Wednesday, April 12, 2006


Are oil companies really that profitable? Not when it comes to refining. Between 1977 and 2002 net margins per barrel have averaged about 2.00. In 2001 they reached 2.78, then fell back to .19. From 1988-1992 environmental compliance costs went from an annual 560 million to 2.69 billion (400%).

As result return on investment dropped 42% per year between 1996 and 2001. With reduced ROI, refining capacity is severely limited, and the profitability of expansion is greatly reduced.

The recently hailed 'record profits' that oil companies have posted since last summer are in effect an anomaly. Instead of being an indication of future profitability and expansion, they simply are a reflection of scarcity produced by increased usage, instability from hurricane Katrina and the Middle East, and environmental policy.

In essence, what policy makers should focus on are policies that will allow refining to become a more profitable venture. Profits help direct resources to where they are needed most, and we are in desperate need for refining capacity.

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