Among the growing Asian demand and refining facilities of oil and the world focus on green incentives, the political nature of price setting and revenue distribution remains a topic of heated debate in the oil sector.
Dated Brent averaged $111.26 per barrel in 2011, an increase of 40% from the 2010 level. The loss of Libyan supplies early in the year, combined with smaller disruptions in a number of other countries, pushed prices sharply higher, despite a large increase in production among other OPEC members, following the Libyan outages and a release of strategic stocks from International Energy Agency member countries.
However, a large question mark lurks over the issue of distribution of oil price revenues among the refineries around the world. Production costs vary sharply by region and so do the refiner margins.
U.S. Energy Information Administration (EIA) 2009 statistics show that the production costs were the highest in U.S. Onshore production facilities. Exploration and Development Expenditure dollars were also highest, as a proportion of total crude oil and NGL production. Taxes and royalty expenses were highest in other western hemisphere countries.
Figure 1: Regional Production Costs, 2009Source: U.S. Energy Information Administration (EIA), Feb 2011
Further data analysis from 2009 revealed that the refining/marketing function of the oil supply chain made a loss in 2009 of USD 9.4 billion. The raw material cost has comprised a greater and greater proportion of the refined oil product price and made up 58% of the product revenues, versus only 44% in 2003.
Refinery energy expenses consistently make up 2% of the total revenues, down from 4% in 2003, which indicates improvement in process efficiency of oil production. The refining/ marketing income for several years is shown in the table below.
Table 1: Refining/Marketing Income, 2003-2009Source: U.S. Energy Information Administration, Feb 2011
The British Petroleum Statistical Review of World Energy 2012 reveals that refinery margins have remained highest in the US over the past 20 years. The chart below illustrates the quarterly refinery benchmark margins for three major global refining centers – US Gulf Coast (USGC), North West Europe (NWE – Rotterdam), and Singapore.
Figure 2: Regional Refining Margins for Oil, 1992-2011Source: British Petroleum Statistical Review of World Energy 2012
The large profits earned by the oil marketing sector may make tax officials’ mouths water, but one of the bigger questions, often overlooked by politicians in their propaganda to tax ‘Big Oil’, regards the ownership structure of these oil firms. According to a recent report by the American Petroleum Institute (API), 21% of the Big Oil is owned by individual investors. Only 2.8 percent of industry shares are owned by corporate management. The rest is owned by tens of millions of Americans, many of them middle class.
Though these profits may be the target of serious political debate, the fact is that millions of Americans are getting their share of the pie in the form of stable investments. However, the US needs to concentrate on restricting its production costs so that better prices can be offered to consumers.