Ga$ Price How high will they go?

[Sparky73]

I just read an article on Yahoo! News like 2 weeks ago. It was all about technological advances, and how they are figuring Solar Panels are going to be our way with Energy. It will be another 15-20 years before we can produce them at a 'cost-effective' level, but like they said, by that time our technology will be advanced enough, and we can make them small enough and cheap enough to use on common objects, mainly as an alternative fuel.

[traytodd]

If you want to understand the oil industry, read the book "The Seven Sisters." It covers the history of the oil industry through the '73 debacle. Several of the seven (Exxon, Mobil, Chevron, Shell, Gulf, Texaco, BP) do not exist any more due to mergers and acquisitions. The history of the industry is boom and bust starting with Titusville. So the current rise in prices is nothing new. Rising prices, the boom, triggers exploration. Successful exploration turns to glut and falling prices, the bust. Unfortunately, the environmentalists are limiting exploration. For the US, environmental regulations, tort laws, labor laws, high insurance costs, long permitting processes and the associated law suits have convinced the oil industry to stop siting refineries in this country. As a result, we now also import finished product.

In '73, the increase in prices spurred development of the North Slope and the North Sea. While these were only a fraction of total worldwide production prices decrease. It is always the last few per cent of a product on the market that drives the overall price. To bring prices down now, we need a similar increase in energy supply be it from new crude supplies, coal, biofuels, solar, nuclear, wind, and/or conservation. Petroleum, coal and nuclear are the cheapest and most readily available large scale sources of energy. Wind is unreliable but feasible in certain situations. (In my trips over the Altamont Pass, Livermore, CA, the wind mills are only operating about 1/3 of the time.) Large scale solar was a dream when I worked at Exxon Research 25 years ago. Not much has changed. Besides, it works less than 1/2 the time. Biofuels have a limited potential. With the current increase in corn prices, we are seeing the finacial strain on the current alcohol plants. Growing grain for fuel long term in my opinoin is not feasible. It will eventually wear out one of our most precious resources, the land. Hydrogen is the fuel of the future and always will be. It is expensive to make, difficult to store, dangerous, and has a low energy density.

Conservation will happen naturally as prices increase. People will buy more efficient cars as they did in the '70s, they will car pool more, move closer to work, use public transportation, etc. If you think back to '73, people insulated houses, used wood to heat their homes, bought Opels and the Japanese offerings, Rabbits, Omnis, etc. I personally insulated 2 houses, installed new triple glaze windows in one, built heat exchangers for fire places, and installed mulitzone heating and set back thermostats, not to mention buying a '74 Manta. It wasn't until I bought a minivan in '93 that I had an engine greater than 4 cylinders again.

The price of oil is high now due to worldwide demand, short supplies, US currency problems, trouble in the Middle East and speculation. Speculation will falter, the minute one of the other issues is addressed. Either supply goes up, demand down, or the unrest is settled. Currently, I do not see any of that happening in the near future without a worldwide financial melt down. However, in the 5 to 10 year period, we could bring on more supply from any of the big 3 sources above. There are huge oil reserves in Alaska, ND, SoCal, the Gulf of Mexico and off Brazil. There is enough oil in the Western Hemisphere to supply the Western Hemisphere for a couple of decades and possibly more. We have lots of coal and can convert it to liquid fuel. We could also build nukes again. Conservation and alternative fuels can play a minor role but these should be determined by market forces not government subsidies. In the '70s & '80s, I happily pocketed the IRS tax breaks on insulation, but I would have done it anyway.

Terry

[West Coast GT]

Terry,
Good insight and analysis.

There's a reason the Altamont Pass wind farms you mention are rarely in operation; Private ownership of individual wind mills. Maintaining & repairing these units are not cheap, or easy. These costs probably weren't adequately factored into the financial investment plans of small-time investors. So when they break, they remain idle and dilapidate.

But take a drive out to the area just southwest of Rio Vista (Montezuma Hills) and you'll see tens of thousands of large windmills, all operating. The three wind farms are owned by:

• Pacific Gas & Electric
• Sacramento Municipal Utility District
• Florida Power & Light.

