Down with the evil Gas lords III: Kaak's Redemption

[Kidlicious]

Originally posted by Flubber



I don't think it does


In practice companies will set ROI thresholds. No project that does not meet x level gets done. Of the projects that meet the threshold, the top so many get done until the capital allocated to the sector/business unit is allocated.

IN a given year, projects with a 20% ROI can get left on the shelf. Why? Because resources are limited. A given company simply does not have the resources to get to the "profit maximizing point of production". With oil prices where they are there will be very profitable proposals that simply have to wait as they don't have the engineers/rigs/ managers to actually execute them

Resources are limited? We're talking about refineries. How can resources be the restraint when they didn't build any?

[Arrian]

Flub,

Good point about companies who presently aren't in the US market. Some foreign company isn't gonna care if their shiny new refinery will cut the profits at an existing ExxonMobil refinery.

-Arrian

[Flubber]

Originally posted by Kidicious


Resources are limited? We're talking about refineries. How can resources be the restraint when they didn't build any?

I was talking about decisionmaking in a single company. Do you think capital is unlimited ? or people?

If they decide to send their 30 best people on a complex GBS construction project with a better projected ROI well those people aren't there to do refinery construction, are they ?

Also the fact that they don't have any recent refinery construction might be a constraint as well. Companies have to know they have or can obtain the core competencies needed

[Flubber]

Originally posted by Arrian
Flub,

Good point about companies who presently aren't in the US market. Some foreign company isn't gonna care if their shiny new refinery will cut the profits at an existing ExxonMobil refinery.

-Arrian

Actually most oil companies would like that . ExxonMobil pride themselves on being tough hardasses and while most of industry grudgingly admires their success, no one would cry if Exxon lost money. IN fact at the other supermajors, executives would be handsomely rewarded if they could find ways to surpass them

[Kidlicious]

I understand that.

[Flubber]

KId lets bring up another industry where supply is constrained-- Construction in Alberta.


Commercial construction here is to the point where people going to construction firms are being basically told to wait. I asked a exec why they didn't just expand and his response was " we can do 300 million in business well or we can have 600 million on our books and get sued on every job. Even if we could find the people to work that many jobs, we don't have enough good managers to handle that volume"


Kid more is not always better

[Kidlicious]

ok

[JohnT]

Originally posted by GhengisFarb

Time value of money is a key in the lack of motivation for new refineries. As stated before estimates to complete the required EPA studies and environmental impact paperwork are in the neighborhood of 10 years before you can even break ground.

It's difficult to know what the market will be in 10 years. Not to mention changes in environmental regulations and refinery equipment. By the time you're ready to build its already 10 years outdated and you haven't even started building it.

Net Income is what they've been making their decisions on. Hence why they've been closing refineries the last 5 years. They make more profit off making less gasoline.

Kid doesn't believe in the time value of money. He claims it's a fiction, made up to screw people.

[Flubber]

Originally posted by Kidicious
ok

Originally posted by Kidicious I understand that.

You feeling ok. Thats two posts in a row where you didn't dispute me. It doesn't feel right

[Flubber]

The solution is obvious. Let the government build a couple of refineries.

No hear me out-- Treat refining like a public utility and use the new government refineries as the rate setters. Rates would be set such that those refineries could make a given set rate of return (say 10%). Existing refiners would get the same margins.


If, as I expect, a government built and run refinery would be a disaster from the start with lots of cost overruns, the public regulator would have to set high margins for the new refinery. It would be perfect for industry

1. higher margins than ever and better profits
2. the complaints about the high gas prices would go to the regulators not the industry
3. Probably even an incentive to build more refining capacity. If the margins are set to make the government entity feasible than anybody that could do it better should have a profitable venture ( assuming that the adequate volumes)

[Arrian]

Hey, I half-seriously suggested the same thing.

-Arrian

[Kidlicious]

Originally posted by JohnT


Kid doesn't believe in the time value of money. He claims it's a fiction, made up to screw people.

Time value of work makes sense though.

[Kidlicious]

Originally posted by Flubber
The solution is obvious. Let the government build a couple of refineries.

No hear me out-- Treat refining like a public utility and use the new government refineries as the rate setters. Rates would be set such that those refineries could make a given set rate of return (say 10%). Existing refiners would get the same margins.


If, as I expect, a government built and run refinery would be a disaster from the start with lots of cost overruns, the public regulator would have to set high margins for the new refinery. It would be perfect for industry

1. higher margins than ever and better profits
2. the complaints about the high gas prices would go to the regulators not the industry
3. Probably even an incentive to build more refining capacity. If the margins are set to make the government entity feasible than anybody that could do it better should have a profitable venture ( assuming that the adequate volumes)

Or we could just go on doing the same thing which isn't working too well.

[JohnT]

It's not?

I don't have any problem getting gas. Sorry things suck so badly out in CA, Kid.

[Kidlicious]

I'm sure you mean that too JohnT.