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The Cost of Filling Up: Did the FTC Approve Too Many Petroleum Industry Mergers?

The Cost of Filling Up: Did the FTC Approve Too Many Petroleum Industry Mergers?. Rayola Dougher Manager, Energy Market Issues American Petroleum Institute. Introduction. Benefits of mergers. Efficiency improvements Economies of scale Refining and marketing margins down

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The Cost of Filling Up: Did the FTC Approve Too Many Petroleum Industry Mergers?

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  1. The Cost of Filling Up: Did the FTC Approve Too Many Petroleum Industry Mergers? Rayola DougherManager, Energy Market Issues American Petroleum Institute

  2. Introduction Benefits of mergers Efficiency improvements Economies of scale Refining and marketing margins down Savings passed along to consumers Market is healthy and very competitive

  3. Introduction The cost of filling up has gone up. The question is why?

  4. Introduction Profits about average compared to U.S.

  5. Introduction Overview • GAO report • Causality • Crude prices • Refinery utilization rates • Inventory assumptions • Catalysts for change • Regulatory • Economic

  6. Catalysts From 2 gasoline formulations to 17

  7. Catalysts Return on investment(net income/net investment in place)

  8. Catalysts Producing more gasoline with fewer refineries

  9. Catalysts Gasoline refining and marketing margins have been trending downward

  10. GAO Problems with the GAO report GAO report Causality Ø Crude prices Ø Refinery utilization rates Ø Inventory assumptions Ø

  11. GAO Refiner’s costs—GAO left out 34% of equation Refiner’s rack price less crude price Before After = GAO attributes to merger impact GAO assumed these costs were constant. They are not.

  12. GAO Refiner margins differ by crude price

  13. GAO Which crude price makes a big difference WTI-Imported WTI-Domestic GAO 9 8 7 6 5 (inflation-adjusted 2004 cents per gallon) 4 3 2 1 0 1994 1995 1996 1997 1998 1999 2000 GAO

  14. GAO GAO – Data problems and limitations • Correlated NATIONAL refinery utilization rates with CITY rack prices • Inventory assumptions neglect: • more costly summer blends • price of crude • decline in inventories

  15. Conclusion The cost of filling up has gone up, but not because of mergers

  16. www.api.org

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