Just as past City Councils, which negotiated agreements with Mobil Oil, now Exxon-Mobil, could not predict the future or see the ungodly sums of profits now being generated by the oil companies, so, too, the present City Council cannot prognosticate.
But we do know the past record, and it is while looking back at the billions of dollars in annual profits generated by Exxon-Mobile that we should re-negotiate a much better deal for our city.
In their online 2006 Investors Report, Exxon-Mobil claims $4.9 billion of profit.
To put that into perspective, a thousand-thousand equals 1 million. A thousand-million equals a billion. So, Exxon-Mobil claims (rounding up) 5,000 million dollars in profit.
Culver City needs to re-negotiate this deal in order to receive its fair-share of their windfall profits.
It seems not much has changed in the oil business over there years.
The image that School Board member Steve Gourley painted at last Monday's City Council meeting of the “old oil robber-baron” still seems to fit, even when dealing with today’s oil companies. Whatever amount Culver City raises its pipeline fees, (10 times more or 100 times more) Exxon-Mobil probably will “spin it” as being punitive in nature. Instead, we could base the increase, not on a fixed COLA, but on their actual profits and call it a “windfall-profits fee.”
Even Congress is contemplating accessing the oil companies a “windfall-profits tax.”
Even if we were to ask for a million dollars, that would be only 1/5000 (.0002%) of the corporation’s net profit. What would be an infinitesimal cost to Exxon-Mobil, considering they are now making 5,000 million dollars in profit would be a tremendous infusion to stave off our city’s future fiscal woes.
My advise to the city’s negotiators: This time, do not blink. Our city's financial future could be at stake.
Just Bluffing
Exxon-Mobil probably is financially-flush enough to build a new pipeline bypassing Culver City altogether. It could be cost-prohibitive. And it probably would be environmentally impossible to build. They could threaten again to make their pipeline a common-carrier, but, I believe it would be an idle threat.
We, of course, don’t want to slay the goose that lays the golden egg. But, keeping in mind their past profits, Culver City should receive its fair-share for the negotiating the use of their 16-inch hot-oil pipeline that trespasses beneath our city.
Was it Paul Newman’s or Robert Redford’s character in “The Sting” who said, “Know your mark”?
Mr. Gourley’s remarks last Monday night gave staff and the City Council some insight into who we are really negotiating with for these rights.
Importance of the Pipeline
First, the city needs to find out and weigh just how important, how integral, this section of pipeline is to the flow of crude oil (profits) to their Torrance refinery.
I did a little research. Here are some tidbits about Exxon-Mobil’s Torrance Refinery and the importance of the 16-inch section of pipeline that runs beneath our city is to its Torrance operation.
As of April, 2007, according to the California Energy Commission, the Current Crude Capacity of Exxon-Mobil’s Torrance Refinery is about 149,500 barrels per day (bpd). 95,000 barrels go through the 2.7 miles of their 16-inch pipeline that is currently buried beneath our city. This flow is almost two-thirds (63.75%) of the Exxon-Mobil’s Torrance Refinery capacity that (tres)passes under our fair city. This crude probably doesn’t flow directly into daily production. They probably have holding-settling tanks to store it.
At 150,000 barrels per day, the Torrance facility refines almost 8% of Exxon-Mobil’s daily fuel output.
We Try Harder
Valero is the No 1 refiner in the U.S. today with 3.3 million barrels per day.
Conoco-Phillips is No. 2 with 2.6 million barrels per day.
Exxon-Mobil is No. 3 at 1.9 million barrels per day.
If 95,000 barrels of crude pass under our city daily, that would mean 34,675,000 barrels of crude go through annually. Culver City now receives a paltry $64,139 in fees for the right of trespass. That means Culver City receives .00185 cents per 42- gallon barrel or .000044 cents per gallon of crude.
