Petroleum 101—January 2008


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  • As I indicated earlier, our President didn’t help our cause a great deal when he used the term “addicted to oil.” But our national and global economies certainly are built on a foundation of crude oil and the petroleum products that come from crude oil. Oil provides 40 percent of our nation’s energy and a full 97 percent of our transportation fuels. An enormous range of other essential products come from crude oil, many indicated here. Other products from petroleum: Waxes, Asphalt, Ink, Cosmetics, Heart Valves, Sneakers, Crayons, Bubble Gum, Parachutes, Car Bodies, Telephones, Tires, House Paint, Tape, Ammonia, Antiseptics, Eyeglasses, Purses, Life Jackets, Deodorant, Fertilizers, Panty Hose, Movie Film, Basketballs, Combs, and on and on… I should note that this is a California barrel of oil. The mix of products will be different at refineries in other parts of the country depending on the type of technology they use, they age of the facilities and the nature of the crude oil being refined.
  • As indicated earlier, crude oil is the primary driver of the cost of gasoline – both at the wholesale and retail level. If you want to see where gas prices are going, watch the price of crude oil.
  • When look at over a longer period of time, the earnings picture reflects even lower earnings. So clearly, these are not “obscene or windfall profits” by any definition.
  • We’ve hear a lot about oil company earnings lately and we spend a lot of time talking about them each time their quarterly reports come out. We understand the numbers we’re talking about a huge numbers. But these are a huge companies – some of the biggest commercial enterprises in the world. As this chart indicates, when you look at oil company provides during the first quarter of this year, they clearly are not out of line. For every dollar they take in, oil companies keep 8.5 cents as earnings – putting them slightly below the average earnings of all manufacturers in the country and well below a host of other industries.
  • In addition, oil companies regular invest more in exploration and development of new energy supplies – including alternative energy supplies – than they earn in net income. From 1992 to 2005, the five largest oil companies invested $650 billion in exploration, production and maintenance of infrastructure compared to net income of $518 billion in that same period. The $1 trillion figurer in this slide represents the investments of the entire petroleum industry in the United States from 1992 to 2004, compared to earnings of $682 billion.
  • Petroleum 101—January 2008

    1. 1. California’s Petroleum Industry January 2008 Western States Petroleum Association
    2. 2. Western States Petroleum Association <ul><li>Oldest petroleum trade association in the nation; formed in 1907 </li></ul><ul><li>29 member companies that explore, produce, transport, refine and market </li></ul><ul><li>Six states (CA, WA, OR, NV, AZ, HI) </li></ul><ul><li>511,701 jobs (178,369 direct, 300,397 indirect); 335,000 jobs in California (115,000 direct jobs, 220,000 indirect) </li></ul><ul><li>$173 billion in total sales; $143 billion in California </li></ul><ul><li>$27 billion annual payroll; $18 billion in California </li></ul><ul><li>$6.3 billion annual sales and excises taxes; $5 billion in California </li></ul>Western States Petroleum Association Who we are Sources: LECG Corp., A Profile of the Petroleum Sector Estimates for 2004
    3. 3. Western States Petroleum Association California conventional fuel supplies <ul><li>Petroleum (2006) </li></ul><ul><li>In-State - 37%   </li></ul><ul><li>Alaska - 21%   </li></ul><ul><li>Foreign - 42%  </li></ul><ul><li>Electricity (2006) </li></ul><ul><li>In-State - 78% </li></ul><ul><li>Imports - 22%    </li></ul><ul><li>Natural Gas (2005) </li></ul><ul><li>In-State - 15%   </li></ul><ul><li>Canada - 23%   </li></ul><ul><li>Rockies - 24%   </li></ul><ul><li>Southwest - 38% </li></ul>Source: California Energy Commission
    4. 4. Western States Petroleum Association Western States Petroleum Association Petroleum 101: From wellhead to pump Western States Petroleum Association Explore Produce Transport Refine/Process Market Distribute Underground Oil Cogeneration Natural Gas Processing Plant Onshore Oil & Natural Gas Production Imports Oil Pipeline Offshore Oil & Natural Gas Production Natural Gas Pipeline Homes and Businesses Gasoline, Diesel, Jet Fuel Refinery Storage Tanks Truck Cogeneration Distribution Terminal Product Pipeline Natural Gas Wellhead Natural Gas Pipeline