Current plans are to triple the number of units, but, there's an important issue to be cleared first - I don't really want to broadcast it on this forum. Just that it's well founded, important, and will be resolved.

Several factors come together to make the San Francisco Bay Area & Delta well suited for large wind farms.

• Annual cyclical formation of the Pacific High,
• Temperature differential between the cold coast and the blistering Central Valley,
• Presence of several excellent wind gaps (primarily Altamont Pass and the Delta River System.

In the Valley, adjacent to Rancho Seco is a large solar unit. And it's being expanded on a large scale. This is a direct light-to-electricity system and is quite efficient. Still expensive; but the cost is coming down.

There is no one solution to the energy problem, but through a combination of alternate sources we can lessen it's impact.

Have you been to the "Geysers" area between Santa Rosa & Clear Lake? Again, major energy companies have built geothermal powered generating plants. They've been there since the 1980s and the last time I toured the area I believe there were 21 units in operation.

We're making good progress. It's not the energy segment I'm worried, but rather the affect on petro-chemical production. We're heavily reliant on plastics and synthetic materials. Clothing, furniture, containers, insulation, building materials, and automobiles.

But hey, more importantly, I've got to fill one of my cars this afternoon. And fuel prices here are still going up. What's a guy to do?

[traytodd]

Well that explains the Altamont. I have always been dissappointed in not seeing them turn although when the are going the always seem synced up and are quite hypnotic.

A couple of years ago I sent the Guvenator an idea to cover cement river that runs from the Delta to LA with solar cells. While the solar cells might just break even the shade they would supply could save significant amounts of water. The two together might be profitable and the energy generated could be used to run the pumps since the cement river runs up hill. There was no response.

I am always leary of technology that is almost ready for prime time and has been for 25 years. Solar, fusion, and fuel cells all fall in that category. Technology that is technically feasible but requires subsidies is technology that is not ready. We should not stop researching them but to implement them on a mass scale using subsidies is not economical especially when the government must steal the money from me.

New technology often has unintended consequences. Look at the mess MTBE made to our water supplies. It was an expensive solution to implement and then cleanup for very little gain in air qualitiy. Most of the gains came from the other changes that we called reformuated fuel.

As for ethanol, we have all seen the recent increase in cereal grain prices. As I said before, the last few per cent of a commidity on the market drives the price. That is true on the demand side as well. We are in for much higher corn prices this year if it does not dry out in Iowa and other midwestern states. The precipitation there has been heavy this spring leaving fields too wet to till let alone plant. Normally corn is in the ground and planting finished by May 15 with May 30 being about the latest. I have not seen anything in the news about this.

For the near future, fuel prices will continue to climb until supply is increased or the political unrest in the Mideast is settled. Prices wll not return to $10/bbl since the $ has lost so much value. However, they will eventually come down because it is too easy and cheap to pump oil out of the ground. In the meantime, I plan on driving my GT since it gets 25% better mileage than my Dakota. People will find ways to cope, the US auto fleet will voluntarily downsize as it did in the '70s & '80s. Hopefully, this time Detroit will be ready.

I looked at Exxon's profits today. They seem huge until you compute the net margin which is under 10%. Coca-Cola and many other corporations, including one I use to work for, have a bad year when they drop below 20%. I would much rather see those profits spent on drilling for oil, building refineries, or invested in other energy ventures than to be confiscated by government. Maybe this run up of prices will finally force Congress to tackle the problem in an intelligent way.

Terry

[benncojr]

Originally Posted by traytodd I looked at Exxon's profits today. They seem huge until you compute the net margin which is under 10%. Coca-Cola and many other corporations, including one I use to work for, have a bad year when they drop below 20%. I would much rather see those profits spent on drilling for oil, building refineries, or invested in other energy ventures than to be confiscated by government. Maybe this run up of prices will finally force Congress to tackle the problem in an intelligent way. Terry

Terry very well said!!

