Exxon

Gasoline prices, oil subsidies, and politics

A story in the Arizona Daily Star complained, “Drivers in 22 states are paying more than the national average of $3.91 per gallon [for gasoline].” The context implies that prices higher than the average in 22 states is somehow unusual and ominous. But think about it, is it unusual that prices in about half the states are above average and prices in about half the states below average? Maybe the authors don’t know what the word “average” means and would hope that all of us would be paying below average prices. In a normal distribution without any exceedingly low or high outlying values, the average should be near the middle (close to the median value).

The story was really about President Obama feeling the heat of rising gasoline prices. In his radio address, Obama said he wants to end $4 billion in annual tax breaks for the oil and gas industry. That tax break is mainly the oil depletion allowance, established in 1913. The tax break was given to partly offset the risk of oil exploration and encourage oil companies to conduct more exploration to replace the depleting reserves of producing wells. If the depletion allowance is removed, the added cost of doing business will increase. Guess who will pay for that at the pump? By the way, Department of Energy announced it has given $21 Billion in (not tax) subsidies to the alternative energy industry in the form of loan guarantees. The Wall Street Journal has an analysis here.

Oil companies have been making what seem like large profits. Investors Business Daily puts it in perspective:

Exxon earned $10.65 billion on $114 billion in revenue. Shell’s $8.78 billion profit came on $114.84 billion in revenue. Chevron’s expected top line of $66.62 billion will likely yield a bottom line of $5.69 billion. These are not outsize margins — roughly 9% after taxes in the case of Exxon, less than 5% for Shell and 8.5% for Chevron.

In comparison, Apple made $6 billion on revenue of $24.7 billion, a profit margin of almost 25% in the first quarter. Google’s profit margin for the same period was nearly 27%. Too high-tech for you? McDonald’s makes 20 cents on the dollar.

Gasoline prices depend on supply and demand, and over the short term, the expectations of what supply and demand may be. Political turmoil tends to raise prices because of the uncertainty on the supply side.

Federal policies have put many areas off-limits to exploration and production. And, there is threat of more withdrawals. For instance, the Fish & Wildlife Service may list the dunes sagebrush lizard as an endangered species. This could shut down, or at least hinder, exploration and production of oil in southeast New Mexico and West Texas, including production in Texas’ two top producing counties. And, the EPA ruled that Shell Oil cannot proceed with exploratory shallow-water drilling on vast tracts that it has leased from the Federal government in the Beauford and Chukchi Seas north of Alaska, claiming the exploratory drilling may violate the Clean Air Act. Shell did not consider the emissions of an ice breaker that may be required during these operations. Where is all that global warming when you really need it?

Obama is contributing to the uncertainty. In his January State of the Union speech he called oil “yesterday’s energy.” In March, at a speech at Georgetown University, he said that he wanted to accelerate the production of oil and gas in the U.S. In April, he said he wants to stop “subsidizing yesterday’s energy sources.” The implications of the EPA’s effort to control carbon dioxide emissions is another source of uncertainty.

Taxes also have an impact on the price of gasoline. See map of gasoline taxes by state here and map of diesel taxes by state here. Federal taxes are 18.4 cents per gallon (cpg) for gasoline and 24.4 cpg for diesel fuel. You will see that 17 states have taxes higher than the national average.

 

For more information, see Gasoline Prices and the Obama Energy Policy

Obama clueless on energy part 1

Obama clueless on energy part 2

Obama administration still clueless on energy

What Lies Beneath the Tucson Valley

The deposits within the Tucson Valley record at least 145 million years of geologic history. The Tucson Valley was formed by crustal extension beginning about 25 million years ago. That stretching transported a volcano across what is now the valley and those volcanics form the Tucson Mountains. Several times, the valley contained lakes, and at least twice it was buried in volcanic ash. For the story of how the valley formed, see my article: Tucson Mountain Chaos.

