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April 26, 2006
Oil companies making obscene profits! Not.
Everyone is wincing as they pay at the pump, but let's lay the blame where it belongs: at the Birkenstock-shod feet of the environmentalists. They've done everything in their power to block oil exploration, the building of new refineries, and the construction of nuclear power plants for the last thirty years.
Happy Earth Day!
What about the GOP? In a reflex act of cowardice and know-nothingism, Pres. Bush and the Congresscritters have called for yet another investigation into price fixing/gouging by the oil companies. This has been done many times, and no evidence has ever been found that the eeeeevil oillllll companies are engaged in this nefarious practice.
But everyone is quick to rap the oil companies for their outrageous profits. Well, guess how much money they're actually making?
The oil company profits are not obscene. As of September of last year the total take for local, state and federal governments for each gallon of gas sold was 46 cents. In New York that figure is 63 cents. At the same time gasoline retailers were making about 12 cents on the sale of a gallon of gas. Right now the government take is approaching an average of 50 cents a gallon. Retailers are making about 14 cents. so ... who is making the obscene profit? The local gasoline retailer invests in the community, buys a plot of ground, builds a gas station, hires the employees, pays the local taxes, deals with the local regulatory agencies, and makes a big screaming 14 cents on each gallon sold. Meanwhile, the government steps in without having invested one dime in that facility and takes about 50 cents per gallon. Some obscene profits, right?
As for profit margins ... the amount of money earned for each dollar of sales ... oil companies are nowhere near the top of the list. In 2005 pharmaceutical companies made about 17.6 cents for every dollar of revenue. That, for those of you educated in government schools, that works out to a 17.6% profit margin for the drug makers. How about your local bank? They made about 19.1 cents for every dollar of revenue. Almost a 20% profit! Not too shabby. And what about your household goods and cosmetics? Those companies earned 11 cents on the dollar. A lot of competition there. Now, the oil companies. What did they make? In 2005 the average was 8.5 cents per dollar of revenue. That works out to an 8.5% profit margin.
That's what is considered an outrageous profit? I don't think so. If you want to pay lower prices at the pump, demand: lower taxes; increased exploration; and begin drilling in ANWR and off the coasts, dammit!
It's time -- again -- for me to dust off my "gas is expensive 'cause we won't increase production" post.
Gasoline prices paid at the pump have been on a steady decline since the 1920s, with the obvious exception of the 1970s, when we faced an OPEC embargo and gasoline lines. In 1920 the real price of gas (excluding taxes) was twice as high as today. Electricity prices were about three-times higher 75 years ago.
According to the U.S. Energy Information Administration, the all-time highest price for gas was in March 1981, when prices at the pump shot up to the equivalent of $3, in the aftermath of the Iranian Revolution and the outbreak of the Iraq-Iran War.
Okay, we've surpassed that record price, but mainly because demand has increased while production has not kept pace, something I discussed below.
Further, as with all manufacturing processes, there are costs associated with making a product.
The reality is that demand for gasoline had increased over the years, even with the increase in average mileage of passenger vehicles, mainly due to an increase in the number of cars on the roads -- a function of the increase in population.
So, more drivers, requiring more gas.
Demand goes up, so manufacturers increase production to meet demand, right?
Except that due to a combination of EPA regs and NIMBY-assed kvetchers, the number of new refineries built in the U.S. in the last 20 years is. . . .
Wait for it. . . .
Zero.
We have done everything we can to ensure that demand outpaces supply.
And while we're talking supply, we're sitting on top of HUGE oil reserves that Congress refuses to tap.
And to make it even more expensive to make gasoline, we have a patchwork of environmental regulations, requiring different formulas of gas from state to state.
So, the bottom line is that the price of gas is NOT unreasonable, when adjusted for inflation, and we need to build more refineries and drill more oil.
Or, reduce the number of cars on the street (and hence the number of drivers) by building more rapid transit (too expensive to build, and Americans don't want to ride the bus), or by limiting the number of people driving, by enforcing mandatory family size limits, ala China (yeah, that'll happen), or by cutting off immigration (yeah, that'll happen, too!).
Folks, to borrow a phrase from the late, great, Robert Heinlein, TANSTAAFL!
There Ain't No Such Thing As A Free Lunch.
Posted by Mike Lief at April 26, 2006 06:57 AM
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