I hope folks understand this fact when they are paying $5.00/gal.

On a better note... The price of gas in Atlanta stayed the same for the past 24hr...On a bad note... That price is $3.53/gal.

[jlthunder]

If you want to keep an eye on $/barrel, click on this site.

Bloomberg.com: Energy Prices

Oil has dropped $6 /barrel over the past few days. Down to a cheap 113.00/barrel. Probably just a blip in the long run though.

[Paul]

Originally Posted by traytodd I looked at Exxon's profits today. They seem huge until you compute the net margin which is under 10%. Coca-Cola and many other corporations, including one I use to work for, have a bad year when they drop below 20%. I would much rather see those profits spent on drilling for oil, building refineries, or invested in other energy ventures than to be confiscated by government. Maybe this run up of prices will finally force Congress to tackle the problem in an intelligent way. Terry

Granted the % is not staggering, but the total is...we're talking Billions... not chump change. Also, they have pretty much been isolated from any downward profit pressures with the industries hidden quasi monopoly. Their 10% profit is pretty much a sure thing every year.

The problem is they have NOT been investing enough of their huge profits in alternatives or capacity... They do this so they can keep prices up. Which just adds more fuel to the fire. Over the past several years they've been able to manipulate the prices just enough to keep things on the high side with few damaging effects to the consumer, both the direct and indirect. However, after a couple of extra straws on the camels back, and we have a run-away freight train.

We, the American public, should not get in the habit of making excuses for the oil companies and their profits or the price of oil/gas. The more excuses we make for them, the more complacent we become and the longer it will take for us to dig ourselves out of this hole.

[4speed]

banghead:
Here in Portugal ... the gas price is practically impossible!!!
1US Gallon = 5.9€ or +/- 9.145$

1L of gas = 1.55€

A country, were the minimum salary per month is about 400€.

[heimue]

Originally Posted by jlthunder The problem is I can't insulate. I have a 150 yr old house made of stone walls 2 ft thick.

Stone walls 2 ft thick? What do you want to insulate? I honestly don't see a problem here!

Dieter

[deanh74_2]

There is another reliable source of energy. Methane gas power plants. I worked at a power plant in Michigan near Detroit. We compressed methane gas off of a landfill and burned it in gas turbines. We then used the HOT exhaust gases with a methane kicker again to heat water to steam for a steam turbine. We could at full tilt make 10 MW. We averaged about 6-7 MW though due to weather conditions and maintenance. This is basically free power. We make more garbage than anyone else, why not put it to use! Oh, the methane is required, by law, to be burnt off / removed from the hill to prevent contaminating the ground water.

Dean

[Mike Trout]

My father has a patient who is a deep sea fisherman and gets his feul in Venezuela, last week he said gas, was 16 cents a gallon and disel was 14 cents a gallon, this was last week, now I go to my pump I am paying $3.79 for a truck that gets 10mpg I use $105 a week to go to work and back, somethin aint right here anymore. I herd gas will be 4 by memorial day and 7 by labor day.
I may just get a goverment job and have them pay for feul for almost anywhere I go. its nuts. but I aint telling ou all anything you dont know
Mike,

[opelbits]

If you are an oil company exec or stockholder, why would you want to do anything that would ease the problems causing the high prices. High prices equal high profits and as long as they are not allowed to drill in the gulf or in ANWR or build new refineries, they have a perfect excuse for NOT spending the profits on exploration and increased capacity. Wouldn't be surprised if oil company profits are finding their way into the coffers of the conservation groups fighting against new drilling and refineries. The oil companies were claiming for a while) that their profits were the result of the foodmarts and such, not their gas sales. But yet I'll bet their profits are going up in lockstep with the price of gas, and not because they are selling more Twinkies and 64 oz Diet Gutbusters.

