Re:An Albertan responds

A couple corrections for you Cathy.

> Knowing that there are mid-term elections this fall
> (with the House of representatives and 1/2 of the Senate seats up for
> re-election... they are worried about votes pure and simple).

Only 1/3rd of the Senate seats are up for election at any given time. 1/3rd every two years to cover the six year terms of Senators.

> Most industry people say that
> prices are high because of refining capacity (the hurricanes last fall
> didn't help in thta regard). A new refinery has not been built in the US
> in 30 years.

That has been the standard line of the mainstream media, as well as talk radio. I happen to live in Louisiana, where the newest petroleum hydrocracker was completed July of last year, less than 8 weeks before Hurricane Katrina hit.

Technically, they are correct. It isn't a "NEW" refinery as it was built inside the Citgo property and is just an addition to the other two hydrocracker units already operating. But, it is NEW capacity. Enough capacity that it moved Citgo (Cities Services) from number 6 producer to number 4 in the US. That's a big jump, when you consider the Top three producers got their ranking by merging two or more major companies. Exxon-Mobil, Texaco-Shell, and Conoco-Phillips were formerly 6 major petroleum processors who now make up the big 3.

The reason for no new refineries is due to a combination of problems. One is the environmental restrictions that have to be met in order to get permits to build. The other is the prinicpal known as NIMBY or "Not In My Back Yard".

Citgo found it much easier to add the cracking unit inside their Sulphur, LA plant, but it still took over 10 years from proposal to engineering to construction and completion. Hundreds of millions of dollars have been poured into the new unit over the past decade, and it has only been generating profits for about 9 months. Like all the other refineries locally, Citgo had to shut down ALL refining for a one-week minimum with the arrival of Hurricane Rita.

A refinery is very complex, and once they start shutdown, it takes 7 days to bring a unit back on line with raising the temperatures and pressures. Lost production for 7 to 9 days represented over one million dollars in lost revenue just in this one plant.

> Said simply, the price that consumers pay for gasoline depend heavily on
> the prices that Petroleum refiners pay for crude oil and that crude oil
> prices have risen steadily over the past several years due to growing
> world demand.

And it's not just the price of crude from those willing to sell, but also the added cost and those who invest in futures drive up the price. Not only does the US import over one-third of its monthly diet of crude oil, but we are also net importers of refined gasoline. It's easier to build refineries offshore and then ship the gasoline in via tankers. (But, it still adds to the rising prices.)

> (This quote taken from Bush's own Economic Report..chapter 11). In
> addition this has been a year of increased geopolitical risk which boosts
> oil prices in the futures market (ie Chad, Iran, Iraq, Nigeria,Venezuela
> etc).

(Investing in commodites right now when they are
> in a secular bull run is one place to start)

If not handled properly, gov't purchases in commodoties or futures could be just as bad as the state of California buying up out-of-state electricity on the spot markets during their crises a few years back. They paid exhorbitant prices for future production, and then lost millions as temperatures moderated and the price of electricity dropped far below what the State Assembly had paid. Gov't intervention is rarely efficient or cost-effective.

..but looking at ways to reduce your own energy consumption is another.

A combination of consumption reductions and using alternative resources is needed to improve the picture, along with relaxing the restrictions against further production of US energy resources.

We have 100% bans on new drilling in most of Alaska, the entire Pacific coastline, most of the Atlantic coastline, and the Gulf of Mexico, with the exceptions of coastal Louisiana and Texas. The huge proven reserves at Anwar Alaska are placed "off limits" by the US Congress, while the state of Alaska and the Alaskan population favor the drilling overwhelmingly. Other known reserves within the US have also be placed off-limits.

So at least part of the steep increases is due to the US environmental movement along with Congressional actions.

In most of the 50 states of the US, the state taxes on oil and gasoline amount to a much larger figure than the profits the oil companies are taking. At the same time, the federal taxes on oil and gasoline are also greater than the oil companies' percentage. So the hidden taxes inside those $3.00 plus prices are more than double the oil company profits. Why shouldn't the state and federal gov't consider a short-term reduction in their taxes - as they are gouging the consumers far more than the oil companies.

At the same time, the oil companies invest billions of dollars in finding and producing domestic suppliers, or spend millions on every tanker of imported crude. Exactly how much does the government contribute to consumers being able to fill their tank, in relation to how much they add in taxes. Maybe we should look at the governments' "Windfalls", since most of those taxes are in percentages of the wholesale cost. The gov't bite is growing faster than the companies profits!

Sorry for the long rant, but this is my first post on this topic here, and I wanted to clear up some errors and misconceptions. By the way, I am not employed in the oil industry. I sell promotional advertising from my home, and have done that for over 20 years in this area. None of the local gasoline refineries are my customers. I don't sell to Citgo or Conoco-Phillips.

I didn't even touch on how much the oil company costs have risen in added pollution controls on these two local gasoline refineries over the past 2 decades. Some scrubbers are costing more than the original construction cost of the entire hydrocracker unit. And Citgo will be spending hundreds of millions more on adding new, technoligically advanced "wet scrubbers" this year to all three local units, as well as their other plants in TX, OK, and beyond.

BTW, if Venezuela's President Hugo Chavez follows through on his promise to sell of his countries oil exports elsewhere than the US, the local community will take a major hit. But, it will be nothing compared to the nationwide price increase that will take place in all of Citgo refineries are idled due to his actions. The local Citgo refinery was specifically engineered to process the Venezuelan crude, which is much different than West Texas Sweet or Mid-Eastern crude.

Dennis Bevers