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Why has it taken so long for a reduction in price at the pump when crude prices have gone down, but was just the opposite when crude prices went up?
Answer:
What you are describing is typically known as the “rockets and feathers” phenomenon, which has been studied for many years. In September of 2011, the Federal Trade Commission issued a staff report with a lot of good information in it. First, is their finding that “Changes in crude oil prices have continued to be the main factor affecting gasoline price.”
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How can oil companies claim that increased gas prices are only the result of higher crude oil prices and government taxes when they continue to have record profits year after year?
Answer:
While gas prices have fluctuated, oil and natural gas earnings have remained in line with the average of other major U.S. manufacturing industries. This fact is not well understood, however, in part because reports usually focus on only half the story – the profits that are earned. Profits reflect the size of an industry, but they’re not necessarily a good reflection of financial performance. Profit margins, or earnings per dollar of sales (measured as net income divided by sales), provide one useful way to compare financial performance among industries of all sizes. The latest published data for the fourth quarter of 2011 shows the oil and natural gas industry earned 6.2 cents for every dollar of sales in comparison with all manufacturing, which earned 8.3 cents for every dollar of sales.
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What are intangible drilling costs? Why does the oil industry get to deduct these costs from their taxes?
Answer:
When energy companies drill they incur costs for things like site preparation and labor. No physical asset is received for these costs, and over time they have been termed as intangible costs. Typically, they represent 60 to 80 percent of the cost of the well – the remainder being the physical steel, pumps and casing that become part of the well. Companies have long had the option of deducting these costs in the year they are spent – similar to deductions enjoyed by other industries. For example, many industries are able to expense research labor and other costs under the research and development deduction, and computer software companies can deduct the costs of developing code. In fact, the administration has been promoting a provision to allow for the immediate expensing of all capital costs that meet certain thresholds.
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When will we run out of crude oil?
Answer:
If you ask an economist this question the answer would be “never.” As demand competes for a reduced supply, the price will rise, consumption will switch to alternative fuels and oil will continue to be used forever for functions that support its price. This answer is both technically correct and a cautionary tale about asking economists these types of questions. The practical answer is, well complicated.
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Why is heating oil more expensive than gasoline?
Answer:
Heating oil and gasoline are separate products and are traded in different markets, but the price for heating oil has been historically close to the price of gasoline. This is not surprising given that both heating oil and gasoline have historically tracked the price of crude oil.
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Why are we shutting down U.S. refineries? Doesn’t that lead to less supply and higher gas prices?
Answer:
Refining is highly competitive. It has also traditionally been a low-profit margin industry faced with a heavy slate of regulations over the decades involving many billions of dollars in environmental investment and compliance costs. Because of these and other factors, some refineries – often after sustained periods of financial losses – have had to shut down. About 75 U.S. refineries have closed since 1985.
As this has happened, however, the remaining larger, more efficient facilities have expanded capacity so that total U.S. refining capacity has actually increased by 13 percent. This has allowed the sector to continue to reliably provide Americans with the fuels they need.
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Why do we have so many different blends of gasoline across the country? Would fewer boutique blends mean lower prices?
Answer:
While refineries must make large investments to meet state and federal fuel requirements, eliminating them at this point is unlikely to reduce costs significantly since the investments have already been made. New fuel standard rules could raise the cost of producing fuels, which is why we must ensure that new regulatory proposals are necessary, properly crafted, practical, and fair, allowing U.S. refiners to remain competitive, preserve good-paying refinery jobs, and ensure our energy security.
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What role do oil speculators play in determining the price of gas? Should the government regulate oil speculation?
Answer:
Market fundamentals are behind recent crude oil price increases. As the economies of the world begin to recover from the recession, global demand for crude is increasing while global excess oil production capacity is shrinking. Furthermore, buyers of crude oil are also clearly concerned about instability in major oil-producing nations in North Africa and the Middle East.
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Why are gas prices going up when the price of crude oil is going down?
Answer:
U.S. refineries are pulling out all the stops to supply U.S. markets. They produced more gasoline last year than any year in history – even though U.S. demand for gasoline was down last year, and has continued to be down this year. According to the Lundberg survey, gasoline prices have followed crude oil prices down, as crude oil prices have stabilized, and some analysts feel that: “the downward trend should continue as long as crude oil doesn't fluctuate.”
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Why is diesel fuel more expensive than gasoline when it supposedly requires less refining?
Answer:
The diesel fuel we use today is not the same as it was in the past. The investments needed to produce ultra-low-sulfur diesel means it is no longer a simpler refining process. The price of crude oil is the main factor in determining the price of diesel fuel, and fluctuations in the crude oil market may greatly influence changes in diesel prices. Short-run factors that have historically caused divergences from this correlation include supply shortages resulting from refinery outages, transportation issues, adverse weather conditions and pipeline problems. Longer-term factors that have historically been tied to variations in gasoline versus diesel prices include the different seasonal price variations for the two fuels and differing tax rates.