They know that the future of gas as a fuel is going to come to a close. With it will be an end to their high volume sales of gas. It might be 30 40 50 years, but they know it. It may sound like a long time, but it isn't. The oil companies know that they stand to make far more money right now on gasoline and diesel with restricted refining and drilling and the speculators (the oil companies also blame the speculators, but guess who the speculators are?), than they will if they spend that money on an industry that is going to change significantly. Why build more refineries if we trying to shift away from gasoline? How much money would you spend on something that will not give as much of a return as if you took profit now and invested that profit elsewhere, in something with a burgeoning future?

Nevermind the fact that some very important people (the ones that make decisions about the federal oil reserves) have mucho oil stock or very strong ties to the oil industry. I understand that the Bush family has recently purchased 98,000 acres in Patagonia. Right on top of one of, if not the largest, underground fresh water acquifers. Fresh water is the next big commodity and of course, those in government have all the info and a headstart in being at the right place at the right time.

Anyway, Clinton's/McCain's proposed tax holiday is pointless. Unless you are trying to get the votes/support of the Teamsters, independents, and the trucking industry. Or anyone who uses enough fuel for it to matter. I have a decent commute that uses 3 gallons a day. How much do you think that will save me?

In the 70's we lowered the speed limit to save fuel. Now it is time to outlaw drive-thru's.

[RallyBob]

Got a call from my friend Greg in Nantucket yesterday. Gas is now $4.60 per gallon for regular unleaded, with premium closing in on $5 per gallon. Is this the highest price in the US right now?

[West Coast GT]

If we're serious about conserving fuel we would mandate cash-only transactions at the pump.

It's too easy to fill a large vehicle and not truly feel the pain of the cost when it goes onto a credit or debit card. This is especially true when the spouse writes out the check at the end of the month.

But when one has to reach into a pocket, pull out cash, count it out, and hand it over, well, its a whole different game altogether.

Considering its a rare day that I have $100 in my pocket, handing over 75 of it to fill the Bonneville would make me cry. Most days I'd have to plan on taking an anti-depressant and going to the bank before going to the gas station.

[PROPEL]

Originally Posted by West Coast GT But when one has to reach into a pocket, pull out cash, count it out, and hand it over, well, its a whole different game altogether.

I think that would work for taxes, too... if everybody had to hand over the cash each week for the amounts withheld, there would be a massive march on Washington!

Bob, San Francisco is (once again) listed as having the highest gas prices in the country, according to GasPriceWatch. Hope Greg didn't just get hustled by his local 7-11 station on the Cape.

[traytodd]

The history of crude oil prices:
History and Analysis -Crude Oil Prices

Cost breakdown for a gallon of gas:
Estimated Gasoline Price Breakdown & Margins Details

By far the major cost in a gallon of gas is the price of the crude. While the major oil companies do have vast reserves scattered around the world, they do not control all of them, hence they do not have total control over the price.

The majors are building refineries, just not in the US. The largest refinery in the world is now in India (750Kbbl/d) with a sister plant being built next door entirely for US export.

[RallyBob]

Originally Posted by PROPEL Bob, San Francisco is (once again) listed as having the highest gas prices in the country, according to GasPriceWatch. Hope Greg didn't just get hustled by his local 7-11 station on the Cape.

I wonder if they don't count Nantucket since it's an island. Islands traditionally have higher costs of everything because of transportation costs.

There are only a 1/2 dozen or so stations on the island anyway, they pricing is locked in. He told me that was the cheapest price he found. They charge what they want, you have no choice unless you leave the island, fill up on the mainland, and then return to the island. But the cost of the ferry and the time alotted severely offsets any gas price savings.

Gas lines form on Nantucket before prices jump 60 cents - Local News Updates - The Boston Globe

[traytodd]

Gas is always more in remote tourist locations. It is transportation and the fact that a years salary must come in a few short months.

I saw one station here (Sacramento) drop from 3.99 on Thursday to 3.89 on Friday. Most othe stations were running 3.87-3.89 here so I think that station saw a drop in sales. Market forces do work.

