Environmental Engineering Reference
In-Depth Information
The money that comes out
Energy companies can generate huge profits. For 2008 the biggest five oil
supermajors reported a collective net profit of $136bn, and no wonder.
For some of the oil they could sell in that year for over $140 a barrel came
from fields that were planned and drilled when the oil price was $20 or
less a barrel. This is the sort of profit level that tempts politicians to levy
windfall profits taxes on the oil industry. However, it's worth remember-
ing that the capital requirements of the oil industry are also huge - the
same Big Five shelled out more than $100bn in capital expenditure in
2008 - and the oil price is fantastically fickle.
No wonder, then, that governments around the world regard the
oil industry as a cash cow to be milked. The UK, like most other oil-
producing countries, taxes oil corporate profits at higher rates (50-75
percent, depending on the oil field) than the rest of the corporate sector
- as compensation for the fact that oil and gas are a finite resource, which
both increases their value over time and makes them irreplaceable. Over
the last forty years the UK treasury has gained £271bn (in 2008 money)
in corporate oil tax.
Excise and value-added tax on petrol also bring in a huge amount of
money, especially in Europe and Japan less so in North America where
gasoline tax is much lower. Tax accounts for more than half the pump
price of most European petrol, a fact that once led a Kuwaiti oil minister
to remark that he would be prepared to give European governments his oil
free, if they would just split their petrol-tax receipts with him.
Most investors in the oil industry like a bit of a flutter, either on the
oil price taking off or the company in question striking it big. Only real
gamblers, however, should invest in the smaller oil and gas companies,
often listed on London's Aim market, which frequently have just a couple
of oil wells or gasfields.
Energy investors of a more nervous disposition should consider elec-
tricity or gas utilities, particularly those with a large portion of regulated
assets such as networks, electricity grids and gas pipelines. Regulation,
usually designed to ensure that network monopolies are not abused,
typically provides companies with a guaranteed return on their assets and
capital expenditure.
In the end, it is the consumer who has to shoulder the higher energy
prices and taxes (though some of the revenue is spent on public services,
of course). Consumers often feel they are being over-charged by energy
companies. Sometimes they are genuinely being ripped-off, by companies
