiners are one and the same.  The "gouging" comes in the form of restricting the retail supply of gasoline.

Here's how gouging has worked in central Canada.  Federal government allows Shell, Esso and PetroCanada to close refineries without any alternative production.  Federal government allows US giant Suncor to buy Petro Canada without any restrictions which results in the disappearance of a major retailer, Sunoco.

Now that retail distribution is tighter the next step to "GOUGE" is to further squeeze the supply.  How's that done in central Ontario.  Easy, truck it 50 miles south into the US market direct from the refinery.

[ArticSteve]

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.