Let this be a lesson to me: even what seems to be an obvious case of someone applying emotion, bias and ignorance when informed consideration is called for should not be dismissed out of hand without, well, informed consideration.
This Comment of the Day by Sarah B. was a consensus smash hit with Ethics Alarms commentariat, because she is experienced and knowledgeable on the topic, and educated us all.
Here is her comment on “Protest Ethics: From The Self-Immolation School Of Outrage, But Even Dumber”…
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I was an engineer at a refinery. Now as a woman, my boss’s boss thought that I was incompetent (and was known to say that women should be in a home making her man happy instead of in an engineering department) and spent an inordinate amount of time trying to teach me mostly stuff I already knew. However, one day, his lecture was on the financials of the refining world and it rocked my whole world view. I’ll share it to emphasize the stupidity of this man and his protest.
In general, a refinery is doing FANTASTIC and making a screaming amount of money if they can optimize their operation so much as to make 10 cents profit per gallon on gasoline. Think of that. That is not a large profit per gallon.
Normally however, a refinery does not make ten cents on the gallon. That is WAY more money than they typically make. A refinery that makes specialized products from cheap oil in a niche market for sales can maybe pull that off. Perhaps a huge company that refines millions of barrels a day can make that when everything is working the way it is supposed to, but most companies cannot pull that off.
Most refineries make around or slightly above $0.10 a BARREL of oil. So for every 42 gallons they produce, they make a profit of $0.10 which is about 0.2 cents per gallon. I have a hard time accusing oil companies of greed with that small of profit on their product. Mosquito spray, as an example, creates better than a dollar profit for the entire can. Now, if a refinery takes in 100,000 barrels per day of oil, assuming volume swell (when you refine, you get more volume due to taking thick oils and dropping them to gasoline and diesel), they can make between $10K and $100K a day, usually between 30 and 50K.
A refinery may see millions of dollars go in the bank every day, but the majority goes out as a combination of the cost of raw materials (oil, refrigerant, catalysts), the cost of utilities (it takes a lot of natural gas, electricity and water to make gasoline), maintenance (the process of refining eats steel, requiring a lot of work on pipes, much less keeping pumps, compressors, etc running), and labor (you have to have people to run the place). Profit margins are very small and while they make money, it is on volume, not by item.
Ethics Alarms 
Thank you Sarah. Your post should be sent to members of Congress
Yeah, I loved how informative this was…and how it blew up some of those heavily-ingrained notions we tend to have regarding oil companies, refineries, and profits.
Thanks for the education!!
Thank you for the education!
Here’s a tiny bit of additional information about the crude oil industry side of the oil industry that you might find interesting.
Back in the very early 1980’s I was directly involved in the crude oil industry in a limited area that covered most of western and northern Kentucky, south western Indiana and south eastern Illinois. I worked primarily as an independent field landman researching courthouse records to determine property ownership and mineral rights (boy do I have some stories about that), prepare necessary reports, negotiate leases directly with property owners and mineral rights owners, obtain necessary documents and conduct surface inspections before drilling or other operations. I also worked on a few oil rigs for direct functional familiarization and actually did the geology work on an oil rig in southern Illinois.
Something that I found out while in the crude oil industry is that there are a LOT of hands in the pot for every barrel of oil that comes out of the ground long before it ever reaches a refinery like the one Sarah worked at and it all adds up. Every hand in the pot of a barrel gets their cut whether it’s a percentage, fixed job rates, hourly wages or salaries and those dollars go right down to the itty-bitty percentage of a percentage, yes it’s very small, that is split between all the mineral rights owners and owners of the property that the oil pumper is sitting on. In some areas of the USA there are even companies that do nothing but dispose of the excess salt water that can come out of the ground with the oil on some wells, I bet most of you never knew that little expense detail. Due to massive federal and state regulations associated with that disposal of salt water from an oil well isn’t cheap, in fact if the percentage of salt water in an oil well that’s being drilled turns out to be too high they well might bet capped as a result. Something else that’s relatively unknown is that oil wells aren’t a great big void area underground filled with crude oil, they have to physically perforate the stone once they reach the “well” depth and wait for the oil in the surrounding stone to seep into the void area they created so they can pump it out, this takes time and every well is slightly different, that’s why you don’t see oil pumpers running constantly, they’re actually waiting to have something to pump out of the ground. Remember this is some form of stone a depths that can easily be over a mile underground. Another piece of information, when you see two oil pumpers sitting right next to each other in a field they aren’t pumping oil of the same oil well, they are a pumping oil out of wells that are sometimes at vastly different depths, you see this a lot in the south west.
