Gas or Hot Air

Congress is holding congressional hearings this week. They are beating up the oil executives in hopes that they will reduce their salaries so that the common man can make it to work tomorrow. At $4.00 per gallon for gas, reducing gas prices through means other than the law of supply and demand has become a national pastime. What have we learned from this circus?

Well we have learned that the cost of a barrel of crude represents about 75% of the cost of a gallon of gas. We have also learned that corporate profit represents 4% of the cost of a gallon? What about the other 21%?

Well, here are some facts from the Energy Information Administration. In 2005, when gas was $2.27 per gallon, component costs were: (1) 9% - distribution and marketing; (2) 18% - refining cost and profit; (3) 19% Federal and State taxes; (4) 53% - crude oil price. So, with a little mathematical manipulation, we can reliably state the following:

1. 75% goes to the crude oil provider (principally OPEC, Venezuela, Canada, Mexico).
2. 9.25% goes to state and local government.
3. 7.25% goes to refining;
4. 4.5% goes to distribution and marketing; and
5. 4% of a gallon of gas goes to oil company profits.

The above assumes that oil company profits in 2005 were 4% and the relative proportion of the remaining 2008 cost is similar to that in 2005.

Soooo .... the oil companies are making less than 50% of that collected by the state and federal government AND the state and federal governments are taking no business risk. Maybe we should ask our representatives, who seem not to understand economics OR basic math, to take a pay cut. Then again, may be we can harness the energy in the hot air. We know they will never vote to use clean coal, oil in Anwar, or nuclear energy, which are in abundant supply.