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What percentage of the oil reaching the Gulf Coast from the Keystone XL would actually remain in America vs. being exported to places like China?
Answer:
99.7 percent of crude oil produced or imported into the United States is processed here and, although the United States is a net exporter of finished petroleum products, about 92 percent of on-road transportation fuel refined in the United States is used in the United States. However, refineries produce lots of products from a barrel of oil – gasoline, diesel, heating oil, bunker fuel and more – and they need markets for each. The majority – 79 percent – of energy products the United States exports are things like propane, ethanol and kerosene, which are produced in amounts that surpass U.S. demand.
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Why are we transporting oil through a pipeline to Gulf Coast refineries? Why not build new refineries closer to the source?
Answer:
It makes sense to transport Canadian crude to the Gulf Coast because the Gulf region is by far the leader in refinery capacity, with more than twice as much crude oil distillation capacity as any other U.S. region. In fact, the Gulf is home to five of the top 20 oil refineries in the world. According to the Energy Information Administration, there is one operating refinery in North Dakota compared to 45 refineries operating in Texas and Louisiana.
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Does it require more energy to produce oil sands crude than the development actually yields?
Answer:
No. According to the Canadian Association of Petroleum Producers, the oil sands process produces six to 10 British Thermal Units (BTU) of energy for every one BTU that goes into steam-assisted gravity drainage (SAGD), the primary method of oil sands extraction. Therefore, the overall energy yield of oil sands production far exceeds the energy that goes into producing it.
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How many pipelines do we have in the United States?
Answer:
The nation’s 170,000 miles of petroleum transmission pipelines are the primary means of moving crude oil, gasoline, diesel fuel and other petroleum products to consumer markets. They move crude oil from oil fields on land and offshore to refineries where it is turned into fuels and other products, then from the refineries to terminals where fuels are trucked to retail outlets. The oil and gas industry remains committed to continuous improvement in pipeline safety, while efficiently delivering more than 70 percent of the petroleum needed to run our country each year.
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Won’t Canadian oil just be exported to other countries after it is refined here? How does that provide the U.S. with any economic benefit?
Answer:
Currently, more than 90 percent of the on-road transportation fuel refined in the United States is used in America. The less than 10 percent of on-road motor fuel that is exported consists primarily of heavier products that aren’t in high demand here. There’s no evidence this ratio will change with increased supplies of oil sands crude.
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How will bringing in Canadian oil benefit the US economy?
Answer:
Developing Canadian oil sands is a capital intensive endeavor, requiring billions of dollars of investment over the next several decades. This investment will give rise to a long-lived, robust period of increased economic activity in Canada. And due to the deep and rich trading relationship between Canada and the United States, the United States will also get significant economic benefits from this increased activity, according to a Canadian Energy Research Institute (CERI) study. The benefits will manifest themselves in terms of increased economic output, GDP and job creation. By the numbers, full Canadian oil sands development and utilization would result in $775 billion to the U.S. GDP as well as 500,000 new U.S. jobs by 2035.
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Will the proposed Keystone XL pipeline be safe? What is being done to prevent spills/leaks?
Answer:
Pipelines have long been recognized as one of the safest, most reliable and well-regulated ways to transport crude oil and petroleum products. Built to the most advanced specifications and monitored and maintained by state-of-the-art technologies, the 1,661-mile Keystone XL pipeline would be no exception.
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Won’t most of the Keystone XL pipeline jobs be short-term?
Answer:
The Keystone XL pipeline is the largest shovel-ready project around, but the construction and permanent jobs it would create get little credit from people who oppose the pipeline or the Canadian oil sands crude it would carry. TransCanada has reported that the Keystone XL project will create 20,000 new jobs, and has even broken down that number to account for the welders and clerks that the project requires.
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Does the extraction and use of oil sands crude produce more greenhouse gas emissions than that of other kinds of oil?
Answer:
Oil sands extraction and processing―like all minerals development―requires energy, which results in greenhouse gas (GHG) emissions. However, on a life cycle (or well-to-wheels) basis, emissions from Canadian oil sands are comparable with other crudes refined in the United States. The average for oil sands imported into the United States is only 6 percent higher than the average crude consumed in the United States. Between 70 and 80 percent of GHG emissions come when fuel is burned.
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Does the oil sands production process permanently damage the land on which it takes place?
Answer:
By law, oil sands development areas have to be restored to their natural state by Canadian companies operating there. Moreover, $2 billion investments have been made in carbon capture and storage technology to further reduce GHG emissions. Canadian oil producers and the government have laid out a comprehensive strategy to protect the environment while extracting oil sands.
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Will China purchase Canada's oil sands crude if the Keystone XL pipeline isn’t built?
Answer:
Following Pres. Obama's decision to reject the Keystone XL permit, Canadian Prime Minister Stephen Harper is looking to ship oil sands crude to Asian markets and met with Chinese President Hu Jintao in February 2012.