What Is in a Barrel of Crude
The standard barrel of oil contains 42 gallons. Listed below is the summary of refining a barrel of California crude oil. Data is from http://www.energy.ca.gov/gasoline/what…
Product Percent of Total
Finished Motor Gasoline 51.4% (20 gallons)
Distillate Fuel Oil 15.3%
Jet Fuel 12.6%
Still Gas 5.4%
Marketable Coke 5.0%
Residual Fuel Oil 3.3%
Liquefied Refinery Gas 2.8%
Asphalt and Road Oil 1.9%
Other Refined Products 1.5%
Lubricants 0.9%
The total volume of products made from crude oil-based origins is 48.43 gallons on average, 6.43 gallons greater than the original 42 gallons of crude oil. This represents what is called a “processing gain,” due to the additional petroleum products such as alkylates that are added to the refining process in creating their final products.
Additionally, California gasoline contains approximately 5.7 percent by volume of ethanol, a non-petroleum-based additive that brings the total processing gain to 7.59 gallons (or 49.59 total gallons).
Upon researching the flow-capacity of crude oil pipelines, I found that Exxon-Mobil is operating its 16-inch hot pressure pipeline that (tres)passes beneath our city at or near the industry standard capacity of 100,000 barrels per day.
Looking Like Hicks
One thing to keep in mind is that the largest oil companies (Exxon-Mobil is one) own or control every aspect of the supply chain: The exploration companies, the drilling companies, the pipeline companies, the refineries, the storage-holding tanks, and the gas stations- with a profit margin built-in at every level in the supply system.
While Culver City is being paid a measly $178 a day, Exxon-Mobil is making a profit on 4.2 million gallons of fuel a day. The state and federal governments are receiving about 20% of the cost at the pump in taxes, while we look city hicks.
Exxon Mobil Corp. has reported record earnings in 2005, topped those earnings in 2006, and announced in April 2007 that its first quarter net income was $9,280 million, ($9.28B) up 10% from the first quarter of 2006.
$400,000 Here, $400,000 There
Exxon-Mobil is in the business of manufacturing fuels, lubes and chemicals. They have agreed to pay California some $400,000 in penalties for violations of the air-permit restrictions (aka air pollution) at the company’s largest refinery on the West Coast. Somehow I really don’t feel any sympathy for them.
This $400.000 fine is probably being looked upon as just another expense of doing business. What’s $400,000 when you're making thousands of millions of dollars.
The Torrance petroleum refinery primarily gets its heavy crude oil supply from the San Joaquin Valley by pipeline —2.7 miles of which passes under our city. More than 70% of each barrel is refined into high quality, specially formulated low-emissions fuels sold in Southern California, Arizona and Nevada. According to available data, the Torrance refinery can process about 150,000 barrels of crude oil a day into gasoline, diesel and jet fuel, and other products.
Exxon Mobil Corp.’s Torrance refinery facility supplies Californians with nearly 10% of their motor vehicle fuel, through its 900-plus branded service stations in Southern California.
Get Your Peanuts Here
Here's another interesting comparison to what Culver City is receiving from Exxon-Mobil in pipeline fees. Annually, 1,456,350,000 gallons of crude pass under our city limits.
Almost a 1.5 billion gallons of crude —1.5 billion gallons divided into our annual $65,000 base fee equals .00446 of a penny per gallon of crude. That’s 45-thousandths of a penny for each gallon of crude. That is peanuts.
Gallons of Profit
The Torrance facility’s capacity is slightly less than 150,000 barrels of oil a day. It can refine just over 28 gallons of fuel out of each barrel of crude oil. It therefore has the capacity to produce over 4,200,000 gallons of mostly gasoline, aircraft, and diesel fuels for sale each day.
Culver City, though, receives only $178 a day in pipeline fees.
Taxing by the state of California and the federal government come to about 20% of the pump price.
At $3 a gallon, that is about $2.5 million in taxes a day, just from Exxon-Mobil’s Torrance facility alone. That is more than 14,000 times what Culver City is receiving now.
Your guess is as good as mine about what Exxon-Mobil’s profit margin is on its 4.2 million-gallon per day production of fuel.
But, whatever Culver City was charging for having 2.7 miles of Exxon-Mobil’s pipeline traverse under our city, it is now nothing but chump change.
