US Big Oil... When people think about Big Oil, they immediately think "how badly I'm getting screwed by the "ridiculous price of a gallon of gas"". After all, it's common knowledge that Big Oil sets prices arbitrarily and chooses to screw the consumer at will, right? I mean, the oil industry is the only industry to ever have its profits, which are historically lower than nearly any other industry, be named "obscene" or "windfall", and to be taxed above and beyond based on its "windfall" profits. Strangely, our politicians usually choose to tax "windfall" profits for production at the wellhead... you know, the what a producer is paid for a barrel of oil at the US wellhead. So let's look to see if that makes sense.
Today, 60% (around 13 million barrels fo oil per day) of our US oil consumption is produced overseas. That percentage AND gross barrels of overseas oil is INCREASING while domestic production and percentage is DECREASING.
The United States Geological Survey reports that the US and its waters contain over 100 billion barrels of oil equivalent of economically recoverable accumulations yet to be found by todays technology standards. This does NOT count unconventional resources. 100 billion barrels is equivalent to three Prudhoe Bay fields, or 1/3 of Saudi Arabia's proven reserves.
Foreign oil imports account for 1/3rd of our $60 billion per month trade deficit. Said another way, if we could produce the same energy here, we would slash our trade deficit by 33%.
Of the 7-8 million BOPD produced domestically, some 32% is produced by Major Integrated Oil Companies... Big Oil. The remaining 68% is produced by Independent Oil and Gas Companies, defined as "non-integrated companies that recieve nearly all of their revenues from production at the wellhead, and that have no marketing or refining component in their operations".
QUESTION 1. If the goal of a hydrocarbon tax is to generate a consistent revenue stream, which oil should be taxed preferentially? Domestic or Imported?
QUESTION 2. If the primary goal of a hydrocarbon tax is to promote energy independence and/or to weaken Big Oil's hold on politics and the economy, which oil should be taxed preferentially? Domestic or Imported?
So. Let's focus on these ever-increasing barrels of foreign oil. Where do they come from? Top 5 sources of US oil are..
Canada-1,823,000 BO/D; 3% increase over last year; 55% of Canada's production; over 100% of its excess production over internal use.
Mexico- 1,475,000 BO/D; 5% decrease over last year: 40% of Mexico's production; 88% of its excess production over internal use.
Saudi Arabia- 1,330,000 BO/D; 7% decrease over last year; 12% of Saudi's production; 15% of its excess production over internal use.
Nigeria- 1,156,000 BO/D; 14% increase over last year
Venezuela- 1,033,000 BO/D; 14% decrease over last year (hmmm. does this mean that Chaves style socialism is destroying wealth?)
Of these, only Canada and Nigeria (around 3 million of the nearly 7 million barrels produced by the top 5) today allow Major Oil Companies to drill and/or produce their hydrocarbons. The rest of these are nationalized or the production is otherwise controlled by the governments of those countries. The production mix of Canada is similar to the US... around 40% production by Big Oil, while Nigeria is close to 90%. Thus, only 1.8 million barrels of some 7 million barrels (around 26%) of the top 5 producing countries exports to the US can be attributed to Big Oil produced oil sold here in the good ol' US of A.
Question 3.- How does Big Oil control worldwide wellhead prices in light of its small percentage of worldwide production and OPEC and nationalized oil supplies?
OK, clearly any reasonable Kennedy Assasination Conspiracy Theorist would admit by now that it is unlikely that Big Oil has much of a role in setting global wellhead prices for oil. But, being conspiracy theorists, and true blue believers that the Big Oil invisible hand is still at work, we must then focus on Big Oil evilly manipulating prices at the processing/refinery level... you know, the place that crude oil is delivered to to be processed into Gasoline and assorted products. First, lets note that a barrel of oil is 42 gallons, and, on average, it "cracks" down to 19.5 gallons of gasoline.
There are 60 refining companies in the US. Let's look at the top 5. 4 of the top 5 are majors... and the top 5 control some 47% of all refining capacity. Here is the list
1. ConocoPhillips- 2,229,600 bopd capacity; 13% of US capacity
2. ExxonMobil- 2,860,000 bopd; 11% of UScapacity
3. BP- 1,475,5000 bopd; 9% of US capacity
4. Valero- 1,345,000 bopd; 8% of US capacity
5. Chevron- 1,011,901 bopd; 6% of US capacity
Wow, Pretty disturbing, huh? Big Oil controls nearly 40% of the US refining capacity. Or is it? Let's compare this to a couple of other industries... The top 4 companies in automobile manufacturing, brewing, tobacco, floor coverings, and breakfast cereal account for between 80% and 90% of those respective markets., and the top four banks in the US control 75% of all credit transactions. Then, bake in the fact that the other 60% of refining capacity is owned by 55 other companies that all in, operate 149 refineries in the US. If Big Oil is manipulating the price of gasoline at the refinery level, they are doing so in conjunction with a variety of several very difficult to control partners. This would be the greatest coup of a conspiracy of all time!
As painful as it might be, we must admit that maybe, just maybe, the possibility exists that the price of gasoline is not manipulated by these guys in smoke filled rooms. If that might be the case, then why are gas prices higher in some parts of the country than others? Let's try an analogy... 'cause you know I love a good analogy! Let's take raspberries. Why is my brother, a Californian, able to buy an entire flat ( 6 pints) of raspberries for $3.00 in June where he lives and I have to pay $5.00 for a friggin' pint in Texas? Is this a conspiracy on the part of "fat cat Big Ras" folks?
