OK, I've been relatively quiet on here for a while now. Posted some comments in the Stack, on the Hate Capacitor, and on the Agents site but nothing full blown on here. I've hear enough of this bashing of oil companies now all you Commie pinkos and tree huggers are gonna get it.
The prices are up, yes. GET OVER IT. Just because you are paying $60 bucks to fill up your SUV don't bitch at me about it. I am too. If it bothers you that much, go get a Kia Rio or the new little Chinese thing about to hit the market. Yeah, didn't think you would. You wanna know why they are making more money, it's a combination of things, so quit bitching about how you paying at the pump is padding their pockets and read on for a moment.
Oil companies don't just make three grades of unleaded gas. For example, everyone's favorite "crooks," "gougers," "thieves," etc. Make the following products:
Fuel for automobiles, aviation, and marine transportation vehicles.
Lubricants for the the same transportation sectors (motor oils, gear greases, etc), basestocks for conversion to other products by third parties, synthetic lubricants, metal processing fluids, paper machine oils, compressor oils (refrigeration), hydraulic oils/fluids, turbine oils (power production) and others.
Chemicals (now this one is very broad so I will hit the high spots) including polyethylene, plastomers, polypropylene, elastomers, alcohols, and products used for aromasizing and dearomatizing fluids, just.
Basically if it is a direct or by-product of oil, they are in the industry. Does this mean that anything that is a lubricant, fuel, or plastic is made by ExxonMobile, BP, Royal Dutch Shell or ChevronTexaco, no. They do pump a large percentage of crude from the ground and even the Dow's and Duponts of the world have to get their fix from somewhere. Even the smaller energy firms are getting their share. Take for example Penn-Virginia Corporation. The stock was in the mid $20's in summer of '02. Today it is at about $74.50 or so. This companies core businesses include oil and natural gas exploration and production as well as land management for coal properties from which they obtain royalties on coal and timber production by lessees. They are the primary stake holder in Penn-Virginia Resource Partners, L.P. who announced yesterday a $25.1M distributable cash flow in Q1 '06 up 54% over the same quarter last year.
See folks, it's not just the Gas manufactures making money in this industry. Take a look at any half way decent run energy company who is in the Coal/Oil/Natural Gas realm at this time. Profits and stock prices are up. They were in the right place at the right time. Many of you have heard of Hubbert's Peak from an article posted months ago on Nobrainer's site. This is one reason. It basically states that from this point on oil production can only go down. The last significant oil find was in the late 70's. Everything else is miniscule in the grand scheme in enabling us to match supply to the ever increasing US demand, much less that of the uber development occurring around the Pacific Rim (including China of course) and India. So basically we have increasing demand worldwide and decreasing supply. Last time I checked, any economist would tell you this means you can expect prices to go up. Unfortunately in this case, it's not something that can be righted as the market can't correct the supply side. Many folks say open Alaska or build more refineries. Well, have fun. There is a reason no one has built a refinery in the US in 20-30+ years, and the EPA weighs in strongly here along with the insane cost. Also, opening Alaska will mean that we live the good live for a little while and then we run out sooner. I'm guessing at some point someone in the middle east will get pissed enough to not sell to us. Fine, then we have a backup. Until the reserve is truly needed, hold it. Everyone still gets from point A to point B, our machines still run and every other product I use is plastic, was wrapped in it at one time, or has a part made from it. Apparently we can manage fine, it just costs a little more. Speaking of costing a little more, I have a comment on this as well:
I sell a commodity item, something that gas (since this is what so many people want to focus on) was. It quickly is becoming something much different. I sell many of my products at 15% mark up. When the metal markets went crazy a couple years ago (due to many of the same expanding markets) my prices went up. My mark up, by margin (percentage) stayed the same. The thing is 15% of 100 isn't as much as 15% of $125. If my cost is now $125, you are now gonna pay $143.75 instead of $115.00. So my cost went up 25% and so did yours but the volume gap is now $18.75 instead of $15.00 between my price and yours. Voila, my profits by volume increase on the same units sold, welcome to the wonderful world of inflation.
Is it unfair for the oil companies to make money this way on their many products? No! Right place, right time, barriers to entry, and previously taken risks in capital investments and product diversification covering a multitude of markets. Next time you hear about these guys making a ton of money congratulate them on a job well done, instead of chastising them, unless, of course, you've got a couple billion lying around to do some exploration, production, and refining after you've waited 10-20 years to clear the EPA and get your stuff actually built.
6 comments:
What I want to know is, what does any of that have to do with the 'Horton Shuffle.'
All I'm saying is . . .
For the record, I believe Hubbert's theory is crap as a predictor. The theory seems OK, but it depends on forming a trend-line at will. The latest peak oil theory uses data from only 1983 onward.... including previous data puts peak oil years in the past.
The best case scenario for the theory itself, is that it applies only to conventional oil. So that leaves out tar sands, oil shale, and perhaps even heavy crude, like what's found in abundance in Venezuela. This then begs the important question about Hubbert's Peak, so what?
And, if we assume there's a finite supply, what does it really matter if we use it all over 50 years as compared to 100 or 200? Why save it for future generations so they can not use it?
I will agree that Hubbert's Peak is applicable to "sweet crude" or that which is commonly found and sued. The kicker with the other forms is that it takes much more effort(energy) to refine it, therefore cost more, ala higher prices which is why everyone is bitching. I'm not saying we are going to run out, I'm saying that based on world supply and demand, don't expect prices to drop and quit bithcing about Oil company profits. When something is energy positive (produces more energy than is required to produce it) than we are happy. If it is energy negative (less energy tp produce than end use provides), we are not so happy. This is apparently one of the problems in the ethanol discussion as corn vs sugar cane is quite different.
As for running out, I know you don't put much thought into what a the future Kobbits will use for their transportations fuel but if the Short Bus got no gas, I'm gonna be pissed as I'm not banking on hydrogen. Oh, and since when did gnomes weigh in on anything not sports?
As for the Horton Shuffle, coal, oil and natural gas paid for the thing known as college and the birth of the shuffle. It kinda has some importance with me.
I had to weigh in since most people might listen, if words of wisdom came from a non-human individual.
Anyway, what's a Kobbit?
And I obviously do put a lot of thought into future transportation energy needs. I just haven't seen a lot of reason to write-off petroleum based options since even the non-conventional types are estimated to be marketable in the $50 range (or lower). The problem, as you alluded to, is that Americans are unwilling to admit just how valuable gasoline is.
A Kobbit is the spawn of a Neubrander (Hobbit due to hair) and a Korean. Agent and I came up with that yesterday following golf and talking about something you had mentioned in a previous blog. As for your forward thinking, I know you do quite a bit but I thought more for your own later life as surely to god anything after that we will have some other form of juice or have taken over a planet that does.
what's the deal with Hobbit hair?
Post a Comment