One of the things I learned while working for Exxon was that most of the earnings are made at the well head in part to capture the oil depletion allowance. Refineries operate on a small margin except during times when the crude prices are in flux such as now. They seem to make money as the market goes up because they raise prices quickly to sell their inventory. When prices come down, they are slow to reduce. During steady state times though, the make small margins. This is partially due to competition and partially to prevent competition. It is hard for independent refiners who do not have ready access to oil reserves to survive. Small margins are counter intuitive since crude is useless except as a feedstock to a refinery. It is the refinery that adds the value. The refineries are also capital, manpower, and energy intensive.

[neuropel]

Anyone ever see "Who Killed the Electric Car?" from a year or two ago? If not, you should rent it and watch it. Then we can all smile as we pay $4+ per gallon at the pump.

It's an eye-opening documentary.

[namba209]

Originally Posted by traytodd Gas is always more in remote tourist locations. It is transportation and the fact that a years salary must come in a few short months.

That thought ran rampant here inSANe Diego for many years, until it was found there was a pipeline from the refineries in LA to a tank farm here. I've noted through the years, that when a price increase in a barrel of crude is announced, the increase in the price of gas is immediate at the pumps, but when there is a decrease, the price remains the same until the crude actually gets out of the refineries. Also, with 20% of all the cars made being in CA, it is interesting to note the price of gas is higher here than anywhere else in the country. I guess the idea of all those cars using all that gas, they can have the price higher here and only have one State complain than to have the same price across the country and have everybody irate, and we have the rifineries here too. Bean counters at work.

[traytodd]

I would not consider San Diego remote or a tourist location. It is a major metropolitan area. Bridgeport, CA does qualify being on the Nevada side of the mountains about half way between Tahoe and Lost Wages. Gas is always 25 to 50 cents higher there.

Gas is higher in CA thanks to our CA Air Resources Board (CARB) and the state legislature. Only refineries certfied with CARB can sell gas in CA. CA has historically led the rest of the nation in fuel restrictions such as lower sulfur, Reid Vapor Pressure, benzene content, etc. There are costs associated with that leadership and we pay dearly for them, the oil companies not being bashful about that. Some of the mandates are necessary to clean up the air. Others are just political in nature and do little for air quality. CARB periodically threatens the existance of our classic cars and is currently on an anti-CO2 kick.

The legislature encourages CARB, prevents drilling, and generally misuderstands the whole economics of the oil industry. The state has made millions of dollars off this run up of pump prices, as much or more than the refineries.

Overall, fuel would be less costly in this country if we could get rid of local mandates (called designer gasolines) and go to a common standard across the country.

[West Coast GT]

Well, now that fuel prices have jumped, the local news (television & paper) were full of stories about the woes of our Bay Area bridges. People are car pooling (3 or more in a car and the toll id free) and riding trains, buses & boats to work. The Bay Bridge usage this week was down 20%. So the transportation districts are poor-mouthing it.

All Bay Area bridge toll are $4.00, except the Golden Gate which is $5.
________________

Friday afternoon I'd wrapped up a long week (working from home) and wanted to top the Opel off before the weekend crowds stack up at the stations. But the weather was great, roads were still relatively empty before the Friday get-away stampede made them miserable. So I took an hour long ride down some local 2-lane routes. You know, just in case I'd over-filled the tank or something.

[kwilford]

Originally Posted by traytodd By far the major cost in a gallon of gas is the price of the crude.

That may be true in the USA, but is certainly not in Canada or Europe, where taxes constitute the majority of the price of gasoline. And as crude oil prices rise, the government "take" goes up along with it, not only in the form of road, excise and sales taxes which are typically a percentage of the pump price, but also in the form of crude oil royalties, as much of Canadian petroleum is produced from "Crown" as in Government land, and virtually all of Alaska. Most of the remaining world's oil also pays some form of production royalty or revenue tax. So complain to your elected representatives...

[PROPEL]

Perhaps 60 percent of today’s oil price is pure speculation.

[jlthunder]

The question is when and if the bubble will burst? Just like dot coms & housing. Who will be the victims in its aftermath? Increased supply & increased prices, it just doen't make sense. If there was an actual shortage, then I would understand this.