My overall point is that there are so many hands in the pot that $100/barrel may seem like a lot but when those dollars get dispersed the level of profit for the oil for the companies selling the barrel to the refinery can be rather low. It’s bee 40+ years since I worked in the crude oil industry and I’m sure that technology has improved things but some things remain; the cost for actually getting the crude oil out of the ground, saltwater disposal, equipment maintenance, truck drivers, etc, etc, remain and are almost always increasing due to the increase in hourly wages and salaries to meet the cost of living in any particular area, at some point the overhead costs make pumping the oil out of the ground a futile effort and they stop pumping instead of actually losing money. The cost of doing business, turning oil wells on and off all affect the price of crude oil and if a lot of wells are turned off because the price per barrel goes below their predefined set point for wells then the supply gets cut and the price per barrel will change. Nobody is making a lot of money per barrel on the crude side of thing, just like in the refining process that Sarah talked it’s all about huge volumes and pennies can make a huge difference. There are hundreds and hundreds of capped off wells across the USA that could, and likely would, produce crude oil if the prices and regulations shifted but some of those capped wells will never produce any useful quantity of oil, sometimes drilling is hit and miss.
Even though I made a pretty darn good living at the time, it didn’t take me very long to figure out that being an independent field landman wasn’t my long term dream job and working on oil rigs took me away from family way too often and for long periods of time. I walked completely away from the oil business and, other than making an immediate vs long term financial choice on one huge block of leases I obtained that I could still be making money on today, I never regretted leaving the business, it was way too cut throat and secretive for me at that time of my life. I made a personal choice to put family and real job satisfaction over the almighty dollar.
Small addition to this comment is a question:
Knowing what you now know about the crude oil business, the refinery business and reasonable assumptions about the consumer sales end of the business, this is a lot of hands in the pot that you’re feeding when you pump gas into your car; how do you think the Democrat’s moves across the USA to drastically raise the minimum wage, the Democrats anti-oil rhetoric and policies, the difficulty to find reliable employees these days, and inflation will affect the oil industry as a whole and the price you pay at the pump?
Personally I think these are EXACTLY the reasons the price is what it is at the pumps and I don’t think we are going to see the prices go down very much for quite a while, if ever.
Awesome perspective!
I will slightly disagree that the capped off wells are so done because of the amount of oil and the cost. Due to the increasing availability and technology of miscible CO2 flooding, you could make bank…if the bloody government would allow. Regulations keep getting tighter based on claims of problems, many of which are false. Just as we got rid of DDT because someone lied on their study of how it affects birds, the EPA lied about groundwater contamination due to fracking. The chemical tested was used, not be the frackers, but by the EPA drillers to put in a hole so that they would be able to test the water. Governmental regulations, more than a lack of profitable oil, shut down rigs. That is not to say that some wells are dry, or unable to produce enough, but the government and NIMBY are the biggest concerns. Especially when Democrats work so hard to freak people out about our oil reserves. I could almost accuse them of trying to wreck the US, but the Razor requires me to think they are just stupid.
Sarah B.
Good points.
It has been 40+ years since I’ve been a direct part of the industry and I know about some of the technological improvements since way back then but I do think I alluded to what you wrote about regulations when I wrote “There are hundreds and hundreds of capped off wells across the USA that could, and likely would, produce crude oil if the prices and regulations shifted…”
Sarah B wrote, “EPA lied about groundwater contamination due to fracking. The chemical tested was used, not be the frackers, but by the EPA drillers to put in a hole so that they would be able to test the water.”
I heard about that; they found contamination that fit their approved narrative so they employed their bias and immediately blamed the oil companies – typical correlation equals causation smears without a thorough investigation that included contradictory facts! But that’s ok, job well done by the EPA, they got to publicly smear the oil companies and that’s what the public will remember not the contradictory facts later released most of which were buried by the media.
Sarah B wrote, “Governmental regulations, more than a lack of profitable oil, shut down rigs.”
I’m sure there is truth to that. It seems to me that some regulations are intentionally setup to make some things so unprofitable that it deters, limits or literally makes the product so damned expensive that their customers stop buying it, but yet they still say the oil industry is just greedy and making way too much money.
It’s all about real causation and those that want to shut down the oil industry and force everyone to move to clean energy do not see any causation connection to their ends justify the means actions and the soaring prices at the pumps, push the narrative that the oil companies are greedy and making too much money. Demonize the oil companies at every possible turn while doing the very things that makes oil products so expensive that the prices for their products price them out of existence.
In the end it’s been really clear to me over the years that the oil industry, and those that work in it and those support it, are not the evil that they’re tarred out to be.
Congratulations on the Comment of the Day!