Oil company profits protected by Gov at expense of environment
Posted by Xeno on October 8, 2012
(Luis Sinco, Los Angeles Times / October 7, 2012)
The average price for a gallon of regular gasoline in California hit a record high of $4.655 on Sunday, according to the AAA Fuel Gauge Report. The national average was at $3.814. … the price of premium unleaded gasoline [topped] $5 per gallon at a Shell station along Washington Boulevard in downtown Los Angeles.
Gov. Jerry Brown intervened in the unrelenting climb of gasoline prices by calling for the immediate release of a cheaper, but less environmentally friendly, blend of gasoline.
Brown directed the California Air Resources Board on Sunday to permit oil companies to start selling winter-blend gasoline, which evaporates more quickly in warm weather than the summer blend. Normally, winter blend isn’t permitted to be released until Oct. 31.
The air resources board will follow the governor’s direction and tell refineries and importers that they can start selling the cheaper gasoline right away, said Stanley Young, a spokesman for the agency.
“This would immediately increase the supply of gasoline in California,” said Chris Faulkner, an energy expert and chief executive of Breitling Oil & Gas Corp. in Dallas.
He said the move could cause gasoline prices to drop as much as 15 cents to 20 cents in a week. Motorists probably wouldn’t see a decrease for at least a few days because it will take time for the cheaper blend to move into the market.
“Gas goes up quickly and comes down slowly,” Faulkner said.
Denton Cinquegrana, executive editor of the Oil Price Information Service, said the governor’s move “is not a magic wand that will immediately create all this supply.”
“It’s not going to bring prices down immediately, but it’s going to speed up the process of bringing prices down,” Cinquegrana said. “I don’t think $4.15 or so a gallon by Thanksgiving is out of the question.”
Brown’s move came the same day that the average price for a gallon of regular gasoline in California hit a record high of $4.655, according to the AAA Fuel Gauge Report. The national average was $3.814.
The surge in gas prices has been a major blow to Southern California’s car-dependent culture. Several small gasoline retailers were caught off guard by the rise and stopped buying gasoline, fearful that they could lose money if prices dropped again. Discount retailer Costco suspended gasoline sales at several of its stores, which were swamped by motorists looking for relief from high prices. …
How many people in poor health will this move kill? That doesn’t matter as long as gas prices come down. But the logic is a con. High gas prices are not due to a shortage of oil supplies, but an excess of oil company greed:
… Using an average price per gallon of $3.85, the report breaks down exactly how oil companies make sure to get their cut from each and every gallon. From that $3.85:
Production costs = 46 percent
Refining costs =15 percent
Taxes = 10 percent
Distribution, marketing and retail = 4 percent
Transport costs = 1 percent
Profits = 24 percent
It’s those double-digit profits that incentivize oil companies to keep prices at the pump high, no matter what’s going on in the oil fields.
More evidence here.
Here is one estimate of how the gas prices break down: http://energyalmanac.ca.gov/gasoline/margins/index.php
In the first half of 2012, the five biggest oil companies—BP plc, Chevron Corp., ConocoPhillips, ExxonMobil Corp., and Royal Dutch Shell Group—earned a combined $62.2 billion, or $341 million per day. – link
In other words, instead of killing some old people with asthma and making all Californians a bit sicker, it seems to me Gov Brown could have just demanded of oil companies that gas prices be tied to actual cost of supply, with a cap on their profit margin. He could reduce tax incentives to big oil companies who take profits above 20%. At 25% profit when you pay $4.65/gal you are paying $1.17 not for supply or refining costs, but for oil company profits.