    5. 5. <ul><li>Produce 650,000 barrels of crude oil per day – the 4th largest producing state </li></ul><ul><li>Produce 812 million cubic feet per day of natural gas; ¾ of which is associated gas </li></ul><ul><li>Operate14 refineries that make gasoline </li></ul><ul><li>Refine 46.5 million gallons of gasoline and 8.7 million gallons of diesel fuel per day. </li></ul>Western States Petroleum Association Source: California Division of Oil, Gas and Geothermal Resources What our members do
    6. 6. Western States Petroleum Association What oil provides <ul><li>40 percent of the nation’s energy supply </li></ul><ul><li>97 percent of the nation’s transportation fuels </li></ul>Sources: American Petroleum Institute U.S. Energy Information Administration California Energy Commission Petroleum Products from a Barrel of Crude Oil in California
    7. 7. Western States Petroleum Association Retail Gasoline Market Sources: Center for the Study of Energy Markets, University of California; Authors Severin Borenstein, Jim Bushnell, Copyright 2005 Gasoline Service Stations in California – Ownership 2002
    8. 8. Western States Petroleum Association Western States Petroleum Association Supply and Demand Sources: U.S. Energy Information Administration, International Energy Outlook, July 2005; Annual Energy Outlook 2006 California Energy Commission <ul><li>World petroleum demand projected to increase from 82 million barrels per day in 2004 to 111 million barrels per day in 2025 </li></ul><ul><li>U.S. crude production projected to increase from 5.4 million barrels per day in 2004 to a peak of 5.9 million barrels per day in 2014 </li></ul><ul><li>CA demand for gasoline expected to reach 48.6 to 52.1 million gallons per day by 2025 </li></ul><ul><li>CA demand for diesel expected to reach 13.6 to 13.8 million gallons per day by 2025 </li></ul>
    9. 9. Western States Petroleum Association Western States Petroleum Association Supply and Demand Sources: California Energy Commission <ul><li>CA now consumes 44 to 45 million gallons of gasoline and 10 million gallons of diesel fuel per day </li></ul><ul><li>Demand for transportation fuels increased nearly 50% in last 20 years </li></ul><ul><li>Number of refineries producing gasoline in California dropped from 32 in mid-1980s to 14 today </li></ul><ul><li>California now imports 3.5 million gallons of gasoline per day </li></ul><ul><li>Transportation fuel infrastructure is inadequate and not keeping up with rapidly growing population and demand </li></ul>
    10. 10. Western States Petroleum Association Western States Petroleum Association Supply – California Production <ul><li>California crude oil production has declined 23 percent since 1996 </li></ul><ul><li>Alaskan production is expected to decline about 1.5 percent per year until 2016 </li></ul>Sources: California Energy Commission Alaska Department of Revenue Crude Oil Supplies to California Refineries Foreign Crude Oil California Crude Oil Alaska Crude Oil
    11. 11. Western States Petroleum Association Imports: California projected gasoline and diesel demand Source: California Energy Commission In-State Refinery Production Supplied to California Demand Without Greenhouse Gas Regulations Projected Imports Demand With Greenhouse Gas Regulations Billon Gallons 25 15 20 1.9 Billion Gallons 4.6 Billion Gallons 2003 2025
    12. 12. California is an energy Island Western States Petroleum Association Source: California Energy Commission <ul><li>Time required to ship crude oil or products from </li></ul><ul><li>Pacific NW: 8 to 10 days </li></ul><ul><li>Gulf Coast: 14+ days </li></ul><ul><li>Middle East: 40 days </li></ul><ul><li>Far East: 40 days </li></ul>
    13. 13. Western States Petroleum Association Western States Petroleum Association <ul><li>California refinery system runs near its capacity limits </li></ul><ul><li>California is isolated from other supply sources </li></ul><ul><li>The region uses a unique gasoline that is difficult and expensive to make </li></ul><ul><li>Marine Infrastructure is at or near the limits of throughput capacity </li></ul><ul><li>If marine infrastructure does not expand, crude oil supplies could become even more constrained </li></ul><ul><li>Permits can be difficult to obtain </li></ul>Sources: U.S. Energy Information Administration, 2003 California Gasoline Price Study American Petroleum Institute California Energy Commission, Transportation Fuels, Technologies, and Infrastructure Assessment Report 2003 Supply Issues
    14. 14. Western States Petroleum Association Where do we go from here?
