Natural Resources Defense Council
March 23, 2012
Re: Analysis of Gasoline Costs and Profit Margins
Methodology:
The methodology builds off the U.S. Energy Information Administration’s (EIA) monthly reporting on the
components of gasoline prices, in cents per gallon.1 The EIA calculates the price component of each
stage as follows:
Crude oil production and transport - the monthly average of the composite refiner acquisition
cost, which is the average price of crude oil purchased by refiners.
Refining - the difference between the monthly average of the spot price of gasoline or diesel
fuel (used as a proxy for the value of gasoline or diesel fuel as it exits the refinery) and the
average price of crude oil purchased by refiners (the crude oil component).
Distribution & Marketing - the difference between the average retail price of gasoline or diesel
fuel as computed from EIA's weekly survey and the sum of the other 3 components.
Taxes - a monthly national average of federal and state taxes applied to gasoline or diesel fuel.
Figure 1: Gasoline Price Breakdown, (Source: EIA, http://www.eia.gov/petroleum/gasdiesel/)
Crude oil production expenses and profits were estimated based on 2011 10Ks, Annual Reports, and data
from Capital IQ reports for the five integrated supermajors (BP, Chevron, Shell, ExxonMobil, and
ConocoPhillips). Information for just the U.S. was not reported for all companies, so global figures were
utilized. Upstream earnings before taxes (EBT) were calculated based off the reports. To estimate the
profit margin, the EBT was divided by the total of sales including operating revenues and intersegment
revenues. A weighted average of the five supermajors was used to represent the industry. The average
profit margin was 44% in 2011.
It is noted that the use of profit margins, rather than the profit per barrel, allow profits for 2012 to be
more accurately estimated. Profit margins have generally stayed constant the past three years for the
1
http://www.eia.gov/petroleum/gasdiesel/pump_methodology.cfm, last viewed 3/20/2012
1
Natural Resources Defense Council
five supermajors. Company reporting of sales and revenue generally include those from produced crude
oil, natural gas liquids, and natural gas sold. In general, margins currently for NG are lower, due to low
domestic prices and are higher for crude oil due to high global crude oil prices. So this approach may
tend to result in under-estimating the margins.
Crude Oil Transport. The costs and profit margins of transporting crude oil were estimated based on a
table reproduced from Oil & Gas Journal from February 2009 from Dewry Shipping Consultants Ltd.2
The costs in the table were simply averaged. In reality, there will be much larger variation depending on
the origin and destination and whether the crude oil was transported by ship or pipeline. Given that this
value is relatively small, this was deemed as sufficient for a first-order estimate. The result was an
average of $1.85/barrel. These estimates may be generally low for tanker shipments and high versus
pipeline transport.
Gross profit margins for shippers were estimated based on an investment report by the Entity of Audi
Saradar Group on The National Shipping Company of Saudi Arabia, which provided the following table.3
Downstream production expenses and profits were estimated similarly. A weighted average profit
margin of 1.7% was estimated for the five supermajors in 2011. It is noted that refineries also purchase
finished products from others to resell, which are included in their sales but typically don’t result in as
much profit as producing the finished product directly. This approach will, therefore, tend to
underestimate the refining profit margins. However, chemical products, which are included in the
downstream revenue, will also tend to provide a significant revenue stream not reflected by looking at
refinery finished product output. This was not broken out, and will tend to cause an overestimate in
refining profit margins, working in the opposite direction.
Retail, marketing, and distribution costs were estimated by assuming the National Association of
Convenience Store’s factsheet for the “break-even” cost for retailers of around $0.145/gallon.4 The
markup was estimated by the difference between the breakeven cost and the derived “retail” cost
component using the EIA methodology.
2
3
4
http://www.petrostrategies.org/Learning_Center/oil_transportation.htm#Shipping Costs
http://research.banqueaudi.com/Documents/NSCSA-CompanyUpdate(Dec11).pdf
http://www.nacsonline.com/NACS/News/FactSheets/Motor%20Fuels/Pages/MotorFuelSales.aspx
2