Benefits of mergers

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Benefits of mergers
Introduction

• Efficiency improvements
• Economies of scale
• Refining and marketing margins down
• Savings passed along to consumers
• Market is healthy and very competitive

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The cost of filling up has gone up. The question
is why?
Introduction
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Profits about average compared to U.S.
Introduction
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Overview
Introduction

• Catalysts for change
• Regulatory
• Economic

• GAO report
• Causality
• Crude prices
• Refinery utilization rates
• Inventory assumptions

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From 2 gasoline formulations to 17
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Return on investment(net income/net investment
in place)
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Producing more gasoline with fewer refineries
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Gasoline refining and marketing margins have been
trending downward
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Problems with the GAO report
GAO report
Causality
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Crude prices
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Refinery utilization rates
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Inventory assumptions
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Refiners costsGAO left out 34 of equation
Refiners rack price less crude price
Before
After GAO attributes
to merger impact
GAO assumed these costs were constant. They are
not.
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Refiner margins differ by crude price
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Which crude price makes a big difference
WTI-Imported
WTI-Domestic
GAO
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8
7
6
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(inflation-adjusted 2004 cents per gallon)
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2
1
0
1994
1995
1996
1997
1998
1999
2000
GAO
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GAO Data problems and limitations

• Correlated NATIONAL refinery utilization rates
  with CITY rack prices
• Inventory assumptions neglect
• more costly summer blends
• price of crude
• decline in inventories

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The cost of filling up has gone up, but not
because of mergers
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