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Energy Facts Myth: Oil companies gouge the public. Fact: Comparative pricing of a gallon: gasoline is $1.25 (includes taxes) while soft drinks are about $2.00; bottled water about $2.30 and milk is about $2.90; the latter three do not include taxes. Since 1977, the gasoline pump price is up 38% while the Consumer Price index is up 300%, according to the Oil & Gas Journal – 2002 Almanac. Myth: Oil companies do not pay a fair share of taxes. Fact: The national average gasoline pump price includes 41 cents per gallon in just excise taxes, largely unknown by the average citizen. That amounts to $54.6 billion per year, or 2 ½ times the combined profitability of the 200 largest U.S. oil and gas companies. Myth: Oil companies have obscene profits. Fact: The industry is struggling through a 20-year depression. Profit margins are below the average of other industries and well-known oil companies have disappeared due to financial failures or mergers. Employees have been hit hard as more than 350,000 men and women (52% of the industry work force) have had to seek career employment elsewhere. Myth: Oil is a “GIANT” owned by “THEM”. Fact: The major oil companies are publicly held, not privately owned by a few of “THEM”. Millions of Americans have secure investments in the oil industry to fund countless savings and retirement accounts, pension funds and life insurance policies for retirees, teachers, government workers, widows and others. Myth: Oil companies destroy the environment. Fact: Oil companies spend $8 billion annually in environmental research, prevention and related areas, which exceeds the annual budget of the Environmental Protection Agency. Oil companies coexist with the environment under “fishbowl” scrutiny. Myth: Foreign oil is cheap. Fact: America’s dependency on foreign oil has doubled since 1984 and has risen tenfold since 1950. We are vulnerable and controlled by foreign oil pricing. Foreign oil deprives America of jobs, tax revenue and security. In effect, two of every three gallons of gasoline are imported, with much of it coming from countries that hate America and use money to fund terrorism. Also, it costs the U.S. military $33 billion a year to protect oil exported from the Middle East during peacetime. High prices will be around for a while. Oil’s recent downtrend won’t continue … a rally that put prices over $55 a barrel. … Demand is strong, fueled by fast growth in China, India and other developing countries. But supplies are still constrained. Output in Saudi Arabia has maxed out. … risk of disruption is high, in Nigeria, Venezuela, Russia and the Mideast. … oil will average about $40 a barrel through 2005. In fact, a return to the mid-$20s… the norm for the mid-1980s to mid-2003 … will remain a pipe dream. From The Kiplinger Letter, November 19th, 2004 “Still, until a cushion of energy production capacity can be restored to the market, prices are more prone to rise on bullish news than fall on bad news,”
“There’s even a possibility of a “superspike” in oil prices -- $100 to $150/bbl – in the event of a calamitous loss of production somewhere in the world.”
