Yesterday I was invited to attend the National University Society Club new members' night to welcome the new members to the club and to share the camaderie and friendship with all the new members who had signed up recently. Held at the swanky new Guild House at Kent Ridge, I had the pleasant opportunity to meet with a gentleman from the Oil business based in Singapore. With the recent fluctuations of oil prices,and endless speculation of when the oil was going to 'run dry', he gave me a very insightful picture of the industry which Singapore has Here are some facts :
1. Exxon Mobil'S largest refinery WORLDWIDE is located in Jurong Island off the West
coast of Singapore. Refinery cost to start up is US$ 6 - 10 BILLION per refinery.
2. All the Oil companies have industrial and retail aspects of the business and
their retail buiness is a very small part of their business,however the goodwill
and perception is MAINLY based on how the retail business positions
themselves.That means how the general public perceives the company is mainly from
retail and advertising.
3. Corporate Social Responsibility (CSR) is high on the agenda for all oil
companies.
4. Gross Margins are about 20% of oil price per barrel.
5. Oil companies now DO NOT own the operations where the oil is extracted from, they
are basically operators, and the country which the oil is extracted from owns the
oil.
6. They are paid in barrels based on number of barrels produced daily by the host
country
7. Price 'elasticity' (how much the consumer consumes) actually tempers the amount
of profit the companies generate. In short, although the price hit almost U$ 150
per barrel last year, the total numbers of barrels sold declined accordingly as
consumers worldwide a) put on hold vacations to distant places unless necessary
like on business, b) buying bigger cars c) used their cars less often. In short,
oil companies though they made profits last year, it was not on the massive scale
as envisaged or perceived becuase the consumers bought and used far less.
8. Oil producing countries in general are so short term in outlook that they have
neglected to look or invest at alternate sources of energy.
9. Solar as a replacement source ? Far from it ; 2 aspects inhibit the Solar
industry :
a) Efficiency - conversion rates of the solar energy into grid electricity is at
best 15%
b) Low ROI - With the raw materials invested into the Solar panels etc., the actual
return on investment given the current market prices and tariffs is still around
20 years. Which country would have that long-term and unchanging view to invest
in such a 'long-shot' business. Governments typically last 10 years maximum in
the West.
10.Carbon Footprint - Oil's carbon footprint has been given alot of bad publicity
what with the CO and CO2 emissions from major emerging countries with factories
billowing smoke and emissions from milliions of cars. The generation of the Solar
and Wind Generators themselves create carbon emissions,though,admittedly the
Solar Farms will generate much lower carbon emissions.
At the end of the day, with the world focussing on Carbon Credit Assignments and the Trading of Carbon Credits,Governments will still be trading Carbon credits with the objective to continue either sourcing, producing or refining the same or more oil.
In short,the days of Oil will still be with us for decades to come.
