Oil executive responds to outcry

[peejay 327]

I just paid $2.95 at a station near my house this afternoon and that is the cheapest I have seen city wide in Houston.

Oil executive responds to outcry

He calls on Americans to cut demand

By BRETT CLANTON

2007 Houston Chronicle

With gasoline prices topping $3 nationwide, many U.S. drivers and some lawmakers are accusing oil companies of intentionally keeping pump prices high to increase profits.

But Rob Routs, Royal Dutch Shell's top executive over global refining operations, said the situation the U.S. finds itself in today has been years in the making and has to do more with the country's shortage of refining capacity than any profiteering on the part of oil companies.

Americans, too, must "back off" on their gasoline consumption or energy costs will only keep rising, said Routs, a Dutch native who lives in The Hague and was in The Woodlands on Thursday for a conference. Routs, who also serves on Shell's board, spoke with Chronicle reporter Brett Clanton during a break.

Q: In the first quarter, the major producers of gasoline saw profits from refining operations in the U.S. and abroad grow 50 percent over last year, and the second quarter is also expected to be strong. It would be easy to look at high gas prices and those profit numbers and assume something isn't right. Why shouldn't people do that?

A: The country is short of refining capacity. That is a direct outflow of a business that, say, in 2003 and 2004 had an average return of 6 percent or lower.

So there has not been a lot of margin in refining over the years, and there hasn't been a huge incentive for refiners to invest. Now, all of the sudden, you find yourself in a situation where demand has caught up with production capacity, and the pressure is on.

For a while we were able to compensate with imports from Europe, and that is still happening. But obviously we're in a different world right now ... With refineries running close to 100 percent capacity, any little thing that happens has an impact. It is a matter of enough capacity. In order to build that capacity, you need four to five years. So we'll have to wait till that catches up.

Q: Your industry has been criticized heavily in Washington in recent weeks. One of the harshest remarks came this week from Sen. Charles Schumer, D-N.Y., at a Joint Economic Committee hearing Wednesday.

He said, "I don't understand how an industry that makes tens of billions per year can still have rusty refining plants that constantly break down. ... And I don't know any other industry where an equipment breakdown in one company benefits every other oil company by raising prices."

A: It's a horrid image, isn't it? Why would we run our plants in the ground? It's our profitability.

There is no player that does maintenance to create profitability for somebody else. That would be a crazy business principle. What we have to do, though, these plants have to come down for maintenance on a regular basis, sometimes by law.

You're working with very high pressures, with very corrosive materials. If you look at those big refineries, they have to come down every three to four years. And those are periods of six to eight weeks. That's preplanned.

Now, the issue we're having at this point in our refining system is not that the plants are in bad shape, but we're not able to get the right labor to complete these turnarounds in time.

The other effect that you're seeing is that when refineries are full speed, automatically, there's a bit more of a breakdown effect. It's a bit like running your car at 100 mph all the time. You can count on having to go to the garage more often. So those are some of the factors that are at play right now.

But if anyone believes this is on purpose, we're in the business to make money, not to shut our facilities down.

Q: Several oil executives, including Shell U.S. CEO John Hofmeister, have recently said that the expansion of the biofuels sector and President Bush's goal to cut gasoline consumption by 20 percent by 2017 could reduce the incentive to expand oil refineries in the future. In your opinion, how big of a threat are biofuels to the refining industry?

A: It's part of our economics. So we basically look at the biofuels that are coming on that we know of, and we build that into the total supply-demand equation for the next five years. And we make our decisions on that basis.

What we need, though, is a very stable regulatory environment that will tell us where we will be in four to five years from now. If we have some certainty about what will happen with biofuels supply, we can make proper decisions.

Q: Construction is already under way to double the size of the Motiva refinery in Port Arthur, which Shell partly owns. But why hasn't Shell made a final investment decision on the project? What are you waiting on?

A: A final estimate, as simple as that. You wouldn't believe how fast costs are going up these days. Even over the period that we've been studying this thing, the price has gone up. So I want to have a firm estimate in my hand before I make a decision.

Q: Is there still a chance Shell would decide to kill the project?

A: I think chances are, this thing will go ahead. But I'm not going to confront our shareholders and say, let me give you an example, "starting out it was $4 billion and the final result will be $7 billion." That would be a disaster. You don't want that.

So we're managing this process the way we would manage any project in the business, and we'll make a decision when we have all the data in hand.

http://www.chron.com/disp/story.mpl/business/4834682.html

[w¡n9Nµ7 §£@¥€r 123]

I don't get all the b1tching about gas prices. They've gone from being incredibly cheap five years ago to being affordable today.

[Mr. Big Dog 10,747]

I've read an article in a German magazine a few days ago where the high gas prices are indeed attributed to the strong and ever growing demand in the US and China. Germans pay the equivalent of $7.15 and up per gallon these days. I try to keep that in mind when I shell out $50.00 to fill up these days. I still have fond memories of filling the very same vehicle up for around $15.00, though.

[w¡n9Nµ7 §£@¥€r 123]

My gas bills have been sweeeeeeeeeeeeet. Both wife and I have nice short commutes. And I've gone ahead and purchased parking permits for the local train station so now we use that a lot.

[pbgirl 1]

Gas here is 3.59 a gallon right now.

The worst are the people complaining that drive v8 SUVs and have no one to cart around but themselves. Well then get a smaller car or stop b-iching!

[peejay 327]

I think the main point of the article was to say "get used to it...no relief in sight anytime soon." In other words...pay up, shut up, or ride a bicycle!