    15. 15. Western States Petroleum Association Emerging energy technologies U.S petroleum companies invested $98 billion in frontier hydrocarbons and renewable and alternative energy technologies between 2000 and 2005, 73 percent of the total $135 billion invested Source: American Petroleum Institute, based on data from more than 250 company annual reports for 2000 – 2005 and U.S. Department of Energy, Energy Information Administration $5 billion 4% of total $32 billion 23% of total $98 billion 73% of total
    16. 16. Western States Petroleum Association Western States Petroleum Association <ul><li>Shell: wind farm displaces 85,000 tons of carbon dioxide </li></ul><ul><li>BP: $500 million research to UC Berkeley </li></ul><ul><li>Chevron: photovoltaic facility to help power operations </li></ul><ul><li>ConocoPhillips: developing hydrogen infrastructure and animal fat to renewable diesel process </li></ul><ul><li>ExxonMobil: exploring new approaches to internal combustion engine technology </li></ul><ul><li>Valero: implemented efficiencies that will reduce greenhouse gas emissions </li></ul><ul><li>Tesoro: flare gas compressors to reduce flaring </li></ul><ul><li>Occidental and AERA: cogeneration facilities produce electric power and steam </li></ul><ul><li>BP, Chevron, and Shell: members of the California Fuel Cell Partnership </li></ul>Renewable and alternative energy <ul><li>California refiners added close to 1 billion gallons of ethanol to gasoline last year, making California the largest ethanol consuming state in U.S. </li></ul>
    17. 17. Western States Petroleum Association Western States Petroleum Association
    18. 18. Western States Petroleum Association Prices Determined by Supply and Demand, Driven by Crude Oil Costs Source: American Petroleum Institute: U.S. average price for regular gasoline Motor Gasoline and Crude Oil Prices: 2001 to 2006
    19. 19. Western States Petroleum Association Source: Energy Information Administration Based on U.S. average price per gallon Gasoline prices What We Pay For in a Gallon of Diesel (November 2007) Taxes Distribution and Marketing Refining Crude Oil 14% 7% 17% 62% What We Pay For in a Gallon of Regular Gasoline (November 2007) Taxes Distribution and Marketing Refining Crude Oil 13% 9% 10% 68%
    20. 20. Western States Petroleum Association Oil and Natural Gas Earnings (cents per dollar of sales) Sources: American Petroleum Institute, U.S. Census Bureau for manufacturing and Oil Daily for the oil and natural gas industry.
    21. 21. Western States Petroleum Association Sources: Based on company filings with the federal government as reported by U.S. Census Bureau and Oil Daily. Oil and Natural Gas Earnings
    22. 22. Western States Petroleum Association Oil & natural gas new investments and earnings Source: American Petroleum Institute
    23. 23. Western States Petroleum Association Western States Petroleum Association <ul><li>The energy Americans consume today is brought to us by investments made years ago or even decades ago. </li></ul><ul><li>Today’s oil and natural gas earnings are invested in new technology, new production, and environmental and product quality improvements to meet tomorrow’s energy needs. </li></ul><ul><li>The petroleum industry’s earnings are very much in line with other industries and often are lower </li></ul>Oil & natural gas new investments and earnings
    24. 24. Western States Petroleum Association