Shipping oil sands to Asian markets is a loss for American job creation, the U.S. economy and overall U.S. energy security for years to come.
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How important is oil sands to America’s energy future?
Answer:
Our nation needs more supplies of all energy sources―including oil and natural gas―to meet growing energy demand and provide consumers with reliable fuel supplies.
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How is oil sands crude obtained, and how is it processed?
Answer:
Oil sands are naturally-occurring geologic formations that contain a mixture of water, clay, sand and thick, heavy oil called bitumen. Oil sands are found throughout the world, including in Canada, our neighbor to the North. Currently, there are two different methods used to produce oil sands―surface mining and in-situ.
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What role does the U.S. tax code play in oil and natural gas industry investment in America?
Answer:
Risk is an integral part of exploring for oil and natural gas. There's no guarantee that drillers will find commercially viable amounts of energy. Before companies begin drilling, they must invest large sums of money to lease areas for development (onshore and offshore) get the needed permits, procure the rig, hire workers and assemble the necessary equipment. Sometimes they find energy, sometimes they drill a dry hole.
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What do oil company earnings have to do with energy security?
Answer:
It’s important to acknowledge that America’s oil and natural gas industry is one of the world’s largest and most capital-intensive industries. Companies routinely invest billions of dollars each quarter into exploration, research, development and technology.
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Our national debt is too high. Would increased taxes on oil and natural gas companies lower the deficit?
Answer:
Punitive tax increases on the oil and natural gas industry may provide short-term revenue, but they would undermine economic investment and cause the federal government to lose money in the longterm.
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How much do oil companies make on each dollar of sales, and how does that compare with other business and industries?
Answer:
Because integrated oil and natural gas companies are large, their earnings are large. What’s not often reported is that oil and gas company earnings actually are well in line with the U.S. manufacturing industry, averaging about 7 cents for every dollar of sales. The latest published data for the first quarter of 2012 shows the oil and natural gas industry earned 7.5 cents on the dollar in comparison with all U.S. manufacturing, which earned 8.9 cents for every dollar of sales. When looking at net profit margins, the U.S. oil and natural gas industry ranks 114 out of 215 industries.
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If the industry is getting tax deductions, doesn’t that mean they aren’t paying their fair share?
Answer:
Absolutely not. The U.S. oil and natural gas industry pays more than $86 million every day to the U.S. Treasury in rents, royalties and income tax payments. That’s more than $31 billion a year. In 2011, the effective income tax rate for the oil and natural gas industry averaged 40.6 percent, compared to just 25.1 percent for other S&P Industrial companies.
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Oil company profits are very high; are they paying their fair share in taxes?
Answer:
The fact is, the oil and natural gas industry’s income tax expenses as a percentage of net income (before income taxes) averaged 40.6 percent in 2011, compared to 25.1 percent for other S&P Industrial companies. U.S. oil and natural gas companies pay approximately $86 million to the U.S. Treasury in rents, royalties and income tax payments every single day.
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Are oil companies inflating gas prices by not building new refineries?
Answer:
The short answer is ‘no.’ The longer explanation is that—first—oil companies do not set the price of gasoline. Because crude oil is the primary component in gasoline production, the price rises and falls with the cost of crude, which is set by supply and demand on the global commodities market. In addition to economic growth and geopolitical risks, other factors, including weather events, inventories, exchange rates, investments, spare capacity, production decisions, and supply growth, all figure into the price of crude oil and thus—gasoline prices. Gasoline prices can be impacted by government taxes, and taxes add an average 49.5 cents a gallon to the price. Of that, 18.4 cents goes to the federal government; the rest ends up in state and local government coffers. One reason gasoline prices vary by state is because taxes often do.
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How much do oil companies make on each dollar I spend on gas?
Answer:
The latest published data for the fourth quarter of 2011 shows the oil and natural gas industry earned 6.2 cents for every dollar of sales. These earnings are in line with the average of other major U.S. manufacturing industries, which earned 8.3 cents for every dollar of sales.
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Why do gas prices differ from station to station and state to state?
Answer:
Gasoline taxes collected by states vary widely, from just 26.4 cents per gallon in Alaska, to as much as 68 cents per gallon in Connecticut. In addition to excise taxes, other taxes can also apply, such as sales taxes; gross receipts taxes; oil inspection fees; county and local taxes; underground storage tank fees; and other miscellaneous environmental fees depending on the state.
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Is “Big Oil” driving up gasoline prices for profit?
Answer:
Oil companies do not set the price of gasoline. A number of factors go in to the price of gasoline—the largest being the price of crude oil. Crude oil is the raw ingredient gasoline and other fuels are made from and is bought and sold globally. The price of crude oil is determined by a number of factors—including supply and demand. In addition to economic growth and geopolitical risks, other factors—weather events, inventories, exchange rates, investments, spare capacity, production decisions, and supply growth—can figure into crude oil’s price and thus, gasoline prices.
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