Probably not. The cause is due to a variety of factors... among these are 1) distance from the source (refinery) (berry farm), 2) number of wholesalers (berry farms) in the area, 3) number of different retailers buying from various wholesalers in an area (you know, that pesky competition thing that seems to keep prices low for people that live close to a variety of choices). Just like California is easy living for raspberry lovers, Gulf Coast is easy living for consumers of petroleum products, because the Gulf Coast accounts for 46% of all refining capacity (Texas- 27%, Louisiana- 16%, and Mississippi- 2% and Alabama- 1%) combined with lots of choices of refiners. For instance, Texas has 23 refineries operated by 16 companies that produce 27% of all gasoline... It isn't any wonder why Texas gas prices are lower by 5% or more from the rest of the country and 10% cheaper than California, right?
But, you might note, California has a lot of refineries. Well, we already know that although California has a lot of refineries, their capacity, at 12% of national capacity, is less than half of Texas'. Kind of like saying Texas has as many raspberry farms as California (which we might), except that Texas' raspberry farms are boutique mom and pop operations with a tiny fraction of the output to California's larger factory farms. So, although California has 21 refineries to Texas' 23 and 15 companies to Texas' 16, in general, like raspberry farms, the bigger the refinery, the more efficient it is. Of course, if a market has only a single refinery serving it, or, for that matter, a single raspberry source, then the market can be gamed by the refiner/farmer by "going down for unscheduled maintenance". The answer to this? Promote more refineries/farmers in an area. Instead, we have promulgated policies to keep new refineries from coming on line by grandfathering in low cost refineries, while holding new refineries to much higher standards. Our choice is to either implement a time frame to make existing refineries comply with existing laws and regulations or to provide tax credits for new refineries. Supply scarcity nearly always promotes iffy behavior.
That isn't the whole story, though. Add to this California's much stricter than federal air quality standards along with the dubious benefit of letting local California politicians design their own gas boutique formualtion standards for their communities, as if Fresno would have a significantly different need than Bakersfield. With several special blends to make, every batch o' gas cracked for the Calif0rnia market is a custom one, and saleable only in one particular community. Kinda like triple latte skim mochacino for Eureka, and frozen expresso for Sacramento. Anyone waiting in line at a Starbucks knows that this kind of customization adds time and cost to the basic product.
Face it, not even Texans are dumb enough to let politicians dictate what exact hue and size their raspberries should be, although we seem to support the Starbucks kind of customization heavily For idiocy that runs taht deep, we would probably have to visit the EU. The citizens of California benefit from this kind of moronic interference by having, arguably, 1 less ppm of crap in their air than they might have otherwise, while enjoying that dubious benefit by paying a price at the pump of over 10% more than Texas, or any other state in the country, for that matter. Yes, we Texans too could have consistent colored and sized raspberries, with each town having its own signature look, mandated by our mandate-happy elected officials if we were willing to pay 10 times the cost for a raspberry. Californians do benefit indirectly from this added expense by feeling smug about their "choice" that they have mandated on the filthy non-enlightened masses.
Question 4. Who/What should we tax to keep gas prices down at the pump?
Question 5. Who/What should we tax for energy security?
Question 6. Who/What should we tax for promulgating bad public policy?
You know, forget all this stuff I have just written. You're right, it really is just a bunch of Republican fat cats smoking stogies and figuring out how to screw you. You have to admit it is amazing how they have manipulated market forces all over the world to pull this off, though... genius, really. Considering how "stupid" republicans are... I hear how dumb republicans are all the time from my democrat friends, I am amazed at how they could manipulate gas prices while owning as small a percentage of the feedstock as possible, own far less than a controlling interest in the processing or delivery mechanisms of the product, do everything possible to alienate themselves from the citizens and politicians that depend on them, AND be forced to buy their retail product from 60 some-odd competitors, all IN PUBLIC VIEW with everyone KNOWING their diabolical plan to screw them!
Even Alex Jones would have troubling believing the audacity of this!
Or, alternatively, you can choose a more boring, mundane explanation... Big Oil has been supplanted long ago by a world oil business largely owned and controlled by oil producing state governments that use their oil as a global strategic tool to ensure good multilateral trade and defense agreements. Sure, Big Oil may be the occasional beneficiary of scraps thrown to it by the oligarchists worldwide, but it so bloated with huge bureaucracy that they cannot compete in arenas other than the tired old school ones where they cut deals with 3rd world leaders by throwing around huge amounts of cash for exclusive drilling rights and praying that their multibillion dollar investments don't get nationalized.
Anyone really watching how a tin-pot like Chavez or Putin are stuffing gimp balls into the mouths of so-called Big Oil cannot keep a straight face when watching some dumb Hollywood type expound on how scary, corporatey, Big Oil controls the world, while at the same time having such poor PR that they cannot even manage to be appreciated for selling the world's least expensive commerial liquid, along with cold beer, ribbed condoms, and tasty fried chicken all in a single swipe of the credit card!
Independent US oil producers are the Baby Seal of the oilpatch and American energy independence. Beg your local congressperson to QUIT clubbing our endangered Independent Producer Baby Seals! Do it today!