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Why does gas cost so much - Part XVIII?
Posted by: McQ on Thursday, June 19, 2008

Barack Obama and Chuck Schumer like to talk about "obscene profits". And Obama thinks a windfall profits tax would be a good idea. Oil companies are just making too much money and, if you buy the talking points, screwing the consumer.

But as we've mentioned, 58% of the cost of a gallon of gas is the cost of crude oil. 17% is the cost of refining, 10% the cost of retailing it and 15% goes to taxes.

So the bulk of the cost comes from the cost of crude. However, while all of us realize the tax bite the government takes at the pump, few realize that the "cost of crude" includes a government bite before it ever reaches shore from an oil platform.
The U.S. Interior Department's royalty rate for deep-water drilling in the Gulf of Mexico is 18.75%—up from 12.5% two years ago. This move helped the government take in $7 billion in offshore royalties, rents and bonuses from oil companies drilling in U.S. waters last year.
Obviously, this royalty the US government demands is directly figured into the price of the crude that arrives on shore. And you get to pay for it at the pump in addition to the taxes levied.

Another example of a sane and coherent energy policy (raising the royalty rates in the face of rising oil prices) by your government.
 
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17% is the cost of retailing, 10% the cost of retailing it
?
 
Written By: capt joe
URL: http://
Correction to the above: 17% for refining costs and 10% for marketing.

Also, with regard to royalties. Oil companies pay royalties to the land-owner when they produce oil or gas from their land. However, the U.S. government is considered the leaseholder for offshore production greater than 3 miles off the cost. Less than 3 miles off the coast, the leaseholder is the state.

You also have to remember that oil companies bid on offshore leases (go to mms.gov to see how much companies bid for the opportunity to spend billions of dollars to find hydrocarbons, and produce it if it exists in quantities large enough to be economically justified.

Less than 20% of the "plays" turn out to be economically viable. But if production begins, then the government does get paid a royalty. Technically they get the percentage of oil/gas, but they usually (always?) choose to accept $’s instead.

Something also to be noted, while in the U.S., onshore property owners typically own the mineral rights under their land, in most other parts of the world, the local government owns the mineral rights under personal property.

 
Written By: 2klbofun
URL: http://2klbofun.blogspot.com
nmNaBN oxnjmkrdlscg, [url=http://adccufxtwama.com/]adccufxtwama[/url], [link=http://vjzrpdwdkeep.com/]vjzrpdwdkeep[/link], http://klmrpmarzgyz.com/
 
Written By: mnvylamlqpt
URL: http://qzinpohrdzzq.com/
Bruce; Do your figures include the supposed ’widfall’ taxes?
 
Written By: Bithead
URL: http://bitsblog.florack.us
17% for refining costs ...
Ooops ... corrected.
Bruce; Do your figures include the supposed ’widfall’ taxes?
No.
 
Written By: McQ
URL: http://www.QandO.net
Is it just me or does the "windfall profit tax" idea sound more and more like a pure money grab?
 
Written By: CR
URL: http://
CR: Of course it is just a money grab, under the guise of ’doing something’.

Bruce: Ah. So it would seem that even your reports the level of "obscene profits" that the government is pocketing, under-estimate the situation on an order of scale.



 
Written By: Bithead
URL: http://bitsblog.florack.us
so we are going to drill for oil with drilling ships that are in shortage

http://www.iht.com/articles/2008/06/18/business/ships.php

but after you get the ships and start drilling its going to take 3 years till the oil gets to the market? hmm some sort term solution.
 
Written By: slntax
URL: http://
"but after you get the ships and start drilling its going to take 3 years till the oil gets to the market? hmm some sort term solution."

Still much shorter than it will take before any "alternatives" and "renewables" make any meaningful impact in our total energy picture. Besides, we could have meaningful production already if Congress would have started to allowed E&P activity over the past decade. Had that happened you can be sure that new rig ships and platforms would have been built. You know; that supply and demand thingy...
 
Written By: CR
URL: http://
If it is not going to make an impact right now, there is no sense in doing it. If prices do not decrease the instant pen is put to paper and any legislation or agreement is executed, we should investigate something else. If we had done something that takes three years to come to fruition three years ago, then,.... oh wait a second.
 
Written By: Is
URL: http://
U.S. government is considered the leaseholder for offshore production greater than 3 miles off the cost. Less than 3 miles off the coast, the leaseholder is the state.
What about beyond the 12 mile limit? Wouldn’t that be international waters? Do the Feds claim lease money for that also?
 
Written By: suek
URL: http://
What about beyond the 12 mile limit? Wouldn’t that be international waters? Do the Feds claim lease money for that also?
The feds (and most other nations) claim up to 200 miles out. State waters (like for FL) normally go out 10 miles (some states may claim 12 or 15, but not much more).
 
Written By: McQ
URL: http://www.QandO.net
I would like to propose a windfall profits tax on Democrat Senators who enter office (or a Senator elect in Hillary’s case with her 10 million dollar book advance) and become instant millionaires from sweet heart book deals and whose wives get 100% raises in one year.
 
Written By: jt007
URL: http://
"17% is the cost of refining, 10% the cost of retailing it and 15% goes to taxes."

So from $4 that’s $1.68. That means when gas was being sold for $1.30, oil producers were paying people to take it.

Or, these ’costs’ have grown proportionately with the cost of oil. In which case the breakdown hasn’t factored out the cost of oil properly. Or, at each stage, when someone gets their grubby hands on it, they take a percentage markup instead of adding a fixed cost.
 
Written By: jpm100
URL: http://

 
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