Southern Arizona contains many deep alluvial valleys, with bedrock many thousands of feet below the valley floor.. The Arizona Geological Survey has published a map, “Estimated Depth to Bedrock in Arizona” (DGM-52) which shows the valley patterns and depths statewide. In the case of the Tucson Valley, however, we don’t need to estimate the depth because in 1972, Exxon drilled an exploration hole which penetrated 12,556 feet and reached granite bedrock at 12,001 feet. (USGS Scientific Investigations Report 2004-5076).The location is shown on the Landsat photo below. Notice the linear, northeast-trending structures on the right side of the picture. These are large folds called synforms or synclines in the Catalina-Rincon Mountains metamorphic complex (see second graphic below). These synforms coincide with the deepest parts or sub-basins of the valley.

Exxonhole3

TVsynforms-98x150The upper 1,200 feet of the valley contain unconsolidated gravels derived from alluvial fans that contain the aquifers from which we pump part of our water supply. There are deeper aquifers as yet unexploited, but the water in deeper aquifers becomes laden with dissolved salts and metals. There are several volcanic ash beds between 1,150 and 1,350 feet. Below 2,000 feet are remnants of playa lakes with deposits of gypsum.

At 2,980 feet, there is a sharp boundary between the upper unconsolidated and undeformed alluvial sediments and denser, highly faulted basin fill indicating a change in tectonic style.

The sandstones and siltstones from 2,980 to 3,840 feet are interpreted to represent deposits from a braided stream. Below that, to 6,170 feet are more alluvial fan deposits.

The interval between 6,170 and 8,256 is called the Pantano Formation. It consists of alluvial deposits, lake beds, lava flows, and rock avalanche deposits. An andesite flow near the middle has been dated at 26 million years old. The avalanche deposits are similar to modern debris flows that occur on the slopes of the Catalina Mountains. However, the rock avalanche deposits in the drill hole are composed mainly of volcanic rocks that had a source east of the Catalinas. This evidence is consistent with the theory that the volcanics of the Tucson Mountains were transported from somewhere over or east of the Catalina Mountains.

The interval 8,256 to 10,026 consists of Mid-Tertiary aged volcanic and sedimentary rocks. The volcanics include both lava flows and ash deposits.

The interval 10,026 to 12,001 contain the Lower Cretaceous to Upper Jurassic marine sediments (sandstone, limestone, conglomerate) of the Bisbee Group (so named because it was first described from outcrops near Bisbee, AZ). In Bisbee, these rocks form the mountains at an elevation of 5,000 feet, but in Tucson they are two miles beneath the surface. Below the Bisbee Group is granite at least 138 million years old and more likely Precambrian-age, 1.4 billion years old.

Even though the Exxon well went to 12,556 feet it did not reach the underlying detachment fault which transported the Tucson Mountain volcanics to their present position, probably because the detachment fault was itself offset by younger, steep faults bounding the valley. The detachment fault crops out along the Catalina foothills.

Recap:

I have so far described the rocks encountered in the Exxon hole from top to bottom, from youngest to oldest. So let’s flip things around and tell the story in chronological order.

Paleozoic marine sediments were deposited upon Precambrian granites. Some time prior to latest Jurassic time they were eroded away (since they don’t appear in the Exxon hole but do appear in the surrounding region.) Beginning in latest Jurassic time and continuing through the Cretaceous, northeast-southwest extension created the Bisbee Basin into which the marine sediments of the Bisbee Group were deposited.

There may have been some erosion along a sea shore as evidenced by coastal plain deposits. In mid-Tertiary time alluvial fan deposits indicate that surrounding mountains were eroding. These deposits are interspersed with lava flows. A violent volcanic eruption 26 million years ago deposited an ash in the basin (8,500 to 9,000 feet in the hole). By this time crustal extension was deepening the basin and accelerating denuding of the surrounding mountains and filling the basins with alluvial fan material, i.e., rocks and soil.

 Now, when we look out at the valley and see the city and the mountains, we see just a short slice of time in its history. And now you know what lies beneath the valley.