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Following the money: who's profiting from your pain at the pump?

Simon Mui

Posted March 26, 2012 in Curbing Pollution, Moving Beyond Oil, U.S. Law and Policy

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Last week, gasoline prices soared once again to an average of $3.87/gallon nationally. With drivers paying on average $60 to fill up their tank, it’s no wonder that consumers are feeling gouged. But how much is Big Oil profiting from your pain exactly?  

The answer to this basic question is well, actually, pretty tough to find out. It requires sifting through various oil company annual financial reports (10Ks), talking to oil industry consultants, and mining some publically available data and sources. Well, we’ve done it and the results are as follows:

 For the month of February 2012 (averaging $3.58 per gallon), we estimate that:

  • For every three dollars you spent on gasoline, oil companies are getting more than a dollar of profit.[1]  
  • That means on average, 34% of what you paid or $1.22/gallon, goes to pad the bottom line of oil companies.
  • The vast majority of this amount ($1.12/gallon) went to those who produce the crude oil, the main ingredient to make gasoline. That’s the ExxonMobils and Shells of the world.
  • About $0.05/gallon is profit for refineries turning that crude oil into gasoline.  That’s the ExxonMobil and Shell’s of the world as well.
  • And that gas station of yours? Well the retailers (including distributors and marketers) on average made about $0.04/gallon in profit. Some of these are the oil companies of the world, but many of these are independently-owned and operated stations who make more money selling candy and hot dogs than gasoline.
  • Those oil tankers and pipelines? They make about $0.01/gallon in profit. Many of these are owned by the oil companies as well.

gas-graph-MHred.jpg

Maybe $1.22 per gallon profit doesn't sound like much, until you realize that if you’re part of the average household in the U.S you own two cars and purchase roughly 100 gallons of gasoline per month. At last month's prices, this would mean the average household paid $125 in oil industry profits out of their average $366 fuel bill.[2]

Sadly, some are still misleading the public that “drill here, drill now” will somehow reduce gasoline prices. But the real factors driving up gasoline prices were well explained in this video by the Washington Post below. (I note that their breakdowns are for January 2012, as opposed to ours which are for February 2012.) 

As shown below, driving a more fuel efficient vehicle, tuning up the engine, and keeping tires inflated would all save an individual driver far more at the pump than drilling ever could.[3]  

Adding more drilling only increases the oil industry’s profits. How much more? One million barrels per day of additional drilling results in roughly $20 billion in profits going to the oil industry, every year. [4] That’s more than enough to pay for every single car and truck in the U.S. to get a tune-up, every year.[5]

Unfortunately, the oil industry and their drilling cheerleaders continue to try to sell this lemon to the public.  Let’s make sure we don’t become the suckers by knowing who really pays and who really profits.

Effective_fuel_savings_ver2.jpg 


[1] This is calculated based on EBT (earnings before taxes) where possible. For transportation costs and retail costs, gross margins were used due to lack of sufficient data. The full methodology is described here.

Gasoline Profit Margin Breakdowns_final.pdf

[2] The estimate is based on data from the U.S. Department of Energy, Transportation Energy Data Book, 30th Edition, June 2011.(Tables 4.1, 4.2, and 8.1). Latest data available represents 2009 fuel consumption and fuel economy levels. Data available at http://cta.ornl.gov/data

[3] Calculation assumes numbers based on the U.S. DOE data above. An average fuel ecnomy improvement of 20.4 mpg (2009 estimated U.S. average) to 30 mpg. The average househodl drives 2,088 miles per month (The Polk Company and U.S. Census Bureau data). The fuel economy benefits from keeping your engine tuned and keeping tires properly inflated are based on estimates from the U.S. Department of Energy (http://www.fueleconomy.gov/feg/maintain.shtml).

[4] It is assumed that one million barrels per day results in roughly 16 billion gallons of finished petroleum product, assuming each barrel of crude oil results in 1.05 barrels of finished product due to refinery gains. Products are nominally assumed to have a $1.22/gallon profit through the entire production chain.

[5] This assumes 250 million cars and light trucks on the road, with a tune-up cost of about $80 on average. http://www.autos.com/car-maintenance/how-much-does-a-car-tune-up-cost.

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Comments

Irene JacksonMar 28 2012 12:15 PM

Alert: Tell your Legislators, "Please support the Repeal Big Oil Tax Subsidies Act (S. 2204) being voted sometime soon. I want my tax dollars to be invested in clean, renewable energy -- and not be used to prop up polluters' profits!"