Factors that converged to support the oil price escalation last year included:
TAX BILL GIVES INCENTIVE TO MARGINAL WELLS The US Senate and House of Representative have passed a tax incentive bill to help small oil and gas producers. This bill provides a tax credit of up to $9 per well per day for marginal wells. A typical marginal well pumps 15 barrels of crude or 90 thousand cubic feet of gas per day. There are 650,000 “marginal” or “stripper” oil and gas wells in the USA. Marginal wells provide as much as 25 percent of the nations’ crude supply (on par with Saudi Arabia ) and about 10 percent of gas stocks. In 2002 alone, 17000 oil and gas wells were permanently plugged with cement (13,600 oil wells and 3,900 gas wells). This tax bill will act as a safety net to save many of these wells, thereby reducing our reliance on the Middle East. The tax credit phases-in if the average crude price for a year is less than $18 a barrel or $2 per thousand cubic feet of gas. The maximum tax credit is $3 a barrel for the first three barrels of crude produced if prices plunge below $15 a barrel, and 50 cents per thousand cubic feet if gas prices average less than $1.67 per thousand cubic feet. Crude oil is now above $54 a barrel on the New York Mercantile Exchange and gas futures are near $7 per thousand cubic feet From Houston Chronicle, October 12, 2004
FORECASTS FOR MANAGEMENT DECISION MAKING Fuel costs will soar as oil hovers near $50 a barrel this winter. Heating oil will rise an average of 30% over last year’s level. Expect natural gas to cost nearly 20% more. In colder areas, price will rise to $10 or more. From The Kiplinger Letter, October 1st, 2004
“Today’s tight natural gas markets have been a long time in coming, and future prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon.” -Chairman Alan Greenspan “Natural gas is a commodity and like all commodities, if it’s in demand, the price goes up. The demand for natural gas is on the rise.” --Martin R. Twist “Over the last decade, demand for natural gas increased 19 percent to levels that are difficult to sustain under current supply and production constraints. This demand growth has occurred despite improvements in energy efficiencies during the past several years.” --Energy Secretary, Spencer Abraham “’With crude oil prices closing at more than $40 a barrel this week and demand for motor fuel at an all-time high, it appears that there is no price relief in sight for motorists,’ said Rose Rougeau of Houston, spokeswoman for AAA Texas.” “Crude oil for June delivery rose 30 cents, or 0.7 percent, to settle at $41.38 a barrel on the New York Mercantile Exchange.” “Crude oil prices will increase gradually and reach $51 a barrel by 2025 because of inflation and rising energy needs in developing nations, according to an Energy Department projection.” “While the sharpest jump in demand will come from China and other Asian countries, demand in the United States also will continue to increase.” Houston Chronicle, May 15, 2004 U.S. Secretary of Energy Spencer Abraham warned that the country is critically low on natural gas. Gallop polls, which consistently show that "lack of energy" or "energy crisis" is at the bottom of their list of important problems facing the nation. (Discover Magazine, August 2003, pg. 26). "Natural gas is the only viable fuel that can link the carbon-based global energy supply used today to a renewable-based energy supply that will have to be used in the future. It is the only relatively clean alternative to oil and coal -- there is little doubt that natural gas will be the fuel of the future." (Ocean Oil Weekly Report, Jan 12, 2004). Demand for natural gas is projected to grow by more than 30 % from 2000 to 2015. (IPAA, June 2003, pg. 5). Gas will always retain its environmental advantages. (IPAA, June 2003, pg. 10). Right now, domestic gas suppliers can barely keep up with demand -- what=s going to happen when the economy bounces back? (IPAA, June 2003, pg. 10). Coal-bed methane gas is now 10 percent of gas supply. (IPAA June 2003, pg. 10). Hot weather partly caused California's infamous gas shortages of 2001 -- but the main culprit is inadequate investment in gas well drilling. The U.S. is at risk, not only because 53 percent of the world's proven oil reserves are in the volatile Persian Gulf region but because pipelines and international sea lanes must be protected. Additionally, the growing need for imports contributes to the economic vulnerability of the U.S. by increasing the foreign trade debt. Once oil and gas production peaks and starts declining, it is hard (if not impossible) to reverse. Experts believe that if oil companies began an immediate drilling frenzy, that would just slow down the rate of decline. The U.S. had the biggest natural gas drilling boom that ever happened in 2000-2001 and it barely budged gas supply. (IPAA June 2003, pg. 10). In recent years the oil and gas industry has experienced a massive technological revolution; innovations have vastly increased the amounts of oil retrieved from already opened fields. Audubon September-October 2001 issue About 10% of all oil reserves ever found in the U.S. have been found in the past decade, and of those, about 90% are in old fields, according to the U.S. Dept. of Energy. Were going back into old fields and finding that they were more complicated than was previously thought. Now, the saying is “oil is where you already found it.” William L Fisher, an internationally respected geologist at the University of Texas at Austin. Click here for Oil and Gas Investment Benefits Click here for Tax Advantages Copyright 2005
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