The clowns up in Washington DC can pass all kinds of useless feel-good legislation they want to condemning gasoline prices, but reality trumps useless resolutions "promising" action that is beyond their control. Not unless they are going to nationalize refining and subsidize it with tax $$$.

[Jamie76 0]

There are some differences between the prices people pay here in the US and what they pay in Europe. Prices in Europe would actually be quite similar to what they are here except gas is heavily taxed. What do they do with all that tax money? It goes in to mass public transportation. That is what needs to be done here. I think it is also a fair to say that the vast majority of Europeans live in cities or towns where their jobs are also found. IF they aren't, they have access to trains. The "subburbs" as they are here in the US are unheard of in Europe.

I am paying about $55 a week in fuel now with my old truck. Up until recently, it just made more sense to drive it since I wasn't making any payments. Now, I can buy a new Toyota Corolla on basically what I am spending on fuel every month with the truck. I'll be doing that soon.

The ones I feel most sorry for are those that do not have a lot of disposable income. They can't simple stop driving, but they can't cut expenses elsewhere because they are barely scraping by as it is. Remember, it might not be that bad to some, but imagine what it's like for that single mom making $15,000 a year, but yet she still needs to drive to get to work. Affordable as someone mentioned? Not quite.

Edited May 25, 2007 by Jamie76

[one...two...tree 2,762]

There are some differences between the prices people pay here in the US and what they pay in Europe. Prices in Europe would actually be quite similar to what they are here except gas is heavily taxed. What do they do with all that tax money? It goes in to mass public transportation. That is what needs to be done here. I think it is also a fair to say that the vast majority of Europeans live in cities or towns where their jobs are also found. IF they aren't, they have access to trains. The "subburbs" as they are here in the US are unheard of in Europe.

I am paying about $55 a week in fuel now with my old truck. Up until recently, it just made more sense to drive it since I wasn't making any payments. Now, I can buy a new Toyota Corolla on basically what I am spending on fuel every month with the truck. I'll be doing that soon.

The ones I feel most sorry for are those that do not have a lot of disposable income. They can't simple stop driving, but they can't cut expenses elsewhere because they are barely scraping by as it is. Remember, it might not be that bad to some, but imagine what it's like for that single mom making $15,000 a year, but yet she still needs to drive to get to work. Affordable as someone mentioned? Not quite.

Well said.

[homesick_american 1]

Gas is $7.50-$8 a gallon here. So NOT sympathetic.

[William33 110]

Everyone keeps citing the gas prices outside the US. Who cares about that, as we don't live there, we live here.

But since it was mentioned, most of that is tax, for the given country.

The complaint here, is about the spike in prices and huge oil company profits. It doesn't take a genius to see what is going on here.

It's a simple case of the consumer getting screwed. Our Legislators only talk about it, with no action.

[one...two...tree 2,762]

Everyone keeps citing the gas prices outside the US. Who cares about that, as we don't live there, we live here.

But since it was mentioned, most of that is tax, for the given country.

The complaint here, is about the spike in prices and huge oil company profits. It doesn't take a genius to see what is going on here.

It's a simple case of the consumer getting screwed. Our Legislators only talk about it, with no action.

[homesick_american 1]

Everyone keeps citing the gas prices outside the US. Who cares about that, as we don't live there, we live here.

But since it was mentioned, most of that is tax, for the given country.

The complaint here, is about the spike in prices and huge oil company profits. It doesn't take a genius to see what is going on here.

It's a simple case of the consumer getting screwed. Our Legislators only talk about it, with no action.

I don't see it that way. In fact, I think gas prices should be even higher at the pump in the USA if that's what it takes to reduce demand and get people to ditch those stupid f*cking SUVs.

[w¡n9Nµ7 §£@¥€r 123]

Gas prices are as high as they are BECAUSE PEOPLE ARE WILLING TO PAY THOSE HIGH PRICES.

Once gas prices reach the point where it actually impacts demand (i.e. people actually cut back driving, not just whine about it), then prices will come down or stop rising (equilibrium).

[peejay 327]

Everyone keeps citing the gas prices outside the US. Who cares about that, as we don't live there, we live here.

But since it was mentioned, most of that is tax, for the given country.

The complaint here, is about the spike in prices and huge oil company profits. It doesn't take a genius to see what is going on here.

It's a simple case of the consumer getting screwed. Our Legislators only talk about it, with no action.

Well...let's invade Saudi Arabia and then we will be in control of our own energy destiny. Then we don't have to be at the mercy of world markets. Bush tried in Iraq, but it hasn't turned out like he thought it would.

The price of gold and platinum has gone up as well over the last 1 1/2 year. Oil, gold, and platinum are commodities on the world market. Nobody complained when domestic oil companies got $8 a barrel in the mid 1980's and lift costs were $5+ a barrel here in the USA oilfields. Now it is $60+ and they are making record profits.

Like the Shell executive said...cut consumption and the price will drop. What have you done to cut consumption? Nada!

Most Americans have never kept track of our ever increasing foreign oil imports that are now 60+% and growing. Let's face reality here. The US Congress has no control of world oil markets and we are the biggest consumer of oil in the world.

[eric&gen 0]

Everyone keeps citing the gas prices outside the US. Who cares about that, as we don't live there, we live here.

But since it was mentioned, most of that is tax, for the given country.

The complaint here, is about the spike in prices and huge oil company profits. It doesn't take a genius to see what is going on here.

It's a simple case of the consumer getting screwed. Our Legislators only talk about it, with no action.

I don't see it that way. In fact, I think gas prices should be even higher at the pump in the USA if that's what it takes to reduce demand and get people to ditch those stupid f*cking SUVs.

I guess i might have to ditch my SUV huh lol not.