The Space Alien Theory of Energy Economics

The Trib hyperventilates with its headline today: (Exxon) LARGEST.PROFIT.EVER.

I can think of another one: Illinois Pensions. LARGEST. DEFICIT.EVER

Granted gas prices are not what we would like. After spiking due to Katrina refinery damage, they are still above last year's prices in Illinois.

And why did Katrina have such an impact on gas prices? Because "Roughly half of the gasoline consumed in the U.S. is made along this stretch of Gulf coast from Corpus Christi, Texas to New Orleans".

And why are we in the US so vulnerable to a geographic concentration of refinery capacity?

There hasn’t been a new refinery built in the U.S. since 1976, the result of extremely tight environmental restrictions, not-in-my-back-yard community opposition, and the high cost of new construction.

So energy companies have worked to become more efficient, squeezing more fuel out of each barrel:

Starting in 1997, capital spending by major oil companies surged to $12.1 billion in 2001, according to the Department of Energy. Much of that spending was driven by mergers and acquisitions. But the industry has also continued to make incremental improvements. Even though the total number of refineries continues to fall, overall output over the past decade has risen by the equivalent of a new medium-sized refinery every year, says Shore.

Politicans are starting to talk about a "windfall profits" tax. (Though we haven't heard much yet from Ted Kennedy this round, maybe because more of us know about his family oil holdings.) But they're already getting their piece of the pie. The gas tax in Cook county alone is 6 cents a gallon. Add in state and federal gas taxes and pretty soon you're talking real money.

And after all the blather about big profits, you have to read way down in the article to find that Exxon is making a profit of 10 cents on a dollar of gas:

John Felmy, the petroleum institute's chief economist, said a windfall profits tax would be a mistake.

`There's no windfall'

"There's no windfall. That's the fundamental problem with that argument," he said.

Felmy said oil company profits are huge because the companies are huge, the result of oil industry mergers in the last few years to be more competitive globally. Exxon Mobil's profit, including $10.7 billion in the fourth quarter, was on average slightly more than 10 cents on a dollar of gas, he said, while other oil companies that have reported year-end profits already were closer to 9 cents.

He said a large percentage of the securities of the oil companies are owned by investors in personal 401(k) retirement savings accounts, state teachers' pension plans and mutual funds.

"Saying there's a windfall and you're going to take it is akin to believing that our companies are owned by space aliens," Felmy said. "Somebody owns them, and somebody is going to get hurt."

The space alien theory of corporate ownership...

Maybe that accounts for the cartoon-like economic view of the world on the Trib's news pages.