Mary RoperMar 30 2012 10:44 AM

Thanks to NRDC, I feel I'm getting at the "truth" about the oil companies greed and misleading campaign to keep us oil dependent.

What about their profits on exporting oil products to other countries. Isn't that one of the reason they want the pipeline from Canada to the Gulf of Mexico?

....Mar 30 2012 02:33 PM

Yes, oil companies make about 40 cents per gallon in profit -- and government makes about 49 cents per gallon in taxes. So... who’s gouging us again?

Donna EdwardsMar 30 2012 08:27 PM

I have passed this article on to my family members and I hope everyone who reads it will do the same.

Donna MillerMar 31 2012 11:54 AM

Attn Commenter "..." : Without taxes on gasoline, we would have no freeways on which to drive. Taxes are collected for your benefit: to build the roads on which you drive.

robert turiMar 31 2012 12:00 PM

Interesting opinion but your data is flawed. Assumptions lead to GROSS ERROR.

In your case you have added numerous costs to the profit side of the equation.

Costs are not profit.

Average profit per 1 gallon of gasoline today from the numerous companies combined (many) is 15%

Your tax numbers are wrong. You must be using some state where they have no tax or is low.

Federal and state taxes on 1 gallon of gas is today on national average 22%

Check out California department of energy for precise cost breakdown or APA (american petroleum association)

They are both similar numbers.


The HUGE PROFIT TAKER IS THE GOVERNMENT.

THEY SHOULD ABOLISH FEDERAL/STATE TAXES ON GASOLINE

Simon MuiMar 31 2012 05:30 PM

Robert, if you have additional data here please share. We've separated out costs from earnings and revenue here, based on 10K data as well as oil industry consultant data.

Unfortunately, if you depend on the American Petroleum Institute for data on profits, it would give the fase impression that the only profits you send to the oil industry are to the integrated majors, like ExxonMobil, Chevron, Shell, the BPs fo the world. These companies are more heavily involved in refining (in terms of volume and sales) than they are in producing crude oil. They purchase a lot of crude oil from other suppliers, including the Nationally Oil Companies (these are the Saudi Arabia-owned Aramaco and China Petrochina's, etc of the world). One needs to include the profit margins from this part of the suppy chain as well, and not just the integrated majors, to get a full picture of how much profit margin per gallon goes to the global oil industry.

On the taxes, they are taken straight from the U.S. Energy Information Administration based on their latest (February 2012) monthly avg. You can find it at the link below and referenced in the blog. The 11% figure represents a national average of the states plus the federal excise tax (i.e. 40 cents out of $3.58 per gallon is 11%). http://www.eia.gov/petroleum/gasdiesel/gaspump_hist.cfm

The federal excise taxes go to fund maintenance and construction of public highways and roads.

BSMar 31 2012 10:06 PM

You want more data? Here:
http://finance.yahoo.com/q/is?s=COP+Income+Statement&annual

That link is for ConocoPhillips' income statements. In 2011, their profit margin was 5.1%. So let's assume they sold everything at $3/gal wholesale price last year (actual average was less than $3).

That amounts to a profit of $0.15/gal.

ConocoPhillips produces oil, refines oil, and has pipelines. They don't own stores. According to your "data", they made $1.18/gal. I think you were off a little bit.

Are you ready to retract your story yet?

BSMar 31 2012 10:14 PM

Oh, and the integrated majors are very top heavy. The vast majority of their profits come from upstream (producing oil).

But I'll humor you. Here are the financial statements of a smaller exploration and production company: http://data.cnbc.com/quotes/SD/tab/7

What was their profit margin? 7.6%. Assuming they sold their oil last year at $100/barrel, that's $0.18/gallon of profit.

Are you ready to retract your story yet?

BSApr 1 2012 05:42 PM

Oh, and one other "inconvenient truth". ConocoPhillips' effective tax rate last year was 45%. The typical multinational corporation pays in the neighborhood of 25%.

I'm not seeing the tax "breaks". Are you?

BSApr 2 2012 04:06 PM

No response? If I can prove you wrong in under 5 minutes, you're not trying hard enough. Or you're assuming nobody will actually bother to check your numbers.

Either way, you should be ashamed of yourselves. If the cause you support is truly right, you shouldn't have to lie to get action.

Lies indicate a hidden, more sinister agenda.

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