Thursday, January 12, 2012

The Profit in Oil

Chevron Corp. said Wednesday that its fourth-quarter profit will be "significantly" below third-quarter results, partly because of weaker profit margins on refining and selling fuels.

You can expect gasoline prices to go up to counter the reduced revenue due to less demand by drivers. Blame it on Iran or whoever. Drill, baby, drill…get that US oil into the global market…I’m sure that will get gasoline prices back down to $2/gal. Exxon and others will follow suit and report a decline in revenues…Wall Street will react…our fragile economy will shudder.

An interesting fact is that these oil giants make lots of money in the entire fuel chain. Here, Chevron is going to make most of its profit from exploration and production. These oil companies own all the stages of oil: exploration, production, transportation, refining, more transportation, and actual sales of product. In 1998, Exxon made more profit from exploration than any other sector, due to the low price of global oil. How that works is let’s say Exxon funds $1 billion for exploration somewhere. The money goes to sub-companies and contractors that are owned by Exxon, and, of course, they operate at a profit. Jobs are created, equipment is purchased, the use of ships, helicopters, computers, etc (all owned by Exxon) is very expensive, but those costs are written off by Exxon as expenses. They get back more in profits than what they actually shelled out, pay little in taxes, and above all, this is subsidized by the American people…otherwise they wouldn’t do any of it. Let’s say I own a company that makes widgets…how can I make more profit from finding the materials I use in making the widgets, than from selling the widgets themselves? Clean, pure, true capitalism!

This is the MAIN reason why we are so behind in implementing our renewable resources. There is no exploration, production (wells in the Gulf), or transportation (remember the Exxon Valdez) to refineries. The only need of renewables is capturing the resource (sun, wind) on site, and converting it into electricity, heat, hydrogen, or whatever. You lose out on the most profitable part of our energy scheme, and the huge energy industry has consistently spent huge amounts of money lobbying, bribing, and putting out lies and misinformation for their own gain.

Cheap, cost-effective, clean, safe, sustainable energy…in the eyes of the beholder.

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